What Are Back Office Services?
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So, you’re building your company, it’s starting to become more complex, and you’ve heard that you should look into back office services to help. If you’re not familiar with what back office services are, this can be confusing. In this article, we’ll go over what “back office services” means, why you might consider outsourcing these, and a few examples.
What is a back office?
Let’s start by taking a step back: which parts of your business are considered “the back office?”
Most businesses are created to provide a product or a service, but obviously there’s a lot more that goes into a business than just making and selling that product/service. From getting your brand in front of potential customers to making sure your taxes are being paid, there’s a whole range of supporting work required to keep your company running.
Customer-facing roles, like sales and marketing, are usually considered “front office.” Roles that don’t interact with customers, like finance, HR, payroll, logistics, operations, and more, are usually considered “back office.” Your back office doesn’t generate revenue, and it can be easy to see it as just a cost center. But a well-run back office can actually make a big difference for your business, which is why it’s a good idea to invest in getting the work done right.
For many companies, this means bringing in outside experts to manage the back office for them.
Outsourcing back office services
There are a number of reasons why companies choose to use outsourced back office services, rather than trying to tackle things themselves:
- Back office tasks tend to be complex. While functions like bookkeeping or payroll management may not be glamorous, there’s actually a lot of expertise required to do them well. Without relevant experience, it’s easy to miscategorize transactions, or incorrectly recognize your revenue, or withhold the wrong amount of payroll tax. It’s certainly possible for business owners to build up this expertise themselves, but…
- Managing the back office is time consuming. In part because the work is complex, it takes a lot of time and attention to ensure that functions like bookkeeping are being done correctly. For business owners trying to manage the back office themselves, this is time they can’t spend on otherwise growing their business. Often, the back office isn’t the best focus of a business owner’s time, especially since…
- Back-office mistakes can be costly. Back-office functions can seem straightforward, but the stakes for getting them wrong are actually quite high. Sometimes these are obvious – for example, miscalculating your payroll withholding or your tax obligations and facing an IRS fine, or losing track of your cash flow and hitting a liquidity crisis. Other risks are less obvious. If your books aren’t accurate and up-to-date, you don’t have reliable data to help determine the right decisions for your business.
For growing companies, building the necessary back-office expertise in-house can be an expensive distraction from their core mission and growth. This is why many choose to use expert back office services, rather than trying to manage things themselves.
Examples of Outsourced Back Office Services
Some of the most common back office functions that companies choose to outsource include:
Payroll. There’s more to managing payroll than making sure employees get paid on time (although obviously that’s quite important too!). Handling this function correctly also involves complex calculations around tax withholding and other costs, and also making sure the right tax amounts are sent to the right government agencies at the right time. Outsourced payroll providers like Gusto professionally manage this, so that your company doesn’t have to worry about it.
Bookkeeping & tax. Your books provide the foundation for your company’s financial health. Tracking your cash flow, calculating your taxes owed, and assessing your spending/ROI all require accurate books, updated regularly. Providing high-quality bookkeeping service to growth companies is actually one of the things we do here at Pilot.
Sales tax. Each state in the US has its own rules around sales tax, from the amount collected to when and where it’s passed on the government. For e-commerce businesses, and others who sell online to customers from a variety of states (and countries), keeping up can quickly get overwhelming. Services like TaxJar and Avalara will track and manage this for you.
Controller and CFO functions. This may seem like a surprising area to outsource, but many growth companies find that hiring a full-time senior finance leader is overkill (or simply unaffordable) for the current stage of their business. An outsourced CFO or controller can provide guidance and analysis when the company needs it, at a fraction of the cost of a full-time hire. This is another service we offer at Pilot.
The back office may not be the most exciting part of your company, but it’s actually a crucial component to a well-run business. Outsourced back office services can help businesses ensure that these functions are being well taken care of, and give owners and founders back their most valuable resource: time.