Don’t Start Your Business Until You Set Up The Back Office
For all business owners setting up your own business is an exciting time, you have a fantastic product/service ready to launch and you can’t wait to get started. Your initial thoughts are to start selling and get the money flowing in. You have invested in technology to ensure that your front-end operations are slick and attract potential customers. You’re all set to go right? WRONG, you need to ensure that your back office functions don’t get left behind as this can undo all the hard work that has gone before, potentially leading to a situation where you over sell and under deliver.
What Are Back Office Functions?
Back office functions typically comprise of supply chains, production and fulfilment operations, accounts payable and receivable, and more. Accounting is the key function of a business’s back office that must happen in order for the company to stay afloat.
The Harvard Business Review in its publication “The Pitfalls of Overlooking the Back Office” state that the most successful organisations ensure an equal investment in back office functions that support those customer-facing operations and that this investment in back office functions leads to greater profitability.
Common Pitfalls When You Don’t Invest In Your Back Office
A little time given to a back office structure, at the start of the business, can save time, cost and head aches going forward. The structure should be in keeping with the size and complexity of your business so best to have a simple set up at the start. For instance, in a smaller organisation the back office work can fall on the shoulders of employees who are already preforming other tasks while many times the owner may end up managing this work which can leave little time for the value added activities such as planning, forecasting and growing the business.
Recent surveys have shown that over two thirds of businesses fail due to cash flow issues. If your back office is not functioning efficiently how are you ensuring that sales invoices are issued and collected, creditors are paid on time and that cashflow is being monitored.
Without a robust back office system in place you will struggle to report externally and my experience has shown that at approximately E0.5m turnover, most people are no longer able to manage the business finances in their head. At these levels Implementing a back office from scratch can prove problematic,
- The investment of time in bringing your financial information up to date;
- The information is already old and may not be relevant to your current decision making;
- If you don’t have good records it may prove difficult to remember why the transaction took place or the correct allocation.
To sustain competitive advantage, you need an efficient back office that is not a cost centre but a centre of excellence which adds value to your business. When the back office is running efficiently there is an opportunity for the business owner to be proactive rather than reactive. When you have good financial information that is provided in a timely manner, business owners have an opportunity to make improvements for instance can you negotiate discounts with your suppliers, can you undertake some tax planning?
Every business owner wants to see their business grow, a robust back office function will be crucial for external stakeholders, such as banks and investors, to be able to ascertain the financial health of the company.
The back office function can be a powerful asset leading to better decision making, cost savings and giving business owners back control of their business.
- Have a basic back office system / procedure in place from the start of a business and keep the system simple to match the needs of the business in this early phase.
- Initially use spreadsheets or an app or some other type of simple database to record income and expenditure marking the entries paid as the cash flow follows the invoice.
- Monitor your cashflow carefully, any cashflow issues can be problematic with business owners feeling a loss of control and visibility.
- Setting up the back office in line with the other business departments will save time and money.