Welcome to the first blog post for CFO’s Corner – Strategic Finance Advice to Grow and Scale Your Business. In the upcoming posts, we will be looking at all things accounting and finance, to ensure that your business can scale with your planned success. I would like to start, however, with a discussion defining just what the role of CFO really is.
CFO, VP of Finance, Controller, Accountant, Bookkeeper, Assistant, and maybe Financial Analyst: These are the usual titles you will encounter in the Accounting/Finance department. What do they all mean, and what do they do? I am glad you asked. By the way, for purposes of keeping the acronyms limited, we will be talking primarily about privately held companies, so no SEC, SOX, IPO, etc.
Accounting transactions are a byproduct of your business operations. They allow you to invoice and collect from customers, order and pay for goods and services, create paychecks, generate financial reports, and analyze business operations. In companies just starting out, these tasks will usually be done, on a part time basis, by an administrative person who may or may not have accounting experience. The transaction volume is usually low; entry-level accounting programs like QuickBooks or Peachtree are easy to quickly learn and use, and most entrepreneurs can “feel” how things are going. Often, the bank statement is the most reliable and useful financial report – We either have money or we don’t.
As the business moves forward in time, adding customers, suppliers, people and operations, the volume and complexity of transactions increases and the ability to “feel” the health of the business becomes more difficult. This is usually where a bookkeeper would be added to the team. They may or may not have formal training, and they may be on-site or remote, full- or part-time, but they do understand the “language” of accounting transactions. They might not know your operations very well, but they do know how to get basic financial reports for tax, bank and management purposes.
Accountants are usually added when more people are needed to keep up with the transactions. Accounts Receivable (A/R, money we get) and Accounts Payable (A/P, money we spend), and Payroll are all areas where accountants or clerks with more specialized skills are brought on. Typically, there is a more senior role to oversee the numerous functions and responsibilities. This may be where you start to hear the words “accrual,” “account reconciliations,” and “month end close process,” and you are likely outstripping your initial accounting system.
The next level will entail a controller, which is when the full featured accounting department arrives. This person will take on more extensive financial reporting and analysis, prepare basic budgets and forecasts, develop more robust internal controls and processes, and manage the outside accounting firm relationship. This is when you hear the words “GAAP,” “review,” “audit” and “compliance.” There are robust procedures in place to rely upon the numbers being reported, and analysis becomes a larger function overall.
Here is also where a financial analyst may be added to offload some of the detailed business intelligence needs that may arise, and a VP of Finance may be added. These are the first steps to the Finance portion of the Accounting/Finance department. There is more interaction between lenders and investors, and there is increased complexity in the business model, perhaps involving multiple entities and/or countries.
The final step is the addition of the CFO. This is where the focus becomes less about looking through the rearview mirror with financial accounting reporting, and we focus on the windshield to see where we are going and how best to maneuver the strategic road map. The CFO focuses on strategic planning, interaction with the executive team, extensive forecasting and projections, creating financial leverage and accessing capital markets. There is a focus on external relationships and truly driving strategy through goals and initiatives. There may also be another overhaul of the accounting system.
Well, that is it: a definition and timeline for the accounting and finance department. There are some very creative ways to implement these functions as your business success requires it, and these days much of the talent and technology can be added as needed, rather than requiring early investment, and those are topics we will touch on in upcoming posts. For now, I look forward to your comments, and let us know what topics you would like to see addressed as we move along. And of course, we will focus on the wonderful and unique industry that is craft brewing. I’ll see you over the next pint!