Michelle* quit her 5-figure salaried job in the spring of 2018 to pursue her entrepreneurial dream. Equipped with her finance degree and years of banking experience, she set about building her business – one process at a time. She reached out to Neet, her friend who runs an accounting firm - to understand how she should handle her numbers.
She wanted to keep costs low at the start of building her business, so she decided not to hire a book-keeper right away. Neither was she in favour of keeping numbers on excel.
So where should she start?
Here’s the real-life* conversation that ensued.
1. A Software – The Gate Keeper
N: “Before you employ your first book-keeper, be ready to invest in a quality software that captures your numbers”
M: Define quality software?
N: They should be:
easy to setup and use
be safe and
have the ability to produce basic financial records.
Something like Xero could be a great fit. It ticks all the boxes!
Side note: For many people, the software is either recommended by accountants or other entrepreneurs they have met. So, the implementation of the software is often parallel to having a numbers person handy.
If you are Michelle and have a Neet, go on and use her.
Why a software before a person?
Because it does not allow transactions to be lost in transit. Rely on a bunch of receipts and in a matter of time, most people struggle to find them. Rely on your memory and you’ll lose out expenses that could get you a lower tax bill.
2. The Bookkeeper – Keeper of Transactions
M: Ok I get that. But given the business is going to need my attention, should I be spending time putting transactions together?
N: It depends really, I’d rather you hired a book-keeper. You are great in terms of process, but not so good with paperwork and organisation. Having someone use tools and set-up a working system would be very useful.
In a virtual finance department, the process is guided by less or no paper.
M: What’s the value-add though, I use tools and then Xero let’s say, why should I have a person do the numbers?
N: LOL!! As much as we love to think of a paperless and completely automated finance function, it’s never that easy or perfect. There would always be missing documents, unchecked balances or statements that do not tally. You worked at a large organisation where a lot of these things never come to the surface. I doubt you’d have the time to handle it all.
Side note: Transactional accounting, is all about the fundamental “debits and credits”. Without this function being robust, you can only “estimate” what are the business numbers. Unless you get this right, there is no way to know whether the numbers in your head can actually match the reality of money in the bank.
3. The Controller – the creator of partnerships
M: Is it worthwhile if I hire you right away? I mean you have a team and is Senior and stuff, how does that play out. I need someone to talk the strategic numbers with.
N: Sure, we just need to understand whether you need me to start with…
A Financial Controller in a start-up or an SME world is often compared to a glorified bookkeeper - someone who keeps and is responsible for transactions. While there is some truth in this, it might be worthwhile remembering that the control function is responsible for delivery of a robust finance department – be in virtual or in-house.
You’ll definitely need me when it gets more “sophisticated” - such as you need specific monthly reporting, a robust debtor and creditor function or a need for consolidation due to expansions, among others.
Side note: For a small business, often the controller doubles up as the CFO / Finance Director. The controller not only should take over the brunt of managing the numbers, but also be available as a bridge between the management stakeholders and the administrative team.
4. The CFO – the Grand Poobah
N: Before you ask me, here’s my take on when you need a CFO
It’s quite rare that an SME wouldn’t know when they need the ultimate numbers person. If you have an exit, an IPO or a major business growth event on the horizon, bring on the big guy, the CFO. Some cues to think about this role:
A seat at the table that is missed during strategic meetings, usually involving investors or stakeholders
You have employees and productivity has to be a prime driver of business efficiency
The need for a sophisticated IR function
Multiple locations and the need for an overall business view on a near real-time basis
The selection of a CFO cannot be made in isolation; companies must consider the strengths of the rest of the top team, paying specific attention to its blind spots and missing capabilities
The final word
Like individuals, businesses differ. Whether you need strong coffee or fine wine depends on the stage you are at and what you need the role to accomplish. Be clear of your goals for the “role” and you can find the person to fit.
Unable to figure out who you need to support your finance function? We can help and no! we don’t charge to have a conversation.
Go on tell us what your number worries are and we will do one of the following:
Send some ideas to tackle them
Help you ourselves
Guide you to a place / person that we think can help
*Names and circumstances of the conversation is changed to protect privacy of persons involved