Once you start a business, one of the primary decisions you take is to hire, Management Corporation, among other things. Besides, you consider options between an LLC, corporation, or sole proprietorship. Choosing an option that will maintain business taxes and corporation taxes, along with other several things, is your priority. The answer to your confusion depends on the preference, situation, and expectations regarding the company’s future growth or the business.
Have you ever considered hiring a Management Company to manage a department for you? Have you ever been approached by a third party with the option of having specific tasks done on your behalf? If this is so, you have already entered into the world of management contracting procedures. Here, signing management contracts shows that some other person will take care of a specific business function for a specified amount of money.
However, this approach has specific pros and cons that give up your control over your business somehow.
The construction industry is a common area where the management takes a contract. Here the management contractor takes the responsibility of executing the entire construction project on his own. This construction management method has its pros and cons in the broader business sense.
What does a management contract look like?
As we know that management contracts cover a wide variety of activities done in a company; thus, there is no one-size-fits-all type of management contract. However, many of the deals follow the same loose structure mentioned below:
- Scope of work: there are chances that you may hire a management company that will take care of your IT, human resources, bookkeeping, marketing, or even the technical issues like manufacturing of the products within your company. It is crucial that whatever the purpose is, the management contract shows the limited scope of work that you hand over to them. Which task do you hold the management company accountable for? How much control does the company give to the management company regarding the department and its work functions? Technically, the scope of any company’s work is the management’s to-do list. Once the condition gets clear, the confusion can be taken down the road to make things easier.
- Duration of the management agreement: depending on your work and the company’s objective, the contract can last from a few months to several years. Henceforth, it is better to insist on having a termination clause to end the contract at an instance if required. Most of the publically traded companies are C corporations that are legal entities owned by the shareholders.
As the management contract concept is clear, let us look over the pros of the management contract.
Pros of Management Company:
- Saves resources and time: a management contract for a small business can save its resources and time. For instance, giving control of the bookkeeping or marketing means that you are mentally free from its worries. This helps the staff focus on significant priorities, like establishing your industry or product development position.
- Provides expertise: have you got any knowledge of SEO (Search Engine Optimization)? Or anyone knows about Search Engine Optimization in your company who can serve the food to the chain of nursing homes that your business is running? If there is no such person in your company, it is time to add a reassuring layer of expertise.
- Saves money: if a function like accounting is essential in a business but not necessarily enough to justify the full-time hiring of an employee to handle it, hire a management contracting company. Management Contract Company is the best and ideal solution to situations where you do not require a full-time employee.
- It provides business continuity: a situation can happen where the sales function can be disturbed because the star salesperson has left.
Frequently asked Questions
What is a Management Contract?
A kind of outsourcing agreement where you hire a third party, also known as a management company, to manage your projects, work department, and functions is a management contract. For instance, a company takes over the bookkeeping or marketing on behalf of a company by signing a contract.
What does the payment structure of a management company look like?
Any of the services that a company gives are not free of cost. Henceforth, you need to negotiate the payment terms. Some contract management companies have fixed rates and some policies, whereas some are a bit flexible depending on their opportunities. Some of the companies work on profit-based strategies and some other ways. It depends on which company you choose and which package you go for.
Is there any divorce between ownership and control?
It will not lead to a divorce but a distribution of responsibilities. Signing a management contract for a smaller business set-up can help you distribute the responsibilities equally among the staff. You can handover the bookkeeping system to the agency so the customer service can do what they are best at. You will look better into the customer service by wasting less time troubleshooting problems you are not aware of.
Would hiring a contract company be very expensive?
Many of the contracts are made so that you only pay for the services they provide to you. This helps save money, especially if you pay the contract company according to the money they save or the profit they would generate.
Is hiring a management company viable for sole proprietors and partnerships?
It is widespread for small businesses to rely on one or two people, causing disruption that can be devastating if either of them goes. Henceforth, the management company is the safest option that solves the problem by offering continuity. The company is held accountable for everything from the start to the end.
Bottom line
Management companies or contract companies are an established way to share a company’s load, especially when it lacks resources and time in a specific area. Henceforth, hiring a management company on an agreed fee for its services is the best and safe option one could go for.