Part 4: The Importance of the Back-Office System

This article is part 4 of a 5-part mini-series I started a few weeks back. While it can be read independently, the previous articles will give you more context.

Here they are:

Part 1: The 4 Systems Every Business Owner Should Know About

Part 2: An Inside Look On the New Business System

Part 3: Increasing Your Client’s LTV Through The Production System

In part 1 I gave a bird’s eye view on the 4 systems I believe every service-based business owner needs to understand and manage. And part 2, as well as, part 3 zoom in on the New Business and Production System respectively.

In this post, I want to focus on…

The Back-Office System

Let’s talk about being sexy for one second.

Bringing in clients (New Business) seems to be the most exciting thing there is, right? That’s why there are so many marketing agencies popping up. Content strategy, copywriting, ads… they all are sexy.

Doing the work is not as fun, but that’s how you get paid — so you give it a pass.

But the Back-Office is not generally thought of as sexy. Which blows my mind because it’s a crucial component if you want to take your business to 7+ figures.

What does Back-Office include?

This system manages every foundational element that is needed to run a business — other than your New Business and Production teams.

I’m talking about things such as legal, HR, rent, administrative and operational support, etc.

Anything that is essentially non-billable and doesn’t directly contribute to your revenue is what I would leave under back-office.

Side Note: And what about Finances? Great question. I believe its importance is so relevant that it deserved to be separated from the Back-Office. I will go in-depth on it next week – stay tuned.

Effectively Managing The Back-Office.

Something that I really try to make emphasis on throughout my content is that every system is comprised of people, processes, and tools. And the Back-Office is no exception.

People:

Back when I started Jakt, I was in charge of every single aspect of this system (in all systems, really). I was the one signing contracts, sending invoices, finding contractors, hiring employees, etc.

I thought that I was working on the business…

But, over time, things got more complex. I couldn’t do everything anymore, so I had to start hiring other people and delegating.

It goes without saying, but people are a HUGE determinant factor of your success (that could be a whole article by itself).

Processes:

You can help your people by setting up a process that optimized their efforts and minimizes costs.

But someone has to design that process. It can either be you or someone from your management team — but it has to be done.

Why?

If you can document step by step the actions of your legal and hiring processes, for example, the business becomes less You-dependent.

How will you generate leads when there’s an available position at your company? Who will contact them? How many rounds of interviews will they have to go through? Who are the final decision-makers?…

These are all things that we have documented at Jakt. And sure, it seems like you are wasting a couple of hours to get that on a piece of paper — I get it.

But trust me: you’ll realize how much quicker and sustainable you can scale and grow after you have every system documented in detail.

Note: having clearly defined guidelines will also help you make less emotional decisions — click here to read more.

Tools:

Think of tools as any apps, software, and other tech or old-school solutions that make your life easier.

I’m sure you are already using them in some way: to improve the communication within your team, to onboard employees, to create invoices, etc.

Automation will help you reduce the number of people your company needs to operate. It can even fully eliminate repetitive tasks from your daily to-do list.

A couple of examples:

You could send contracts through DocuSign to your new clients so that you can get that out of the way much faster. And you could automate sending the onboarding material as soon as they sign. Have a recurrent invoice sent at the end of every month.

Much easier, faster, and cheaper, right?

Understanding the Real Cost of Your Back-Office:

As I said before, you –the business owner/CEO– will usually manage the whole Back-Office system in the early days. That’s totally normal, but…

…as you grow, things will change. You’ll have more clients, you’ll expand your business, and you’ll need more employees to fill that need.

But beware to not run into this issue:

As you scale, your back-office will too.

And you don’t want to underestimate how much it’s going to cost you.

Yes, in the very beginning, it will only take time and effort — but not money. Which, by the way, is still a huge expense.

But what happens when instead of sending one invoice, you need to send 10? Or you have to hire not one individual, but a bunch of them?

You can only service a certain amount of business while maintaining your quality standards.  

I remember taking over our Back-Office from day 1 until we had about 10 employees. In hindsight, I probably should have fired myself from that earlier tho.

Of course, when you have someone in charge of that, these costs have to now be factored into the equation. I’ve seen plenty of business owners that they didn’t plan for this…

And what happened?

Their profit margins got screwed up and they realized they weren’t charging enough.

Just as a reminder, this goes like this: revenue – cost to produce everything – all the other shit.

Well, all that other shit will naturally increase over time as your business grows. You’ll want to reduce it as much as you can through automation, processes, and high-performing people, but it will happen.

As long as you’re not just throwing unnecessary bodies and it comes from a place of growth, the back-office is a price that you should be willing and capable to assume. Just make sure you account for it and doesn’t come as a scary surprise.

The Back-Office System Takeaway:

• The Back-Office System includes anything that is essentially non-billable and doesn’t directly contribute to your revenue. I.e. legal, HR, rent, administration, and operational support.
• As you grow, you’ll need to find people to take over every element in the system. Use the leverage from well-designed processes and tools to increase your output efficiency.
• There’s a real cost of managing the Back-Office, especially as you scale. Make sure you factor it into your prices and profit targets.