Almost every creative business I can think of has a common problem — lumpy cash flow. You have to deal with seasonality and uncertainty as to the number, size and timing of your projects. When times are good, it is (relatively) easy to overlook the size of your overhead. The reason is simple: the bigger your business gets, the smaller your overhead looks in relation to sales. However, leverage being the cruel mistress that she is, makes overhead oh so painful when sales slow.
This is my biggest argument for outsourcing all but the most key components of your business: you just can not afford not to. There are a host of other reasons, ability to focus, expand and change direction, to name a few, but they really pale when you look at the cost of carrying too much overhead.
In all of your pricing models you are guessing at what your optimal percentage of overhead is relative to sales in order to yield your desired profit. If you miss your sales targets, by definition, your pricing model will be off because overhead will become bigger than you assumed. And if you are missing your targets, odds are you will be facing pressure to LOWER your prices not raise them. Worse, since many of your projects are long-term, your pricing on these projects will reflect an old assumption on sales. So, even if you could raise your prices going forward, the business you already priced will still hurt. Ouch.
Cost of Goods Sold are just that, the cost of what it is that you sell (labor, materials, etc.). If sales are zero, so is Cost of Goods Sold. By moving as many items as you can into COGS, you do not incur the expense unless there is a sale, and, more importantly, your pricing becomes more certain. And since pricing is always a function of risk, reducing the risk associated with your pricing will help you remain competitive in today's marketplace.
Notwithstanding all of the above, the one person I would not outsource is your Controller — the person that understands what things really cost – overhead and COGS. This is the ONLY person I would trust to price my projects appropriately to the profit margin I target. The Controller should NEVER be in sales or in any way beholden to them. She should have a direct link to operations, especially those in charge of purchasing.
Your Controller is also probably the only person that can manage your cash through the natural seasonality of your business and during the tough times we are in. I mean, how many of us can understand that the money we have in our accounts exists only in relation to what the future will (as opposed to might) bring? Not me — my entreprenneurial brain just doesn't work that way.
