Building a Solid Financial Team To Guide You to Business Success
In the complex landscape of corporate finance, titles like Chief Financial Officer (CFO), Controller, Bookkeeper, and Accounting Associate often float around. Like many CEOs and business owners, you may wonder: What do these financial professionals do? Do you need all of them? Which one should you hire first?
Let’s demystify these roles and their functions, so that you can build a robust financial team capable of strategically guiding your business to greater success.
Key Roles within the Financial Department
A complete financial team includes four roles. Larger organizations will have full-time employees in all of these roles. Smaller organizations may hire part-time employees, contract workers, or even professional firms that provide fractional services.
1. Data Entry or Accounting Associate
At the foundational level, the Data Entry or Accounting Associate is responsible for inputting transactions into the bookkeeping system. Responsibilities may include tasks such as processing invoices for payments, entering hours from timesheets, creating and sending customer invoices, and recording received payments. Their role is crucial for maintaining accurate and up-to-date records.
2. Bookkeeper or Accounting Manager
One level above Data Entry or Accounting Associates, Bookkeepers manage more than just data entry; they understand the principles behind transactions. They ensure that each entry is categorized correctly—whether as an asset, liability, revenue, or expense.
To successfully serve as a Bookkeeper, an individual must understand accounting principles. When people without this critical understanding of accounting principles are put into a bookkeeping role, they often misclassify transactions. For example, a common error is recording an owner’s payroll check as a loan receivables instead of payroll expenses. This misclassification can lead to misleading financial statements, showing a fictitious asset.[JH1] [MM2]
3. Controller
Controllers act as the “beat cops” of the general ledger, overseeing the accuracy of all general ledger accounts and the subsequent reports they produce. They ensure that every transaction is recorded correctly and that the balance in every balance sheet account is accurate. They are responsible for account reconciliations monthly (though occasionally, a few may be balanced quarterly). For example, if a company’s financial statements show a loan on which payments are made, the controller ensures that the loan payment is properly recorded as a reduction of liabilities and/or an increase interest expense.
Controllers also determine whether certain purchases should be recorded as expenses or assets, guiding lower-level staff to properly categorize transactions. This determination is relative to the size of your business. For example, a smaller business might consider office furniture to be an asset. For a global company, such a purchase could be considered an expense.
4. Chief Financial Officer (CFO)
The CFO is forward-looking, focusing on strategy, policies and procedures, cash flow management, and future planning. CFOs rely on accurate financial statements to make informed decisions that drive the business forward.
For example, Evolve CFO Services once had a client that landed a $1.9 million contract with a government agency. After reviewing the proposed agreement, we identified that $1.5 million was pass-through income being paid to subcontractors. In addition, based on the proposed payment plan and the government agency’s long payment cycle, projections revealed that the company would have a $1 million cash shortfall within 6 months. We made three recommendations:
- For this particular contract, that our client require a $1 million down payment to begin work.
- For future projects, establishing a policy requiring that a minimum of 3 months of expenses be paid before work begins. If the client wants work to begin immediately, a deposit equal to 3 months of expenses must be paid.
- That our client defines acceptable payment terms for its contracts vs. accepting the terms their clients typically offer (which, not surprisingly, include long payment terms designed to benefit their cash flow).
Building Your Financial Team: Where to Start
Most companies start by hiring a bookkeeper and gradually expand the team upwards. However, this often leads to inaccuracies and inefficiencies because team members often are asked to assume responsibilities beyond their expertise. For instance, a bookkeeper might be asked to handle accounting tasks they are not qualified for, resulting in errors and poor financial decisions.
Instead of building from the bottom up, consult with a CFO early in the process – even if your organization does not need a full-time or even fractional CFO. During a simple consultation, a CFO can assess your current financial systems, identify gaps, and ensure that your team members are correctly qualified for their roles. They can help set up accurate procedures and systems from the start, laying a solid foundation for your financial department.
Ensuring Proper Setup
To build a financial team correctly, follow these steps:
1. Start with a CFO Consultation: Have a strategy-focused professional assess your key numbers, financial performance, systems, procedures and staffing to gauge where you are – and what you need next.
2. Define Roles Clearly: Ensure each team member understands their responsibilities and how performing their role will support the overall goals of the financial team.
3. Hire Qualified Personnel: Match qualifications to roles to avoid mismanagement. Rather than asking existing personnel to step up into roles for which they may not be qualified, find professionals with the skills you need.
4. Implement Robust Processes: Set up systems for accurate data entry, transaction categorization, and reconciliation.
5. Regular Reviews: Continuously monitor and adjust roles and processes to maintain accuracy and efficiency.
A Strong Financial Team Supports Business Growth
Building a strong financial team requires understanding the distinct roles within the department and ensuring each position is filled by qualified professionals. Starting with a CFO consultation can help you set up accurate systems and hire the right people from the beginning. By avoiding the common mistake of building from the bottom up, you can ensure that your financial department supports your business’s growth and success.
Evolve CFO Services offers a Financial Breakthrough Roadmap to help identify critical financial metrics, compare your performance against industry benchmarks, and ensure your systems and procedures are optimized. Consulting with a CFO early can prevent costly mistakes and position your company for financial success. Learn more here.
