A simple definition of back-office is – any process or function that is not customer (or supplier) facing or does not have a customer (or supplier) touch point is back-office. It is likely that a function, say Sales, is customer facing but it does have some processes which are not customer facing, for example – market research or pre-sales. These would classify as back-office.
In general, it is observed that back-office processes consume around 30% of the organisation’s headcount. Commonly defined back-office processes are accounting, compliance, HR, technology – development and support.

Why is back-office ignored at a non-profit?
Back-office work though does not directly influence revenues, its output does support and help create an environment which enables better and stronger positioning of the organization in front of external world. A weak back-office will cripple functioning and effectiveness of front-office. For instance, a weak HR will impact the work environment of the entire organisation and its ability to hire and retain good talent.
It is a common perception that back-office work is an overhead with no link with revenues and core operations of the company. Since resources working on back-office processes are not “billable”, they and their output are often seen as a “burn”. However, this perception is misplaced.
Often, small organisations do not need full fledged teams to handle back-office because of the low volume of work. It does not justify taking full cost with sub optimal occupancy and its also unfair on resources who are not fully busy. This leads to multi-tasking with no process specific expertise. For instance, an accountant doubles up as HR representative also.

Further to the above common observation, in case of non-profits, which rely entirely on external funding and grants, their cost structure is defined by what donors are comfortable with. Strangely the CSR law puts restrictions on portion of “Management costs” in the overall project cost. This discourages non-profits on spending higher than what is funded.
Non-profits who are not planning for the long haul, find investing in HR, Finance or Legal resources as an unnecessary overhead. Often spending on these functions are also seen as a luxury by non-profits given the otherwise tight fund position.
Many Founders of non-profits are not aware or convinced that a strong back-office is critical for scale and sustained growth. It gives an assurance to internal and external stakeholders that the organisation is built to last with a strong foundation.

How does a weak back-office impact a non-profit?
Top 3 of the most critical issues affecting non-profits are fund raising, hiring good talent and donor management. Let us look at how a weak back-office related to these pain points can adversely impact the non-profit.
Let’s take the case of non-profit organisation that does not have good financial systems and weak accounting and budgeting. This leads to delayed financial reporting, missing out on compliances, and so on. The donors who are impressed with the good social impact are not comfortable donating because of weak financial management and lapses.
To be fair, it’s not that such organisations have mala-fide intentions in hiding any irregularities, more often it is lack of awareness or rather ignorance about the cost of such lapses that lands organisations in this position.
Let us look at a situation where Donor management is ignored. Every organisation needs to go through the following steps:

• Donor identification
• Gaining donor acceptance
• Complying with donor conditions and preferences
• Pro-active donor reporting
• Ensuring repeat donations from same donor

If the back-office is not adequately strong to ensure all these steps are rigorously followed, it will be difficult to raise funds and retain donors.
For a non-profit to have an in-house staff to handle back-office processes is often not a cost-effective alternative as explained above. Resorting to multi-tasking leads to below par performance. Outsourcing the non-core back-office processes is a better option.

• it enables access to technology and automation at affordable costs.
• mitigates risk of disruptions due to attrition.
• encourages process-driven approach which is less person dependent

Some argue that non-profits will never develop internal strengths if they outsource and rely on external agencies. However, the decision to outsource is driven by cost benefit considerations. As the organisation grows and can afford in-house resources, it can in-source the stabilised processes.
Ignoring the need for a strong back-office would land a non-profit on a weak wicket, expose it to avoidable risks and make its case weaker for fund raise.