The concept of a back office in any company may conjure up visions of shady business dealings hidden from view. Maybe it’s customer negotiations that happen behind closed doors, or vendors that provide less-than-stellar products—take your pick.
However, what a company’s back office is (and does) couldn’t be further from those negative musings. The back office is a critical function that can make or break a business’ success. Paige Robinson, CEO of Will Reed Jobs, explains just how much her company values the automation of their back office:
“I don’t want to think about my back office. I just want it to work, and I want to focus on my customers and delighting the candidates and clients that we work for every day and I want that piece of the business just to work on its own.”
It’s obvious that the back office can positively impact a company’s ability to focus on its goals. However, it might still be unclear what exactly the back office is.
The Concept of Back Office, Defined
Let’s start with where the name “back office” came from. Historically, early businesses set up their offices in several sections: one area for employees who interacted with customers and/or the public (the front office) and one area for employees who provided support functions and did not interact with employees or the public (the back office).
Over time, the term “back office” has evolved to be more focused on a specific set of business functions, regardless of who is doing them or where in the office they’re located. Now when we talk about back-office functions, we’re referring to administrative support or operations management that a company provides to its staff and the business as a whole.
Consider these scenarios for a minute. Any business that provides devices to employees (like computers and phones) will need IT support for those devices. Businesses that are subject to federal regulations like the Health Insurance Portability and Accountability Act (HIPAA) or the Payment Card Industry Data Security Standard (PCI DSS) need to maintain compliance. And in terms of accounting, all businesses need to:
- Pay their bills (accounts payable);
- Collect on invoices (accounts receivable);
- Pay their employees (payroll);
- Track expenses (bookkeeping)
- Pay their taxes;
- And hopefully, maintain visibility into their cash flow (forecasting).
Accounting is the key function of a business’s back office that must happen in order for the company to stay afloat. The next question is this: who’s going to do all that work?
Key Players Who Run the Back Office
Companies of all sizes must decide how to manage back-office tasks, and they do it in a variety of ways. For larger companies, there may be enough resources to dedicate entire teams to accounting and all its different categories of work. A head of operations or finance is likely responsible for accounting, HR, compliance, and IT support teams.
For smaller companies, back-office work falls on the shoulders of employees who are managing other responsibilities. There may be two office managers who split the accounting work between themselves, or one accountant who handles it all with oversight from the business owner. And in many cases, staff are spread so thin that the CEO or founder is left to manage this necessary (and also time-consuming) work alone.
With everything on their plates, it’s all business owners can do to keep up with the reactive work required for back-office management. That leaves no room for proactive planning and forecasting with financial metrics that could support the growth of the business.
Staying on top of back-office work can be the difference in a new infusion of cash and zero funding for a business. And, over three-quarters of businesses fail due to cash flow issues. If no one is proactively paying bills and expenses, collecting on invoices, and monitoring the flow both ways, a company could go under quickly.
At the same time, two-thirds of business leaders are responsible for three or more major areas of the business (finance and accounting included), and over half say that finance and accounting work is a distraction. That’s a big disconnect for small businesses: a key area that can determine the success or failure of the company is frequently deprioritized and pushed aside.
Why the Back Office Really Matters
It’s easy to see why the back office is so important when it’s functioning poorly. The business may not be tracking expenses, paying bills, managing taxes, and collecting invoices regularly. The business owner or office manager could be responsible but just doesn’t make it a priority, so back-office tasks are viewed as a time-suck with no benefit. When cash flow problems arise, they’re an emergency. Everything feels out of control and there’s no financial visibility.
When businesses prioritize back-office functions and stay ahead of the workload, they have opportunities to be proactive. By staying up-to-date on incoming and outgoing cash in any form, they can step back and view the wealth of data available to make improvements. That means taking the time to look at vendor contracts to negotiate discounts, analyzing customer invoices to incent faster payment, and even looking at ways to decrease the company’s taxes.
That data visibility isn’t just for internal stakeholders either. External parties like potential and current investors and even board members will be better able to gauge the health of the business—and make more informed decisions as a result.
Though back-office functions were historically viewed as cost centers, businesses now have the opportunity to use their most powerful asset—data—to decrease costs, make more informed decisions, and have greater control.
Prioritize the Back Office—and Reap the Benefits
Managing everything required to keep a business running is a sizeable undertaking. Back-office tasks like accounts payable, accounts receivable, bookkeeping, and taxes have to be done. It’s just a matter of making the time to do them. In many cases, other critical functions like selling into new accounts, expanding the business, and fundraising win out in terms of priority.
Scalefactor understands the challenges of running a modern business and how the back office might fall by the wayside. Contact us today if you’d like to learn how our back-office automation platform could support your business’ daily operations and growth.