Having The Wrong “Accountant” Could Cost You Your Business….
By Catherine Wilson, Partner, The FD Group
To some, managing the day-to-day finances can be a tedious part of running your own business. But a healthy financial position is the oil that keeps a business engine ticking over smoothly. So, many would assume that there’s nothing too exciting to worry about here then. Wrong!
There’s a real danger that if you’re lacking the right finance expertise your growing business will splutter, stall or even be at jeopardy of failure.
There’s little doubt that sales and marketing success is the single most important factor in getting your business off the ground. But when you’ve got past the “will it work” stage, and your business continues to grow, strong management of business finances becomes mission critical.
Few people setting up in business come from a finance background. This means that most first-time business leaders have limited knowledge of what finance as a business tool can do for them.
So what type of financial support and expertise do you need in order to navigate your way through business growth? The Finance Pyramid™ diagram details the different types and levels of finance personnel to be found around a business. Which is right for you often boils down to the size of your business and its complexity.
When you start out you will probably consult a bookkeeper and an accountant. You need to set up your records properly and find your way through the red tape. The bookkeeper and accountant don’t need to work in your business – you have only just begun to trade and need general advice and guidance.
Your business takes off – hurray! With volumes increasing, you employ a bookkeeper to work in your office. This person occupies the starting rung of the finance ladder within your business. However, the exact extent of their ability can vary greatly from simple data input to a good understanding of accounting and how double entry works.
Your company continues to grow. You take on a newly qualified accountant as a manager above the bookkeeper to cope with the increasing demands on the finance function. But the accountant is relatively inexperienced in business, so you continue to closely oversee the finances and occasionally seek the advice of your external accountant whom you trust.
Further growth should be good news. But watching over the finances is now taking up too much of your time. The accountant is stressed. You struggle to answer your bank manager’s questions. Cash is not always there when you need it. You need support to take away the problems, help set future business strategy and provide the wider commercial expertise to take the business to the next level. Your solution is to bring in a Finance Director.
The FD sits at the top of the finance function. They will be qualified, have a strong track record of achievement and plenty of commercial acumen. A Finance Director brought in at the right time is an investment in your business. Over a relatively short time, your FD should create more business value than they cost. They will also free up your time to focus on areas of the business which (unlike finance) you enjoy and where you generate most value.
Larger companies may also have a Financial Controller below FD level. FCs are qualified accountants put in positions of responsibility, usually where greater hands-on experience is needed or there are more people in the finance function to manage. They may be a little less dynamic than an FD or are on the path to becoming an FD, and indeed many smaller companies recruit an FC who will grow with them and become an FD in a few years time.
All of this is fine, in theory – but the success of this journey is all about the people who take these roles. One mistake along the way could cripple you. Mistakes in cashflow or stock holding or even which accounting systems are chosen could all wreck you businesses’ ability to trade. In fact, in extreme cases, this could prove fatal for the business.
Thus the key thing here is to ensure you recruit the right person. Given the importance of the role you must ensure that this is an exceptional person. So make sure you spend enough time on deciding that they tick all your boxes.
In part the level of person you get should also be able to grow with your business. So think what stage you are at currently on your business journey. Is your financial position healthy? Or is managing the finances taking up too much of your time and keeping you awake at night? If it’s the latter, it may time to review the support and expertise you currently have within your business’s finance function and to identify the right person to manage this function going forwards. It could save your business.
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Should you be an Entrepreneur?
Should you be an Entrepreneur?