What Is a Back Office? (+ Interesting Facts)

Do You Even ERP

Updated on January 10, 2021

🏷️ ERP Terms

ARTICLE TABLE OF CONTENTS

Back offices don’t directly generate revenue.

But a back office often accounts for 15-20% of its employee expenses.

You’ll learn:

What a back office is
Why a back office is most important to almost any company
Lots more

Let’s dive right in!

Back Office 101

The back office is one of the essential parts of many companies, often accounting for at least 15-20% of its employee expenses.

That’s a lot of money spent on jobs that don’t directly generate revenue, and we know how much corporations, in general, hate that.

That said, what does back office mean, especially as the term applies to you?

Here’s everything you should know about it.

What Is a Back Office?

In the simplest terms, a back office is the segment of a company that deals with all non-client facing aspects of its operations.

Cashiers at a grocery store deal with customers all day, so they are not part of the back office.

However, managers at grocery stores aren’t back office either, because they’ll frequently talk to customers like you.

You’ll learn more about their actual duties below, but back office workers usually focus on administrative, financial, legal, and regulatory tasks.

The term itself originates from the age-old design of most businesses.

The front office is the part of the company that deals directly with customers and clients, regardless of its actual size or shape. This is usually a public area where people can wander around freely, or under minimal security supervision.

The actual back office was usually located in the store’s part furthest away from the main customer entrance, hence the name.

Where Are Back Offices These Days?

The current location of back offices varies by company. It could be a single room in the store at small businesses where the accountant and company owner do most of their work.

Their storefronts may be exclusively front offices at more substantial businesses, with the back offices located in separate company headquarters.

The distinction between no dealings with clients and minimal dealings with clients is essential to defining a genuine back office.

Janitorial workers could be back office if customers never see them, but they could also be front office if the company has them work in front of customers so those customers can see the company’s commitment to sanitation.

Some employees may work in areas that customers do not have free access to, but if those employees attend meetings with potential buyers regularly, it’s not a back office job.

A real back office has no interaction with customers.

Back offices may be located internationally, mainly for tax reasons.

Regardless of the actual location, however, you’ll find most back offices for large companies in or around larger cities.

They could have hundreds or even thousands of employees working in their back sections, so most businesses prefer urbanized areas that can support their transportation needs.

Most back office workers go through intermediaries if they need to deal with clients in some form.

For example, if an accountant needs additional financial information, they may ask a customer service representative to contact the customer and get it.

What Is Back Office Work?

Back office work is, fundamentally, any work that doesn’t require interaction with customers or clients but is still necessary to keep the company functioning.

However, you can’t get a complete grasp of what this means from that definition alone.

Instead, here is an example to demonstrate back office work.

Technology and computers are essential parts of many modern businesses, especially medium-to-large corporations with multiple locations.

These companies tend to access technology in two ways.

The first is using things entirely in-house. When this happens, companies may have rooms or even entire buildings dedicated to hosting network servers.

Also, many staff require access to at least one type of computer, including laptops or smartphones.

The second type of access to technology involves cloud computing, where the company rents access to servers or other systems as needed. These companies usually give computers to many employees, but don’t have quite as many larger machines in-house.

Regardless of how a company accesses technology, they usually need personnel to manage, repair, and occasionally modify their technology.

These repair personnel are integral to the business’s daily operations because, in many cases, the company literally could not function without them.

What Other Types Of Back Office Work Are There?

That depends on the company, but here are some other types of back office work that you may see:

Internal Manufacturing

Internal manufacturing is production done mostly or entirely within factories that a company owns.

In these cases, the company tells the factory what to produce, and that’s the extent of it.

This is different from outsourcing manufacturing to another company, where the factory administrators are front office personnel.

Human Resources

HR personnel help manage the company’s access to employees, including scouting new personnel, disciplining employees who break the company’s rules, and providing input promoting employees.

Compliance

Compliance jobs focus on ensuring the company follows any and all regulations.

There may be several types of compliance jobs at one company, ranging from safety (especially in manufacturing and construction) to protecting customer information or managing reputational risks.

Accounting

Companies need to understand their finances at all times.

Small businesses may have a single part-time accountant on staff, but larger organizations often have entire departments dedicated to tracking every expense and cent of revenue gained.

Auditing

Auditing is the process of verifying that things are the way they should be.

Retail stores use a front office form of this where they hire external contractors to visit their stores, but other businesses may have personnel that go around checking computers, visiting stores, and making sure things continue to function as intended.

Auditing is not the same as compliance.

Compliance mainly focuses on external rules and regulations, such as labor laws.

Auditing focuses on internal regulations, such as company rules. Some jobs, particularly in accounting, have aspects of both.

What About The Middle Office?

The middle office isn’t mentioned as often as the front and back offices, but this role functionally exists at many larger companies.

In these cases, the three offices are largely related to revenue, and their functions may differ from the way the offices work at other companies.

Here, the front office is all jobs that directly produce revenue for the business. This mainly includes sales, trading, and sometimes researching opportunities for new revenue.

An investment agent scrutinizing new opportunities could be a front office worker in the three-office setup.

The middle office is for jobs that support generating revenue, but do not do so directly. This can include tasks like managing a treasury or providing risk management services to minimize potential losses.

These are ultimately important for the company’s bottom line, and can help the front office work more effectively, but do not create new revenue all on their own.

In a three office setup, the back office includes all jobs that do not directly generate revenue but are still required for the company’s operations. This includes administration, accounting, HR, compliance, and other tasks, as described above.

Three office setups are relatively rare these days, and many companies with them blur the line between the middle and back offices.

What Does Back Office Mean At Non-Standard Companies?

Most companies ultimately fall into a two-office or three-office model.

Some particularly small companies might have people in multiple roles who do both types of work. Middle offices are rarer but still exist.

Non-standard companies may have jobs that change throughout the year.

For example, park rangers may have seasons where they directly interact with visitors and show them around, as well as seasons where the park is closed but still needs management and upkeep.

Ultimately, the duties and expectations of each office are determined by the unique needs of each company.

How Do Back Office Jobs Compare To Front Office Jobs?

Back office jobs tend to be significantly more stable and predictable than front office jobs.

You may find work in the back office repetitive and tedious, though you could also enjoy the predictability.

Back office jobs are usually stable because the company needs them to function, regardless of how sales are doing at any particular location.

For example, a large retail company can’t merely stop stocking the shelves at its stores. It must have products on the shelves to sell, and therefore it always needs someone to manage supplies and inventory.

That said, back office jobs may also have fewer opportunities for promotion and advancement in comparison to front office jobs.

It makes sense to pay a high-performing salesperson more so they’ll stay with the company and keep generating revenue.

However, many back office jobs can’t do much better, so it’s harder to stand out and get noticed.

Lack of advancement can have a long-term impact on your income and overall quality of life, so it’s important to evaluate your goals and opportunities when considering a back office job.

Understand Front Office vs. Middle Office vs. Back Office

As you apply for jobs or are researching the infrastructure of an organization, especially in financial services, you might run into the terms all together: front office, middle office, and back office.

Each section of the company would not be able to survive without the support of the other two.

Learn each office classification’s critical tasks and goals, and how they each interact with each other: complete guide to front office vs. middle office vs. back office.

Back Office Functions

The daily functions of the back office vary by organizational structure, but can be summed up as “things that keep the company running, but don’t involve the customers”.

How this applies to a business varies based on factors like the corporate structure, objectives, culture, and even physical location.

For example, some investment firms focus almost entirely on finding, buying, and developing property. These usually include diverse portfolios for properties in different fields, ranging from homes and apartments to medical offices, retail stores, manufacturing, and more.

At these locations, the back office may emphasize researching opportunities, and this could be the bulk of their company’s work.

Examples Of Back Office Functions

Here are some of the most common functions that back office roles can have, as well as how they relate to the company’s overall operations.

Logistics

Logistics includes inventory and supply management, particularly for companies that consume or sell a lot of products.

The goal of logistics roles is to minimize costs in these areas while maximizing efficiency, allowing other parts of the company to operate without an interruption in their supplies.

Procedures

Policies and procedures govern how other employees should do their jobs. This can range from managing customer service interactions to creating guidelines for quality control in manufacturing areas.

Employees here are also responsible for ensuring all policies make sense, rather than creating rules merely to have more rules.

Cash Flow Management

Cash flow management is usually part of an accounting department’s duties.

Instead of trying to respond to times of limited cash, this function focuses on mitigating risks and ensuring there’s always enough cash flow to sustain the business.

Back Office Duties And Responsibilities

Just like the functions, back office duties and responsibilities vary by company.

However, most jobs in this area have a few specific objectives that differ from what employees in other areas of the company focus on.

For example, most back office jobs have multiple deadlines on different schedules.

A cashier at a grocery store has simple and predictable deadlines: help each customer purchase their products, preferably in as little time as possible. This doesn’t change from day-to-day.

In contrast, accountants may have to prepare weekly, monthly, and annual reports for the company while also processing extra purchases and responding to new initiatives within the company.

Accordingly, the ability to prioritize tasks is essential to performing well in the back office.

At other times, back office jobs coordinate with front office jobs. This could involve preparing informational material on request, performing specific research types, or providing additional technical support for customer service representatives.

People in the back office are both administrative (in the sense of telling the front office what to do) and responsive (in the sense of answering questions and requests from the front).

Many people see the back office as the part that drives the business forward, but in reality, most of its operations focus on helping the front office work, and that’s ultimately where most of the company’s success comes from.

So, The Back Office Just Greases The Gears?

Not entirely. Back offices have one other major part of their duties and responsibilities: preparing the company for the future.

Front office jobs don’t care about this sort of thing. Their job is to meet with customers, sell products, and generally do the routine day-to-day work. The back office is the part that decides what that day-to-day work is.

The future focus is essential because running a mid-sized business is very different from running a small business, and overseeing a large company is even more different.

Many small-but-growing companies fail because they can’t adapt to their growth and end up stumbling.

When run correctly, back offices help ensure that businesses have the policies, personnel, cash, and growth strategies to continue succeeding.

When run poorly, the entire company is likely to collapse under the weight of its obligations.

What Are Back Office Services?

Back office services aren’t another way to define the work, duties, and responsibilities of the back office. Instead, back office services are companies that provide external support for the jobs traditionally assigned to people in the back office.

For example, many small businesses cannot afford to hire a full-time team of accountants. Instead, they may hire an accounting firm to work part-time for them. This frees them from the need to find and employ a particular person and makes it easy to switch companies if needed.

Back office services have the unusual result of essentially turning the back office into a front office.

That is, the people providing these services work directly with customers and help generate revenue, so they have effectively become a front office despite the nature of their work.

Most companies that provide back office services only do so in a limited way.

For example, you probably can’t convince the accounting firm described above to perform all of your IT work.

That said, it’s possible to outsource almost all back office work, though whether or not this is viable depends on the company.

Understand Back Office Outsourcing

Back office outsourcing trends have fluctuated in recent years, but over 50% of businesses use outsourcing to help cut costs.

If you want to start outsourcing, your back office is the perfect area of your company.

Your back office employees rarely, if ever, communicate with clients.

So by outsourcing those jobs, you can reserve your office space and resources for other work.

Why Back Office Is Important To Many Companies

As you’ve probably guessed by now, the back office is vital to companies because it helps ensure the company keeps running.

Many companies don’t have a choice about using back office personnel, especially when it comes to reporting regulatory compliance.

Companies also rely on back office personnel to produce documents and reports for executives and investors.

For example, public companies often have to make earnings calls and take questions from investors about their decisions. Back office personnel often help ensure these calls go smoothly.

So, What Does Back Office Mean To My Company?

That depends entirely on how your business truly wants to function.

The back office meaning varies by the company because organizations have widely varying needs.

There’s no point in limiting your business to one definition when something else could work better.

However, when you consider what back office job means to the company’s bottom line, they can often help drive revenue and make the company more successful.

Consider it this way: If a back office worker can make a salesperson three times more efficient, the company is better off hiring that worker than hiring an additional salesperson, even though the back office worker doesn’t personally bring new revenue in.

Ultimately, the most efficient companies are the ones that understand what the back office is for, how many personnel they need, and how to apply those employees effectively.