One of the most difficult decisions small business owners face is determining what level of financial experience they need in their business. Do you need a CFO to manage the complexity of your accounting and reporting? Or simply a bookkeeper to keep track of your expenses?
In this post, I’ll walk you through the most common financial roles for small- to mid-size businesses and how they relate to the growth and evolution of your business, as well as what you should expect from each one.
What Type of Financial Lead Do You Need?
By “Financial Lead” I am referring to the highest level of financial experience in (or providing service to) your company. There are two main variables that determine the level of Finance Lead required:
The complexity of your organization and its transactions.
The size of your organization (revenue, employees, customers, physical footprint)
Think of it like the fuel gauge on your car: At the low end, closest to empty, is a simple process and a very small company. At this point, you can keep your receipts in a shoe box. (Though I wouldn’t recommend it.)
As your company grows and the needle moves slightly higher, your finance needs and your finance lead will change (from a shoe box to a bookkeeper, for example.)
And on up the scale until the needle is at Full, because your business is large and complex, at which point you have likely migrated to needing a CFO.
Your business model and the stage your business is in can help you determine the right fit. Here’s a breakdown of the most common financial roles and the business stages to which they each are suited.
The Financial Roles Of A Growing Business
You guessed it. A bookkeeper simply records financial transactions in your books and prints off reports that reports what they’ve recorded.
That means they track credits and debits, pay invoices, and apply cash. They’re responsible for making sure your financial records are accurate and up-to-date.
The specific roles will vary across every business but no matter the size or type of business, you should have a bookkeeper, even if it’s you.
Accountant is the most confusing term of all. It covers CPA’s (Certified Public Accountants) who do taxes and audits. But that’s not what we are talking about here – a Business Accountant is the term I’m using to describe an accountant who’s entire focus is on the internal accounting needs of the organization.
This role can cover some or all of the following: complex account reconciliations, management-focused financial statements, measurement of key performance indicators, data gathering for more complex reporting, and even managing your bookkeeper. In many cases, these internal accountants are not CPA’s, but they don’t necessarily need to be. Depending on the level of responsibility they have, you would want to consider ensuring that they have either a two-year degree, or a bachelors degree in Accounting.
This role isn’t necessarily an accounting breed. These folks are usually data jockeys who can take the data from various sources in your organization, both financial and non-financial, and combine it into meaningful reporting for the leadership of the organization. They have access to the raw accounting data, but they don’t generally get involved in creating or reporting that data. As a rule, a financial analyst will have a bachelor’s degree in finance or accounting. But don’t rule out statisticians and/or market researchers. The translation of data into information is the key skill set here.
As businesses get larger and more complex, they begin to require the skills of a Controller. A controller has a more experience than accountant, is more likely than not to have a bachelors degree in Accounting, and may or may not have a CPA and have come out of a public accounting firm.
The key to this role is buried in the title: Control. The job here is to make sure that all of the controls are in place in your processes to ensure the protection of your assets and the accurate reporting of your financial performance. The list of what goes into that specifically is long and distinguished, but if you have a good Controller in your organization, then you can delegate the authority and responsibility for the monthly financial close completely to that person, and rest assured that it is well-tended.
CHIEF FINANCIAL OFFICER (CFO)
As you move to the top end of the gauge, you’ll graduate to needing a CFO.
One of the CFO’s jobs is to link your finance function to the business strategy, act as its liaison, and be sure that it is a fully integrated partner to your entire organization. A good CFO will ensure 100% alignment of the finance functions’ reporting, behaviors, and processes with the company’s goals and objectives, and the owner’s preferences for receiving information.
The CFO will remove you from the process. With your approval and only as much involvement as you want to have, they hire the staff, align the personnel, manage the budget, and choose the necessary systems for finance and accounting.
In addition to aligning the reporting with the way that you look at the business, they also define and report on pivotal performance metrics for the organization. The CFO understands the business levers that you have to pull on, and how to give you the feedback required for you to know how much to adjust them.
CFO’s understand and can counsel the owner on the intricacies of Finance, Treasury and Risk Management as well. They take responsibility for managing cash flow and ensuring not only the protection of the company’s assets, but also finding their best and highest use. Setting up the business to be able to evaluate and decide on the projects and opportunities that will generate the highest possible return on investment (ROI) and yet stay aligned with business strategy.
CFO’s also often fill the role of Chief Friend in the Foxhole. The CEO role can be lonely; and you will often find that the very best CEO’s have trusted CFO’s by their sides. These CFO’s become people with whom CEO’s and owners can share visions and concerns without fearing that the organization will be whip-lashed or worried. They are the sounding board, the consigliere, the protective perimeter.
Employing (or outsourcing) a role of this magnitude, may feel like giving up too much control at first, bu with the right CFO, and with a little time to develop the relationship, it will ultimately free you up to make more important decisions and grow your business in a healthy way.
The Price of Hiring The Wrong Finance Lead
If you’re a business owner who assumes you can handle your own finances throughout these stages, or just isn’t sure when to move to the next finance lead, consider the problems that can arise:
- There can be a mad scramble at the end of the year for your tax accountant to get what he/she needs to stay in compliance with your federal, state and local taxes.
- Since you probably won’t see the final financial performance until the end of the year, you’ll be prevented from doing any kind of tax planning during the year. I usually get a print-out in July and start talking to my tax accountant at that time about tax planning for the year.
- You lose the incredible value of the operational insights that can be gained from the data when it’s aligned with your strategy. This is a huge hidden treasure. You miss the opportunity to delegate oversight of your finance to somebody else and focus on what you do best.
- You can’t forecast your cash needs or excesses in a way that lets you take advantage of things like interest rates or credit lines well in advance. You could end up having to get cash in a crisis, which makes it much harder to negotiate good rates. You lose sight of the fact that you could invest in growth if you had excess cash.
Plain and simple: professional financial assistance positions you for growth and keeps you one step ahead of the game at every stage of company growth.