Insights

Does Your Back Office Come With Hidden Costs?

Does Your Back Office Come With Hidden Costs?

An organization’s leaders wear many hats and juggle numerous responsibilities, including those which don’t directly appear to contribute toward its goals. While back-office functions — including accounting, payroll, human resources, and IT — are vital to the organization, they can also significantly increase costs. 

The challenge for the leadership team is to maintain the quality of these back-office functions while keeping down costs and ensuring smooth operations. Staffing each back-office function with a full-time employee may not be the best approach, since some organizations do not have ample work to justify full-time positions. In this situation, the common fallback is either different leaders of the organization taking on the work or a single employee being assigned to cover multiple functions. 

Beware of Hidden Costs

Regardless of who’s doing the juggling, hidden costs often come into play. If unqualified employees are managing multiple back-office functions, they must learn unfamiliar subject areas as they go, increasing the time needed to complete activities and multiplying the likelihood of mistakes (which can result in penalties and fines). If leaders pick up one or more back-office activities to save money, they often overlook the true cost of their time investment. More time spent on back-office activities means less time spent on providing strategic planning and direction, which hinders the organization’s ability to grow and reach its goals. There is also a great likelihood that the leader will lose personal and professional life balance, which has an all-around negative impact on not just the leader, but also the organization.

Other hidden costs can be higher still — for example, trying to manage the accounting function. It’s common to have an office manager or another office employee perform bookkeeping and payroll duties. Such staff members, however, typically have little to no accounting and/or payroll experience and are required to complete these responsibilities while working around other aspects of their jobs. 
As a result, financial statements are often inaccurate or not completed in a timely manner, and organizations incur an additional cost to have a qualified accountant correct the work (at least annually). Moreover, inaccurate and/or late financial statements restrict management’s ability to make good decisions, plan and generate additional growth, and obtain financing, which can significantly limit short-term and long-term results. More costly still in these common situations is the potential for fraud to occur, given that there are typically limited or no internal controls. 

Make Your Back Office Work for You

The goal is to have back-office tasks performed with reasonable quality while minimizing direct and indirect costs. The leadership team should analyze the true costs of their current situations and consider evaluating other options to identify the most appropriate solutions for their organization. 

When leaders find and implement the optimal solution, they can get back to working on strategy, growth, and the longevity of their organization.

Wipfli can help you decide what the best back-office solution is for your organization. Contact us to learn more.

Author(s)

Inga Arendt
Inga Arendt, CPA
Financial Accounting Outsourcing (FAO) Services Leader
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