Setting Up the Financial Oversight of a Business
Bookkeeper, Controller or CFO?
Business owners often handle their own bookkeeping for many reasons that include fear of delegating sensitive financial information, wanting complete control and keeping staff costs lean. Those reasons, while certainly valid for startups and smaller operations, grow increasingly impractical as your business grows.
Delegating Accounting Duties
Some owners delegate accounting duties to trusted family members or staff, but the most successful and savvy entrepreneurs learn quickly that accounting and finances are the lifeblood of business and deserve professional management from skilled financial specialists. The three primary financial manager positions in most businesses are bookkeeper or accountant, controller, and Chief Financial Officer or CFO.
As a business owner, you might handle the duties of these positions yourself or delegate them to a staff member or trusted associate, but as the business matures, most owners discover that hiring professionals generate solid cost-value benefits while freeing owners to concentrate on core business issues. The results of hiring accounting professionals include -- but aren't limited to -- the following business advantages:
- Finding cost savings in the manufacturing process, vendor relationships, office operations, and employee management
- Saving money on taxes
- Managing an ever-expanding volume of internal paperwork and external reports
- Designing a financial safety net by mitigating risks with insurance coverage, inventory management, diversification, and fiscal threat assessments
- Planning Expansions
- Handling payroll
- Streamlining operations and maximizing profits
- Avoiding fines, penalties, lower credit ratings and interest charges that result from missing deadlines, calculating payroll inaccurately, forgetting to pay bills and missing time-sensitive business opportunities
Match Financial Help to Business Size
Most businesses save money by hiring professional financial staff to manage their daily business operations. However, depending on the size of your business, your industry, and other factors, you might just need a part-time bookkeeper or require a full financial staff that includes a controller and CFO. Deciding what financial staff your business really needs is a complex decision that depends on many factors. Your needs will almost certainly change over time, and if your business grows successfully, you might cycle through all these positions. The following sections detail what each professional does and explains when your business might need one or more of these financial specialists:
Essential Bookkeeper Functions
Most bookkeepers work reactively recording what has already been done financially in the company with little or no influence on business strategy. Bookkeepers work on a transactional basis and seldom make decisions about future business transactions. A talented bookkeeper might explain your options, keep records and reports current, identify discrepancies in the books and recommend cost-saving ideas, but their primary jobs are to chronicle the business and its financial transactions and compile reports from this information. Some of the typical daily tasks of a company bookkeeper include:
- Recording sales, expenditures, accounts payable and accounts receivable
- Monitoring costs of supplies, office expenses, rent, utilities, and other fixed and variable costs
- Managing payroll, tax withholding, sales tax accounts, wage garnishments, and insurance deductions
- Ensuring that essential forms and paperwork are completed and stored securely
- Preparing daily, weekly, monthly, quarterly and yearly reports for management, government agencies, stockholders, employees and stakeholders
- Paying bills on time
- Researching alternative suppliers and making cost comparisons
- Identifying problem areas such as waste, mismanagement, fraud, and theft
- Tracking materials, supplies, inventory, and human resources
- Preparing taxes and daily, monthly or quarterly tax deposits for the city, state, IRS, unemployment agencies and insurance companies
- Managing business and employee insurance and health plans
- Protecting company records
- Getting estimates and finding and paying service and repair people
- Checking compliance issues
- Handling customer credit issues internally and business credit with outside vendors and lenders externally
Knowing When to Hire a Bookkeeper
Most business owners -- especially those with an entrepreneurial spirit -- thrive on running every aspect of their businesses, and accounting has become easier with all the intuitive software that's available. It's entirely possible for business owners to keep the books, but it's not necessarily a good idea as the business grows. When paperwork begins to compromise your time management, job satisfaction or efficiency, it's time to consider hiring a bookkeeper. You might not need to hire a full-time worker and can even outsource all or part of the accounting work such as payroll. Hiring a bookkeeper makes sense if any of the following apply to you and your business:
- You don't really understand accounting but trust the software to tell you everything you need to know.
- You're not familiar with the tax code and tax avoidance strategies.
- Your business experiences rapid growth in a short time.
- Investors, lenders or shareholders want professionally prepared reports.
- You're spending more time doing the books than generating sales or new business.
- You plan to expand to a different region, industry or line of products.
- You want to buy, sell or trade assets.
- You've been informed that your books are going to be audited.
Hiring a bookkeeper doesn't have to be a painful process because you can begin by outsourcing the work to a professional accounting firm. That's an especially effective strategy if you're not familiar with accounting, hiring a bookkeeper or vetting accountants or applicants for financial jobs.
When to Consider a Controller
Controllers, who are sometimes called comptroller's, supervise bookkeepers, tax managers, credit managers, and other accounting staff while reporting to the CFO, CEO or business owner directly. In smaller companies, a controller might be the only Certified Public Accountant in the company or supervise a team of accountants. Many of these professionals manage their duties with help from a clerk, bookkeeper or administrative assistant.
A controller is the company's chief accounting officer and bears responsibility for preparing financial statements, business plans, budgets, taxes, compliance certifications and special projects such as planning short- and long-term business strategies, business acquisitions, sales of assets, company mergers and securing financing or investors. Considered a middle-level financial manager, controllers usually perform the following duties:
- Manage financial staff.
- Sign checks and bear fiduciary responsibility for company operations.
- Sign off on financially related reports and documents.
- Establish company financial policies and procedures.
- Create reports for internal review.
- Handle insurance and risk management policies.
- Protect company assets.
- Prepare, monitor and update budgets.
- Spearhead preparations for public offerings.
- Advise owners and executives on financial markets, trends, and best practices.
- Develop proactive tax strategies.
- Choose and administer accounting software.
- Pursue collections.
- Deal with human resources issues such as maintaining employee records.
- Educate staff about employee benefits and business responsibilities.
Signs Your Business Needs a Controller
The bigger your business grows, the more likely you will need more than just a bookkeeper. If you have stockholders or a board of directors that consists of people who aren't friends, close associates and family that you appointed, hiring a controller is a sound business practice that protects your company and assets. In general, a controller concentrates on accounting while a CFO focuses on strategic finance.
As the company's stakeholders expand, a controller provides tactical management reporting and staff supervision on accounting issues while the CFO handles financial planning and bears responsibility for the controller and accounting team. Most small companies can't afford a full-time controller, but as the business grows, you can't afford to operate without a controller even if he or she functions on a part-time or consulting basis.
When to Hire a Chief Financial Officer
Chief financial officers (CFOs) work beyond strict limits by taking part in all business decisions and advocating for the best financial interests of the organization. As any seasoned entrepreneur or business owner knows, strict financial assessments are but one of a successful company's business goals. Initiatives that yield strong profits could easily weaken the company with customers who don't like paying high prices for inferior products or loyal clients who place greater value on a company's goals, principles, environmental commitment or operating techniques.
The best CFOs assess not only the costs of doing business but also the risks and threats that any enterprise might generate. As high-ranking corporate officers, CFOs work with owners, boards of directors, senior management and other key stakeholders and play critical roles in research and development, company oversight, regulatory compliance, and day-to-day operations. Other CFO duties include:
- Steering a company through mergers, acquisitions, public offerings and changes in business structure and operations
- Managing major business expansions to new markets
- Advocating for sound financial practices in complex decision-making
- Managing assets and financial relationships with multiple stakeholders
- Streamlining operations
- Assessing and managing financial risks
- Planning short- and long-term financial goals
- Interpreting market data from multiple financial indicators and business trends
- Understanding the reasons why business markets perform the way they do
- Determining how to invest corporate assets
- Forecasting market trends and how the company can capitalize on them
Each part of the company relies heavily on its CFO's combined duties: controllership supervision, treasury management and planning and forecasting on critical financial matters.
Demanding Financial Management Needs
Small-to-medium-sized businesses have evolving needs for bookkeeping and accounting as their operations grow. Owners or designated team members often handle accounting for small and startup businesses with the help of accounting software. Eventually, however, most businesses determine that hiring professional bookkeepers -- either full- or part-time and in-house or outsourced -- frees staff for core business duties and fosters greater accuracy, better compliance, and enhanced oversight. The right bookkeeper ensures that reports are filed on time and helps companies identify cost-saving strategies, fraud, theft, and waste.
As your business grows and the demands on your time multiply, you might find that you need a financial staff that's supervised by a controller or a CFO to manage the company's increasingly sophisticated finances. Your options include hiring full-time, in-house staff or outsourcing bookkeeping and financial duties to a seasoned professional accounting service. Both options are equally valid ways of bolstering your business's financial strength, but many small-to-medium-sized businesses enjoy the benefits of hiring advisers as needed to avoid the high costs of employing full-time professionals.