Wednesday, May 27, 2015

Lesson #205: Setting Up Your Back-Office Functions

Posted By: George Deeb - 5/27/2015

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Often times, startups are so focused on building their products, that they forget they are also building their businesses.  And, for high-growth startups, that typically means rapid growth in revenues and employees, and the back-office functions that comes with that.  Today's lesson talks about how best to set up these key functions during your early stages of development.  To assist me with this lesson, I reached out to my colleague, Matt Norman at Accretive Solutions, a leading back-office outsourcing firm.  Thanks, Matt, for your help here.

WHAT ARE BACK-OFFICE FUNCTIONS?

When I say back-office functions, we are talking about things likes accounting, finance and human resources.  Here are some more-specific examples of back-office functions in each of these departments:

ACCOUNTING
FINANCE
HUMAN RESOURCES
·          Monthly close      
·          Cash Management
·          Employee files
·          Payables / Receivables
·          Treasury /Banking
·          Employee handbook
·          Forecasting / budgeting
·          Audit
·          Benefits Admin.
·          Credit / collections
·          409A valuation
·          401K plans
·          Policies / procedures
·          Compliance
·          Document filing
·          Monthly close
·          Equity accounting
·          Insurance
·          Payroll administration
·          Reporting
·          Stock plan admin.
·          Board presentations



The faster your business grows, the faster your back-office team will need to expand to keep up with that growth.

KEY FACTORS TO CONSIDER FOR YOUR BACK-OFFICE

Scalability/Focus.  A back-office solution, whether for a 10 employee company or a 100 employee company, must be scalable enough to keep pace with the forecasted growth of the company.  Too often, startups try to hire full-time staff in these departments, who just can't keep up with the growing amount of work seen in a high-growth startup environment.  By outsourcing some of these more "mundane" business functions, you will get a solution that can easily "resize" itself for your then-current needs (without having to continually be playing "catch up" by continually hiring additional in-house staff).  While at the same time, outsourcing will allow your CFO to better focus on more important issues, like raising your next round of venture capital or other strategic initiatives. 

Experience.  At this stage in your development, you need an experienced finance, accounting and HR team that is not trying to "reinvent the wheel" in what is often a chaotic startup environment.  An outsourced solution immediately brings you a high quality, reliable and dedicated team of professionals, already using best practices in the industry, a proven enterprise technology platform, tight data security standards and expertise in producing measurable results.

Flexibility/Real-Time Accessibility.  A back-office solution needs to be flexible for the startup executive team that is often "on-the-go". This could include a cloud-based solution that provides numerous advantages, such as the ability to approve and make payments, and immediate access to financial reports and corporate documents from any device, from any location and at any time.  All from a single-source, secure location for accessibility, convenience and flexibility in a paperless environment.  

Cost Effectiveness.  Back-office solutions need to be cost effective to work for the small budgets of a startup.  Outsourced solutions are typically the most cost-effective way to go, as you only pay for what you use, both in time and level of desired skill set, allowing you to conserve capital for re-investment into the core business.  Most outsourced pricing models are a subscription service for the platform (including a cloud-based accounting software, expense program, document storage, electronic signature and other functionality) and then a time-and-materials cost based on the hourly rate required for the specific service required.  Typically, there are up to 30-40% cost savings when outsourcing the back-office functions, as opposed to hiring full-time employees in these areas. 

WHEN TO OUTSOURCE VS. INSOURCE?

An outsourced solution usually commences when a startup is around 5-10 employees in size.   When the company reaches 100 employees, or there is a significant transaction pending, like an acquisition or IPO, these functions are usually internalized and transitioned over a period that makes sense for the business.  The good news is, there are plenty of reputable services for you to consider when outsourcing your solution.


If you have any other questions here, or are interested in learning more, Matt has made himself available to the Red Rocket readers.  Feel free to reach out to him at mnorman@accretivesolutions.com or 312-994-4629.

For future posts, please follow me on Twitter at: @georgedeeb.


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