The Cost of Having the WRONG People on Your Business’s Financial Team

The Importance Of Having Clear Financial Data

One of the first things a private equity or venture capital firm does when purchasing a company is to ask for more data. They want regular, clear financial review. If the business cannot produce that data, the investor starts to recommend a change to the financial and accounting team. With clear data, investors can help their businesses improve margins, implement a strategic plan and grow the business. 

Why don’t small businesses and startups beat them to the punch and do this prior to investment (likely increasing their upfront valuation)? Often because they don’t know how to build the right financial team. I’m going to help you define what a good team looks like so you can build that team for your business. 

A Strong Financial Team For Your Business Or Startup

A strong financial team is like a good football team. You know what a football team that executes poorly and doesn’t put numbers on the scoreboard looks like (some fans more than others!). The key to a good football team is a good coach that recruits the right players, selects the right plays for the right opponents and makes sure the team has strong fundamentals. The coach of your financial and accounting team is your CFO. The CFO recruits and selects good employees or external partners, then sets them up to succeed with strong processes (fundamentals) and the right financial strategy (plays).

A quarterback is the foundation of a strong team. You can have ten solid players on a team and fail to score if your quarterback cannot execute the play. A good controller is much like a good quarterback. Poor execution by the lead player on your accounting team can lead to poor results on your company’s scoreboard. If management does not have sound, timely data, it is hard to make financially strong business decisions. 

Remember, though, a great quarterback isn’t enough. If the rest of the team can’t keep him or her from being sacked or can’t give him or her enough time to throw or hand off the ball, you’re going to lose. Even a great quarterback can’t carry the entire team. The right financial team, staffed correctly with enough solid players, shouldn’t be scrambling to close the books every month. He or she will be able to provide management with clear financials that help the company make good business decisions.

Understanding the Importance of a Good Financial Team

As the coach of the financial team, the CFO puts together a solid plan for the year, setting up the team to tackle each client contract and payment cycles with a clean, consistent playbook. Depending on the size of your business you may not need a full-time, expensive person in each of these positions, however, you still need the RIGHT team.

Finance and accounting teams are often pushed to the back burner. They are in the “important but not urgent” category until cash flow gets tight or the accounting team significantly mangles the numbers, making it impossible to manage the business or drawing scrutiny from regulators or capital providers. Please don’t wait until this happens to start building a good financial team. If you think a good financial team is expensive now, wait until you have to hire a very expensive clean-up financial team or pay for very expensive financing to get you out of a cash crunch. 

Putting Together The Right Financial and Accounting Team

So how do you hire the right financial team? First, you have to understand what the right financial team looks like. Aren’t CFOs simply controllers with more experience? Not necessarily.

The skill sets for a good controller and a good CFO require opposite personality types. Great controllers and their accounting teams are meticulous historians. You want a controller that is precise, consistent and methodical.

CFOs and other financial professionals are very comfortable with uncertainty. In order to build projections, she has to be comfortable with assumptions about the future. Because she is constantly looking to the future, she should be helping the business avoid pitfalls like running out of capital. She sees the business as it can be, positive or negative, not just as it is today.

On a similar vein, most accounting team members have trained in specific areas of accounting. Most do not have the training, experience or the acumen to do the more complex management job of a controller.

Let’s dig deeper into the terms CFO, controller and accounting teams. Business owners: Use this to put together job descriptions that will attract the right kind of talent. Below is a list of tasks typically associated with each title. Depending on the size of your organization, these definitions may move around. My focus for this list is on private businesses with less than $50M in revenue.

What the Controller Will Do for Your Startup or Business

The controller is in charge of producing timely, accurate financial information. The accounting team supports the controller.  Without adequate people on this team, a controller spends the majority of his or her time on data entry or transaction processing and allocation. This means they spend less time managing the other important parts of their job like:

  • Timing of bill payment (READ: less cash in your bank)
  • Improving systems as the business grows
  • Building accurate budgets
  • Performing variance analysis so you can clearly and quickly see where costs are over budget or revenue is under budget
  • Double-checking work for errors
  • Preparing for audit or tax season, minimizing audit and tax costs
  • Closing the books on time (within one to two weeks of month end)

What the CFO Will Do for Your Startup or Business

The CFO focuses on the future of the business. They help management evaluate strategic alternatives, improve profitability and sales, and maintain or acquire capital. Without a solid controller, often a CFO ends up spending the majority of their time doing controller tasks. Which means they aren’t:

  • Building a clear twelve-week cash flow model to prevent unexpected cash shortages
  • Analyzing future growth opportunities
  • Helping management prepare for a sale or capital raise
  • Reviewing financials with management monthly
  • Tracking Key Performance Indicators to give management actionable ways to improve profit or streamline growth
  • Regularly analyzing costs as the business grows and changes and minimizing “leakage” (costs that should have been cut, but were on autopay)

If you are not getting what you need or want from your financial team, consider that it may not be staffed correctly.

Taking Time to Create the Financial Team Your Business Deserves

Don’t be stuck with a losing financial team. Stop putting finance and accounting on the back burner. Doing this may not be impacting your ability to serve your customers or pay your employees today, but it is certainly affecting your bottom line. The increased cost of a financial team seems daunting at first, but the RIGHT financial team will save the company the increase in their salaries by multiples.

Better financial information produced in a timely manner and reviewed regularly to improve operations is how private equity funds make great returns, why not do what they do? This is the information age—you can get an edge on the competition with the right team to help you produce and understand the right data. Take some time to focus on crafting the right financial team, you won’t regret it and your business will benefit from it.

Not sure if you have the right financial team and a strong financial foundation? Sign up for the waitlist for our financial bootcamp by emailing with the subject line: BootCamp. Our bootcamp will provide a deep dive into your current team, systems, processes and actual financial data.