High Tech By The Numbers | Article

Goverment Outsourcing of ITBill Burns provides IT outsourcing for Tier 3 companies. His firm, which specializes in manufacturing ERP systems, has worked hard to build their trust with its competency. So, when a profitability problem arises or a government agency comes calling, they call his company, Shopman, Inc. in Jamison, Pennsylvania for help.

Burns, who is committed to satisfying the total requirements of his client base, turns to his network of business specialists depending on the problem. If the problem is financial Burns turns to Jim Berry, founder of The Berry Group, a financial outsourcing consultant in Warrington, Pennsylvania. The two met in 1984; both were trained at General Electric in their respective areas of expertise.

Typically, the Internal Revenue Service, one of the regulatory agencies The Berry Group deals with, sends a letter to the taxpayer concerning a particular problem area. Many times the taxpayer will ignore the letter figuring “the problem will go away.” Berry says “they scamper around and don’t know how to respond to the IRS because their staff doesn’t have the knowledge or experience to handle the complexity of the situation.” He says when his clients realize their regulatory problems are beyond their scope, they call him for help.

Most companies this size can’t tie up scarce financial resources employing a full time IRS specialist. This makes IRS work a good area to outsource on an “as needed” basis. Berry’s firm has a network of experts who specialize in IRS tax abatement procedures or offer and compromise negotiations, for example.

Outsourcing tax work allows small companies to have the benefit of specialists who are experts in the arcane corners of the tax code. Today taxation is so involved it’s easy to make a career of keeping up. “There’s no room for amateurs,” he says.

The fact that there’s a tax law on the books doesn’t make it any easier. Berry says there may be 15 different exceptions that can be allowed. Most business people do not understand the nuances of these differences or do not have the time to research the answers. “We have to study every case individually,” he reports. “There are no one line answers.”

Acting As The IRS Liaison

Berry’s group often obtains a power of attorney so it can represent the company at IRS meetings. Sometimes he will bring in other outsourcers in his network if their expertise is needed.

Sending in tax professionals is a good thing since IRS auditors prefer to talk to a tax professional rather than the client, according to Berry. Sometimes the atmosphere in an audit becomes antagonistic. A tax professional can remain emotionally neutral if things turn ugly.

While the IRS is the most visible government agency that can affect a company’s livelihood, there are many others. Bill Gates of Microsoft Inc. doesn’t like the Judiciary Department much. The Environmental Protection Agency, the Occupational Safety and Health Administration, the Treasury Department, and state insurance boards are just a few government agencies that can make a U.S. company’s life miserable.

Regulatory problems are one situation that will cause Burns to call Berry for help. Financial difficulties are another. The CEO and CFO of the troubled company are too tied up in the daily operations of the business to stand back and determine what’s wrong. “They are too busy putting out everyday fires,” says Berry.

His group arrives to study the company using cost and time studies to recommend solutions to management. Typically the CEO will appoint a core person to manage the relationship and help Berry’s team assemble the data they need for their assessment.

Specifically, the outsourcing consultants study gross sales, gross profit and overhead rates to determine how they affect the company’s profit and loss. They don’t analyze these numbers in their raw form; instead, they turn them into percentages for a more accurate insight. Then The Berry Group crafts a tailor-made solution. “There are no boiler plates,” says Berry…

Studying Labor Costs

The consultants look at the head count carefully because labor is the biggest contributor to corporate overhead. It’s not uncommon to be able to reduce the overhead by up to eight percent by downsizing the staff, Berry says. “When we can add to the bottom line, we make the shareholders happy,” he adds. A more efficient company also provides longevity for the employees that remain in the organization.

If the company has to distribute pink slips to 20 people or more, Berry suggests hiring a human relations person or outsourcing the function. “We have to be careful how we proceed because we live in a very litigious society,” he observes. For example, dismissing executives is different from laying off the worker bees.

Sometimes crunching the numbers is the easy part. The consultant has to be an astute psychologist, too, because the political and personal sensitivities “can be boundless.” He must ferret out the pecking order before he pens a word. Berry says he works very hard not to upset the key people in the company. At the same time, various individuals in the company may have particular agendas that are not in concert with the company.

The common thread in these studies is that companies need to assign more mentoring duties to the senior managers. Berry says this is true even in the new dot.coms where a twenty something CEO is calling the shots. “Younger CEOs need to realize there is value in the insights of an experienced employee. If they don’t listen to their advisors before they make a decision, they may wind up in trouble,” he says.

Barry and Burns have created a dynamic outsourcing agreement which allows Burns to call Berry whenever his clients need Berry’s services. The price is a retainer plus a fee for the actual work done. Currently, about 20 percent of Burns’ clients use Berry’s services.

Lessons from the Outsourcing Primer:

  • If you have to negotiate with a government agency, hire a professional to do this for you. The governmental agency prefers this kind of negotiation.
  • Outsourcing IRS accounting makes sense since the area is so complicated.
  • When analyzing profitability figures, use percentages instead of the raw numbers. The percentages are more telling.
  • Outsourcing providers can serve all their customers’ needs by networking with other outsourcing professionals whose skills might be needed from time to time.
  • Older executives need to mentor younger ones.


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