First of all, this is in response to questions I frequently receive from people – and especially business owners:

“Hey, Patty, how do I know which financial professional I need? Do I hire a bookkeeper versus an accountant versus a controller versus a CFO? And do I hire someone or outsource it?”

That’s an important distinction, because those are two completely different questions.

So, the first thing I want to start out with is defining what it is that each of these different financial professionals do in the scope of accounting for the organization.

Let’s start with the bookkeeper.

Bookkeepers are generally responsible for timely and accurate data entry for accounting transactions. But what are those?

Those would be things like invoicing customers, billing customers, entering invoices from a vendor, and so on. You’ve purchased a service or product for your business, and you have to pay for it, so we’re recording those obligations.

The bookkeeper would also prepare and process accounts payable. That means not only receiving the invoice and putting it in the system but preparing it for payment. If there is an approval process that has to happen prior to the check being cut to the vendor (and there should be!), then that person has to ensure that it is followed.

Additionally, bookkeepers are recording incoming cash received from customers. The bookkeeper or accounting clerk processes the receipt of that cash and notes that the client no longer owes you money. They also frequently process payroll and enter that data. Some of this is automated now, but some of it isn’t because of how complex it can be to pay people within an organization (thanks to changing labor laws or even how we compensate our employees).

And paying people can take many different forms, but it is a process that happens on a regular basis and is very time sensitive. Accuracy and timeliness are of the utmost importance. You wouldn’t be happy if your paycheck came to you a week late and missing $500, would you?

That’s not a good place to be. And that means that your bookkeeper or accounting clerk is not doing their job properly or that something very unusual has happened. So, payroll tasks are very important for that position.

Also, if you need to prepare payroll tax returns of any kind, if tax reporting is not already done within your payroll system, that needs to be done by your bookkeeper, too.

At the moment, we are all very reliant on merchant services. A lot of companies take credit cards as a form of payment. But even internally, when people inside the company use a credit card to purchase goods and services, we need to make sure that those transactions are recorded as well.

And since a lot of those come in electronically, the financial professional responsible for recording and processing those transactions typically needs to be pretty proficient with the computer and chart of accounts to ensure that each transaction is posted properly, in the proper account.

In terms of qualifications, a bookkeeper usually has an associate degree or a lot of hands-on experience handling this kind of transaction-based work. In fact, probably 80-90% of this job is transaction-focused, which means it requires using your hands, not your head – processing transactions, keying in things that need to be entered into your system, or pulling things in from other sources. Transaction posting may also be required here.

Moving on to what’s called a “staff accountant” or “senior accountant” position.

As the name implies, this position can exist not only in the fractional world or in outsourcing, but also inside the staff of a company. A senior accountant is responsible for preparing monthly journal entries, managing the general ledger, which consists of both the balance sheet and the profit and loss along with any subledgers – think accounts receivable detail, accounts payable detail, managing the aging of accounts receivable and accounts payable, making sure nothing is past due.

They also handle account reconciliations; here we’re talking about reconciling bank and credit card statements. It’s crucial that we maintain a separation of duties between the person posting all the transactions and the person reviewing and reconciling those transactions.

We call it a one-over-one relationship, and you need to have adequate separation of duties so that you don’t have an issue with embezzlement or any other theft. Embezzlement requires collusion, but senior accountants put controls in place to reduce the risk of that occurring in an organization’s financial management function.

Reconciling balance sheet accounts, bank accounts and credit card accounts is very important for a senior accountant as well. That means that what is on the financial statements is good and true and accurately reflects the financial position of the company. Likewise, there needs to be some level of assurance that this position can be charged with preparing a budget for the organization, which could also be at the controller level, depending on how large the company is.

This particular role can be responsible for variance analysis reports and looking at recurring expenses for month-end cutoff. So, if your company is using accrual-based accounting, that person needs to look at the cutoff and understand what belongs inside the current period and what belongs in a different period – periods being months, in this case. They are charged with managing things according to those cutoff parameters.

In addition, the senior accountant prepares the month-end reporting package. And that’s not only the basic financial reporting package at month’s end, but also the related analysis. This means looking at any KPIs that are useful in measuring the financial health of the business – there’s sales by product, sales by customer and any slicing and dicing involved there, along with trends in your accounts receivable. Hopefully, those are good trends and not accounts receivable balances that could become uncollectible.

The training and experience requirements for a financial professional in this position would be a bachelor’s degree in accounting, with two or three years of experience for this particular

Now we’ll cover the controller position.

What does a controller do for your business? Why would you need one? Well, this individual manages accounting operations. They manage your senior accountant and bookkeeper – and they manage not only the staff but the actual operations themselves: the systems, the processes, monthly reporting packages, ad hoc reporting, and the like. Your controller is also responsible for the internal controls. These are things like separation of duties and following policies and procedures because policies are in place as a form of internal control.

So, the controller makes sure that policies are being followed because they are there for the protection of the company’s assets. Aside from internal controls, your controller also handles external compliance. If there are bank covenants that need to be adhered to, if there are audit requirements or tax compliance items that need to be followed, those are the things that a controller would also have as part of their duties.

While your controller is engaged in capturing and reporting historical information, they’re also handling some forward-looking tasks. We previously talked about the fact that a company’s budgeting responsibility can reside in a couple of different places depending on how big the organization is. A smaller company that has a smaller financial management staff would have the controller doing their budgeting. In those cases, the budgeting/forecasting, cash management and cash projections are also within the purview of the controller position.

This position also develops workflows and streamlines processes for increased efficiency. They are looking at things like, how many times do the people in financial management functions touch a piece of paper, a transaction or an email, and how many forwards does that email have attached to it by the time it gets to the right person? We want the email to go to the right person straight out of the gate.

Also, the controller position supervises billing functions, and accounts receivable/accounts payable functions. This includes the cash that comes into the organization, the cash that goes out of the organization, and any other payroll functions. Payroll also includes timekeeping, which sometimes reports into the HR function, depending on how big the company is and how built out those different functions are within said company. This would be because you need to monitor whether you pay people on an hourly basis, how you’re tracking their paid time off, holiday pay and overtime. That’s all part of the payroll function.

Think about the credit and collections management as a part of the accounts receivable function – but as a before and after. The credit function examines how much leeway you give your customers to buy from you on credit. That’s your credit policy. And the collection side deals with what happens after you’ve sold them the goods or services your business provides.

What are the terms that they pay you by? And what happens if they don’t pay you by the end of the term period? Somebody’s got to pick up the phone at that point and say, “You owe us, and we need our money.” Who is that in your company? It’s typically the controller, unless you’re big enough to have a separate function for credit and collections.

Your controller is also the master of the chart of accounts. The chart of accounts is essentially how we manage the collection of financial information so that we can make decisions for the financial health of our business. Some of these are industry-driven, and some of them are because we operate in a certain fashion, but that’s why we maintain that chart of accounts structure.

Additionally, this position oversees month-end reporting, and that entire process from soup to nuts, from when we start the month-end process making sure we have everything on time to when those reports are issued and reviewed. The date for these tasks varies by company, but I can tell you it should never be past the 15th of the month following the close.

In fact, I would challenge you to get these processes done 3 days after the start of the month. You can do it!

Another of the controller’s duties would be developing ad hoc reports. Ad hoc reports cover basically anything under the sun that might need to be analyzed, or have the trends pulled and brought up on request. Essentially, these are one-off reports that you don’t need on a regular basis but may help you understand the context of a decision that you need to make as a business owner.

Similar to a senior accountant, a controller typically comes into your organization with a bachelor’s degree in accounting. They also may have some level of certification or advanced degree. They could also be a CPA with management experience, not just the compliance aspect of that work. They could be a CMA, a certified management accountant, which means they have been working inside the company on financial management and operations.

In any case, a controller typically has five to 10 years’ experience. Of course, FP&A experience, or financial planning and analysis, is also very handy for any financial professional in this position. You want your controller to understand not just the debits and credits, but the effect that operations have on the financial results of your company.

And that’s where we get into the CFO, or Chief Financial Officer.

The CFO is the CEO’s right hand, providing the critical link between finance and operations. Individuals with FP&A experience are perfect for the CFO role. They know the business and they know what operational items are driving the financial results. And similarly, they can work backwards to understand what operational issues are causing those results and provide real value to a CEO.

They are also responsible for directing all financial aspects of the business, typically engaged in forward thinking. They’re looking ahead with the CEO, and they function as the CEO’s right hand in that regard. The CEO has got the mission, vision and goals, and the CFO takes those goals and quantifies them, laying out the path forward for the organization. A CFO also sets those high-level policies for the company. Financial planning and forecasting for the company fall under their duties, as we discussed before.

There’s also long-range and strategic planning that the CFO supports. The CFO is responsible for driving the translation of the actual strategic plan into its financial component. What do the financials look like, given that strategic plan’s direction? This means developing and monitoring financial metrics.

We talked a little bit before about KPIs, or key performance indexes. Those are key metrics used to run the business on a day-to-day basis. And while they may be at the 50,000-foot view, when you look at them over time, they’re very comparable. Just like a dashboard in your car, you can see when things start to go awry. When they do, that’s when you have to take action. That’s when you take a step back and think, “All right, there’s something off here. Let’s take a look at it.”

The CFO also manages relationships with bankers, insurance brokers, and tax planners. In terms of insurance, that’s the whole risk management side of the business, and that can be a large liability if you ignore it. As you grow your organization, if you’re a fast-growth company, you need to pay particular attention to this to understand if you are picking up risk.

Let’s say, for instance, your number of employees grows to over 50. Once you are over 50 employees, you have a number of compliance items that come into play. You’ll need to bring in more HR assistance to unravel them and understand exactly what you need to do to achieve compliance.

If your company is big enough, the CFO oversees tax planning and the audit functions or manages these with an outside tax or financial audit professional. If you have an audit that you’re subject to, your CFO will analyze any recommendations for adoption. This involves looking at industry trends and historical performance as well as environmental risk factors. What’s the banking environment like right now? What are interest rates doing right at this moment?

You have a feel for how the business environment may impact the company’s performance, whether it be sales performance, margin, employee turnover, inability to hire, or a range of other issues. The CFO is tasked with bringing that information to bear in the financial and operational decision-making for the company.

Concerning qualifications, a CFO typically has a bachelor’s degree in accounting with some kind of certification, or an MBA and 10+ years of experience in senior management. That senior managerial experience is important. You don’t just go from being an outside CPA to a CFO position without having some kind of business management experience, because you are now functioning inside the company as the CEO’s right hand.

So, now let’s talk a little bit about when you need to hire some of these financial professionals, and at what stage your company needs them.

Let’s start with a bookkeeper or accounting clerk. They generally need to be employee #1. And unless you, as the owner, are going to do the bookkeeping, they are your best hire. You need somebody who understands and can do the transactional work for you so that you can focus on running and building your business.

That individual would do all of the invoicing. They would pay your bills, meaning they prepare the checks for you to sign because you want that separation of duties that we talked about earlier. They would handle the incoming cash, because you don’t want to do that, and they would cut checks for payroll. They would also know if you had a sales tax liability and understand how to file your sales tax returns and all of those compliance items.

The next area is when to hire a senior accountant. I would say that is once you get to a level of complexity, and when I say complexity I mean higher-level compliance issues where you have sales tax in multiple states, or very high-value items that go out, or customs issues that require interfacing with a customs broker. All these factors present a high degree of difficulty, and you need somebody with a very strong accounting background and training expertise to understand them.

Another area to consider is job costing. Let’s say you’re a consulting firm or a marketing firm and do campaigns or large projects. If so, you need to understand the profitability of those projects. You need a financial professional with a job costing background for that, someone who can help you understand fully the profitability of each project or customer. That would be a valuable insight for your business.

Now, when do you need to bring a controller in?

A controller would be someone that you could bring in to give your business and financial team that next level of expertise. Now, sometimes you don’t need a full-time person to start. For example, your bookkeeper is great, but your company’s in fast-growth mode and that next level of growth is not in their wheelhouse. In that case, out-sourcing can help you get the support you need.

But what does out-sourcing look like? Well, for a controller, it might be internal controls or external compliance. Maybe you have some private equity that’s coming in and you need some information. Maybe you’re looking at an acquisition because you’re in growth mode, and ready to gobble up a competitor. That’s awesome. Let’s do it. Where do we start?

First, there’s some due diligence that has to go along with that. Is the company worthy of the price that they’re asking? What kind of synergy would have to be present for you to be able to pay that amount? What kind of staffing will you need in the combined organization to resource it for the future?

There are a lot of tough questions and, unfortunately, your bookkeeper is not going to be able to help you answer them. But a part-time controller would be able to help you do that kind of analysis.

This brings us to the CFO, but what does the CFO do? I would say that a CFO does some of the things that the controller does but puts the operational spin on it. In the example of the acquisition, from a controller standpoint, we’re looking at a lot of financial numbers. What does the combination look like? What does the return on investment look like? That might not be in the controller’s wheelhouse, but a CFO can help lend more financial clarity to the controller and the CFO, because you want the controller’s focus to be more financial, while the CFO should be centered on operations and financial, bridging the gap between the two.

But when do you need to bring that person in? Remember, you also need to look at strategy.

Let’s say the owner is looking to expand the business or owns a fast-growth company. That individual would want to have a CFO as his/her right hand, because then they can think strategically together, understand the go-forward plan for the company, or draw up those plans.

Think about bringing in a CFO when you’re looking to problem-solve or tailor creative solutions for your business. You’re looking at the issues ahead of you, putting together a few approaches to consider – this is known as scenario planning. What is the path forward for your company under scenario A, B, and C? What does that look like? How much does it cost? What level of investment is required? What is the ROI? That kind of insight is what a CFO brings to your organization.

A CFO can help owners looking to sell, divest, or buy a company. They can add a high degree of credibility to the due diligence process, which can also increase the value of the company in a buyer’s eyes.

Keep in mind that CFOs (along with any level of accounting assistance) are also available on an outsourced basis, because getting a full-time individual in that role is very expensive for a company. Expensive, meaning you’re in the $125,000-$250,000 per year range, depending on your geography, the size of the company, and how much experience they have.

Like most of these things, the size and complexity of your organization can drive the decision as to whether you hire a CFO or outsource one. For a startup through about half a million dollars, you could have an individual who’s a part-timer, or you could outsource it. Outsourcing is a totally viable option for this position, and very cost-effective, because you don’t need to hire a full-time individual for part-time work.

These scenarios have given you examples of what it looks like to bring in each of the different financial professionals in the life cycle of your organization.

One very important caveat: You shouldn’t use your CPA as your CFO. Let me explain why.

Most business owners imagine that their CPA would let them know if something was wrong, but that’s an unrealistic expectation because of a couple of factors.

First, financial professionals are not interchangeable. With few exceptions, most CPAs do not have CFO experience. They just report the news, they don’t forecast or shape it. They’re historical reporters.

Secondly, it’s generally not their job to do that – as they perceive it, anyway. If you hire them to prepare your statements and do your taxes, they believe that you’re going to read and understand them, and that the data you gave them to prepare those statements was accurate.

But they don’t know that, and you don’t know that. It’s like wondering why the scorekeeper at the football game didn’t call better plays. So, let’s not give that responsibility to someone who isn’t trained for it, because it could cost you money in the long run.

The last thing I’ll leave you with is that you don’t need to feel compelled to bring on a full-time financial professional in any of these roles if you don’t have full-time work for that individual. If you don’t have enough work for that person, why would you pay them to sit there and look at the walls?

Outsourcing is a fabulous alternative to bringing on a full-time employee when you don’t have the need for a full-time role in your company. It preserves your profitability, it allows you to scale your business and your expenses and leave that expense on a variable basis for a period of time, rather than piling on fixed expenses before you grow your company. You get what you need without wasting what you have.

So, if you’re ready to put your newfound knowledge to work and bring on the right financial professional for your company’s needs, let’s talk.

Your CPA Shouldn’t Be Your CFO!

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