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Expanding/Growing an existing business (Leasing (When a business decides…
Expanding/Growing an existing business
Outsourcing
Outsourcing is a strategy of sub-contracting where a function of the day-to-day business activities is transferred to a third party
Activities that are often outsourced are payroll functions, call centers, IT, support, delivery to customers ,Accounting function, etc.
When a business outsources it continues to grow in the area where it has expertise and specialized knowledge without losing focus
Leasing
When a business decides to expand, may need additional fixed assets
Business may not always have sufficient capital to buy these assets or may not buy these assets because of rapid advancement in technology, an alternative to buying assets may be to lease them
Business pays a monthly installment fee for the use of the asset but ownership is never transferred to the business because business rents the equipment
lease contract is between the lessor and lessee which is the person who uses the asset
Advantages of outsourcing
No added expenses associated with retraining of staff when a staff member leaves nor is productivity lost when staff members are sick
Business is only paying for services when they are needed e.g. may only need PR occasionally, a full time department is not viable
Third party providing the service is an expert in this field and the quality of service is therefore better
Business can focus on its core function where it can achieve benefits through economies of scale rather than spreading resources over many different activities
Disadvantages of outsourcing
Less control over function than if it was performed in the business
Outsourcing business may have conflict with other customers-your business may not be their main priority
Outsourcing business may not have the same values as the entrepreneur and there maybe a conflict of interest when it comes to service delivery
Advantages of Leasing
Leasing is an expense and therefore tax deductible
Business does not have to spend money on repairs/upgrading of asset(e.g. photocopier) because repairs are usually included in the lease while there is usually a clause in the lease agreement making provision for an upgrade should better technology become available
Disadvantages of Leasing
The same principle applies when one leases an asset as when one rents a house. Ownership is never transferred and monthly premiums are paid until the asset is no longer needed. In the long run leasing may be less cost effective than buying the asset