The Importance of Back-Office

If you are considering investing or preparing for an acquisition, the potential valuation of your company is one of the most important aspects of a transaction. Even if you don’t have an up-to-date investment or liquidity plan, adopting the latest business practices to consolidate future value is a good strategy. One of the most overlooked factors in a company’s value is the way it runs its back office. In many cases, the right approach will not increase the value of the company individually, but the increased visibility and efficiency provided by the powerful back office will provide significant value to the company over time and ultimately. to an increase in value. A word; but it’s true: if you’re wrong you can do a lot of damage. Improper back-office practices can weaken your value over time and often interrupt or stop transactions altogether.

So why is back-office strategy so important to a company’s reputation?

First of all, what is a «back office»?

what does back office mean? The dictionary defines it as «an office or center where business administration is performed, not customer relations». Back-office generally refers to the ability to directly support and enable business processes. This includes sections such as:

• Finance
• Accounting
• Reporting
• Billing
• HR
• FP&A
• Legal

Your business can’t operate without these functions, and so in many ways, the back office forms the backbone of your company.

Why is the back office so important to your company’s value?

Let’s instantly recognize that a company’s core value is a unique feature present in the product and customer experience. The back office investment should reflect the fact that it is not a discriminatory asset, but the budget allocation should be sufficient for the rest of the business to thrive. Having an elite legal or human resources team doesn’t produce the best results, but customers want to buy from a well-run business with people with good audience interaction. In this way, the back office has a strong impact on the experience of external customers. Internally, well-managed back office work can support the effectiveness and accuracy of your business and have a significant impact on your reputation. Sloppy or primitive back office practices can lead to unnecessary risk, compliance gaps, employee demoralization and/or financial data, and unreliable issues, resulting in lower valuations, more guarantees, more reservations, and longer due diligence periods. For example, the transaction requirements. In the worst case, back-office mismanagement can lead to the complete settlement of the transaction. Even if buyers and investors love your business, you may need to stop or downgrade the trade and walk away if you encounter a danger sign in the back office. In many of these cases, it is a strategic government buyer who is willing to pay the highest premium, but as an SEC-registered company cannot accept the risk.

These problems can take various shapes and sizes in the areas of finance, billing, law, and human resources. Here are some examples:

Financial

• If you don’t have an audited budget, you may not be able to complete the transaction, but running an audit can shorten your schedule. There are many small publicly traded companies that are potential buyers, and the lack of historically audited financial data can be particularly problematic in software transactions.
• Maintaining high-quality monthly financial statements and a clear understanding of SME trends can complicate budget forecasts and lead to unexpected physical adjustments in the purchase price after the close.
• Buyers cannot rely on forecasts to justify price cuts, or on why they «should do more» because there are no clear model assumptions supported by key business drivers and trends that support growth forecasts. It will be easier to make suggestions.
• Capturing revenue based on liquidity rather than competency always results in additional service time, slow processes, and confidential customer and contract data that buyers misunderstand customer trends and otherwise fail to deliver. It may need to be disclosed. Either way, this is at the very beginning of the process.
• Consideration of the non-provision of EBITDA and how one-time or potential past non-monetary items affect the buyer’s valuation model. No consumption / deposit / pay taxes.
• It does not take into account interstate issues related to income and sales taxes. Not archiving returns (or saving time, it can slow down your schedule).

Contractual/Legal

• Undocumented or poorly documented transactions.
• Do not apply for trademarks or patents as needed, or renew them once they appear for renewal.
• A customer agreement that is not freely transferable or transferable or that requires the customer’s approval.
• Customers contract their own terms inconsistent. Missing or unfulfilled customer contract.
• Exclusive licenses are granted to specific customers or to third parties you did not know about.
• Store customer credit information in a non-PCI-compliant environment.
• Lack of previous insurance coverage that effectively limits unreported/reported claims such as D&O, e-liability, and E&O.

Human resources

• Verbal or poorly documented employee action bonuses or bonuses.
• Employee stock deals don’t have a double motive, and buyers negotiate new deals before worrying that key employees won’t stay.
• The required annual declaration is incomplete (1099, benefit plan requirements).
• Failure to comply with labor regulations (FLSA, leave, ADA, sick leave, childbirth, OSHA complaints, etc.).
• Incorrect independent contractor vs. W2 employee classification, or not considering K1 vs. W2 employee in an LLC.
• Incorrect exemption and non-exemption status on an employee basis.

This list is not meant to scare you. These are easy to insert and should apply if you haven’t already. If you’re not on the right track yet, you have time to fix it.

How to prevent the back office from de-railing your deal or downgrading your company?

Once implemented, there are many general initiatives that build trust with potential investors and buyers, simplify the due diligence process, and increase the potential value of the business.

1. Be aware of processes and systems.

It is essential to have documented processes and workflows, well-implemented and used systems, and well-defined KPIs.

The best practice is to document your company’s daily operations and support workflows. From how to use and apply back office tools, to how and where to track specific business metrics and how to implement and monitor financial actions. .. Likewise, policies and procedures should be active and available to all team members involved. Use the concept of «source of truth» to ensure consistent methods of data storage, tracking, and reporting.

«Single source of truth (SSOT) is a concept used to ensure that everyone in an organization bases business decisions on the same data.»

It should be the only reliable source of the indicators and data used to run the business. All members of the company, or at least all members of the back office and management team, need to know a reliable source of information on monitoring, organizing, and measuring data. Having reliable documentation, policies and sources in all business data give you confidence in business data and insights so you can quickly and accurately respond to your due diligence requirements. For example, a five-minute conversation is required to determine what should be inflated for customer retention and where the information should be placed. If not specified, different functions may measure it in different ways in the future and different systems may have different information.

2. Build collaboration with your entire team.

Fostering good communication, collaboration, and openness within a management team is generally very helpful. But it also helps add value to your business in the eyes of investors and buyers. For example, in many companies, the CEO and CFO sit down to make a budget and assign it to everyone else. Instead, by involving all relevant department heads in budgeting and budget management, you build consensus on measurable goals, allowing teams to make important decisions, and ultimately, some. You may have created a team that is valuable to you. Investors and potential buyers. Build a skilled leadership team with a comprehensive perspective on a wider range of companies, as well as areas actively involved in business operations, budget management, KPI preparation, and reporting.

3. Get the right help in your corner.

Whether you bring your experience in-house, outsource it or use a hybrid approach, you need the help of an experienced person. At a minimum, work with legal, accounting, and human resources professionals who are familiar with your industry and industry. The right people and the right consultants can proactively advise what it takes to run a business so as to minimize risks and gaps in the back office.

4. Don’t wait too long.

One of the biggest mistakes in avoiding back office mistakes is taking too long to get started. It’s always easier to build the right infrastructure when your business is still young than to try to reorganize it later to close the gap. Returning to points T and Point I is inefficient, can be stressful, and can hinder business growth. Today, there is a huge ecosystem of high-quality, affordable tools that can help you improve automation and stay organized in areas you might ignore until it’s too late. Many of these tools can make your life easier and reduce the complexity of the time it takes to research, implement and learn how to use these tools correctly. Then set it on autopilot. It is never too late to start, but sooner is better. This is the best time to start.

It doesn’t have to be perfect.

This may all sound confusing, but it’s not as complicated as it sounds. Yes. You need to run your business with a solid foundation, risk management, regulatory compliance, documented operations, and solid financial management. But it’s still a good thing and the foundation for building a business that can grow.