How CFOs Can Reduce Costs With Back Office Support: 6 Ways

A chief financial officer, or CFO, is primarily responsible for managing the financial health of a business. CFOs need to have different types of skills, including leadership, risk management and critical thinking. Among the major skills of a CFO, cost management plays an important role in keeping a business up and running. This is because the growth and profit of a business depend a lot on effective budget optimization and cost reduction.

Key Takeaways

• There are several reasons why a CFO can find increasing back-office costs in a business, which include task ownership, lack of automation and limited staff for regular financial operations.
• CFOs should consider the cost of performing each business process separately instead of calculating the headcount cost.
• Back-office outsourcing can help a CFO reduce the recruiting, training and management of permanent employees.
• CFOs should match the delivery model for a business process with its complexity and control to minimize the operational costs of their business.
• Businesses shouldn’t use the same pricing model for every process because the complexity and control required can be different from one process to another.
• CFOs can delegate back-office tasks to an external service provider to reduce the process, technology and overhead costs of their business.
• The cost of handling a business process should be calculated based on the correct transaction instead of headcount because some teams may need frequent rework.
• Back-office outsourcing can provide several benefits to a business in addition to cost reduction, such as access to global talent, scalability and increased business continuity.

Why Back-Office Costs End Up on the CFO’s Desk

Back-office costs include the expense of handling activities that usually don’t require direct interaction with customers. Finance and accounting teams of a business need to handle many repetitive tasks, such as invoice processing, purchase order management, data entry, and reporting.

Sometimes, they may not have dedicated staff to handle administrative tasks that are closely related to accounting and finance. As a result, the finance and accounting teams may become responsible for handling them. This means the finance function may also bear the cost of these tasks.

Here are some major reasons why CFOs may need to handle the back office costs they don’t own:

• CFOs performing low-value routine work such as replying to emails, calendar management, or appointment scheduling when many processes require their review or approval.
• A finance team with limited staff can cause back-office tasks that don’t require CFO-level expertise to be pushed back to the CFO’s desk.
• Unclear task ownership, which means no one owns administrative tasks and the CFO’s team needs to handle them.
• Lack of automation or outsourcing for handling routine tasks like invoice processing, bookkeeping, and data entry.

6 Ways CFOs Can Reduce Costs With Back Office Support

Businesses can save a significant amount of their back-office costs by outsourcing them to back-office services. For example, studies show that outsourcing accounting functions can help businesses save 20%-65% of their overhead cost for accounting. This is why it is necessary for CFOs to outsource back-office tasks so that their team can focus more on high-value work.

Here are six strategies they can use to minimize their back-office expenses:

1. Convert Fixed Headcount Costs Into Flexible Operating Costs

Some businesses calculate the headcount cost for handling back-office tasks related to finance and accounting. However, the cost of handling one business process can often be very different from another.

For example, tasks such as financial reporting and specialized bookkeeping may cost more than updating expense records in CRM or capturing invoice data. When you build a team based on headcount and use them for different types of tasks, you may end up overpaying for some tasks.

As a result, the cost of handling routine tasks in your business can significantly increase. You can categorize the back-office tasks and delegate the low-value tasks to a third-party service. It can help you establish a flexible system to handle operating costs based on different processes.

2. Reduce Recruiting, Training and Turnover Costs

There is a high cost of replacing employees who leave a company. According to the study, this cost can be one-third of their annual salary. These costs include the cost of onboarding, training, advertising and candidate screening.

There is also an opportunity cost from lost productivity and disruptions to workflow. It takes 44 days on average to hire a new employee. After recruiting, a business also needs to spend a significant amount of time integrating a new employee into its culture and workplace.

An employee can leave when they find a better opportunity or for other reasons. They can also leave when they experience burnout from task overload. Businesses with a high turnover rate should identify why employees leave and consider outsourcing some back-office work to reduce workloads. Outsourcing can reduce the need to recruit, onboard and train employees for the outsourced work.

3. Match the Delivery Model to Cost, Complexity and Control

A delivery model defines how a business organizes and assigns work across internal teams and third-party providers in different locations. A business can divide its processes based on its complexity and the level of control required before delegating them to their team.

For example, they can keep tasks that require handling sensitive data and following strict regulatory requirements within their internal team. They can delegate the repeatable back-office tasks to third-party companies. They should consider the right BPO model when outsourcing tasks.

The tasks that require close collaboration can be delegated to onshore and offshore teams. The repetitive work, which typically requires less collaboration with the client’s team, can be delegated to offshore BPO services to reduce labor costs.

4. Use the Right Pricing Model for the Workload

Every task or process doesn’t have the same complexity or workload in a business. CFOs can end up paying more for a task when they don’t carefully choose a pricing model for different types of work. An hourly pricing model can work well when the workload and scope of work change frequently. The per-transaction model can be more suitable for processing high-volume work with a consistent workload. A business can keep the operation costs low for high-volume tasks with this model.

A dedicated team model with fixed pricing can work well when a business has a consistent workload under a predictable scope. Businesses can handle their tasks with a predictable monthly cost with these models. A hybrid model can work well when a business has a fixed base workload but also needs flexibility to handle additional volume.”

5. Reduce Process, Technology and Management Overhead

Businesses need to spend on overhead management costs for hiring and training employees. CFOs can reduce the cost of routine tasks such as data entry, bookkeeping and invoice processing with back-office outsourcing. A business can scale its capacity to handle work by working with an outsourcing provider. Scaling down an internal team during periods of low workload can require reducing staff or leaving excess capacity unused.

Sometimes, businesses can reduce their software subscription costs by outsourcing some of their tasks. This is because some outsourcing providers use their own software and technology for handling clients’ work. Businesses also need to spend less time supervising and managing employees when outsourcing a particular task instead of using permanent staff for it.

6. Track Cost per Correct Transaction, Not Headcount Replacement

The CFO should measure the cost of handling a specific business process based on its correct output. Hiring a low-cost team may look like a good choice, but if they frequently make errors and need rework, that means they will take more time to complete a task. This can increase the cost of a business.

This is why CFOs should calculate the cost of processing transactions based on correct outputs instead of how many employees it takes to complete them. When outsourcing tasks, they should use the total cost of ownership, which means including both direct and indirect costs of handling a task with an outsourcing service provider.

An outsourcing provider that uses a per-transaction model may look more expensive, but this model usually works toward clear goals and outcomes. So even if they make an error, they will be responsible for fixing it without billing you for the hours they spent on rework.

Beyond Cost Cutting: What the CFO Gets Back

There are some other benefits for CFOs by getting effective back-office support for their businesses, such as the following:

More Time to Focus on Core Activities

The CFO’s team can spend more time performing strategic and operational tasks that deliver greater value to the business than routine work like data entry or bookkeeping. The internal finance team can work on cash flow forecasting, budget analysis and financial reporting.

Access to Specialized Skills

Hiring skilled experts for finance and accounting can be time-consuming and complicated sometimes. CFOs can get access to experienced professionals for different financial operations such as AP, payroll, bookkeeping and data processing without having to advertise, screen and interview candidates themselves.

Scalability and Faster Turnaround

CFOs can increase the support capacity for their team when the workload increases by using a BPO. Businesses can hire additional employees during peak periods, but when the workload decreases, they may need to lay off some staff. Businesses can get skilled experts for the short term without hiring additional team members by using BPO. They can also get faster turnaround times (TAT) for routine work such as invoice processing, account reconciliation, or recordkeeping with the help of external back-office support.

Increase Business Continuity

Business processes can be disrupted when the expert employees on the CFO’s team leave their positions. A CFO can use a back-office outsourcing service as backup coverage for such situations. It can help them improve their business continuity when a skilled professional stops working for them.

Conclusion

It is one of the major responsibilities of a CFO to keep the operating costs of a business under control. A business can have increased office costs for several reasons, and lack of proper back-office support is one of them. A CFO can often see higher costs for handling back-office tasks due to issues such as limited staff, lack of automation or unclear task ownership. Outsourcing back-office tasks to a third-party provider can help a business reduce its operational costs. There are also other significant advantages of back-office outsourcing, such as increased scalability, a reduced need for internal hiring and getting faster turnaround times for routine tasks.

Frequently Asked Questions

How does back-office support reduce operating costs?

Outsourcing tasks to a back-office service provider usually costs less than hiring internal employees. While using an outsourcing provider, a business only needs to pay based on an agreed pricing model and scope of work. Permanent employees need ongoing salary and additional benefits. A company also needs to pay for recruitment, training and onboarding when hiring an internal team member.

How much can a CFO save by outsourcing back-office functions?

The amount CFOs can save by outsourcing back-office functions depends on what type of process they are outsourcing and the pricing model. A business can save more when they outsource back-office functions to offshore providers. Outsourcing tasks to nearshore and onshore countries can also help a business save money, but usually less than offshore outsourcing.

Which back-office functions should CFOs outsource first?

Businesses should decide which tasks to outsource first based on cost, complexity and control. They can outsource routine tasks such as data entry or invoice processing first. The tasks that require handling sensitive data or have strict regulatory requirements are better to keep for the internal team.

How do CFOs calculate ROI from back-office outsourcing?

The CFO should consider the correct transaction instead of headcount when calculating the cost of back-office outsourcing. They should compare the total cost of outsourcing a process to calculate the ROI of outsourcing.

What KPIs should CFOs use to measure back-office savings?

Businesses need to pay salaries and additional benefits to permanent employees when hiring them for a specific business process. They also need to pay for the recruitment, training, and onboarding of the employees. A business can save these costs by outsourcing back-office tasks. CFOs can measure the cost reduction percentage of a process and turnaround time (TAT) to measure the savings back-office outsourcing can provide.

Can CFOs outsource finance operations without losing financial control?

Yes, CFOs can outsource finance operations without losing control. They can outsource routine finance operations such as invoice processing, bookkeeping and account reconciliation to a third party. They can keep the tasks that require handling sensitive data, following compliance requirements and internal approval under their control.