Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.
Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.
Bookkeeper vs. Strategic CFO
Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.
The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.
While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.
What is a Bookkeeper and What Do They Do?
A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:
- Record expenses, sales, accounts receivables, and accounts payable.
- Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
- Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
- Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
- Organizing and maintaining various documents such as purchase receipts.
- Tracking inventory: Bookkeepers track inventory using various accounts to ensure that the stock is neither insufficient nor above the required capacity.
You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:
- Provide guidance on how to improve your finances
- Analyze your financial results
- Create financial projections of profit or cash
- Make decisions about the financial directions that your business will take
Making such decisions is where a Strategic CFO comes in.
First Things First, What is a CFO and What do They do?
A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:
- Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
- Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
- Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
- Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
- Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
- Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
- Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
- Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
- Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
- Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
- Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
- Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.
Can Your Bookkeeper Just Become Your CFO?
As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.
However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.
Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.
So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.
That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.
In What Ways Can Your Business Benefit from Hiring a CFO?
While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.
Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?
It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.
Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.
There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.
Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.