What internal financial support should you have?

What Internal Financial Support Should You Have

To stabilise or grow a business you need the right team members in the right seats, but before you can work out the right people, you first must have the right seats.

Most SMEs start as a result of an entrepreneur’s passion and skill. You’re good at something, people will pay you to provide your product or service, and whoosh – you’re in business. In fact, the FSB reports in 2020 there were an estimated 6 million UK private sector businesses, 1.4 million of which had employees, meaning 4.6 million had no employees.

If you’re flying solo, that means you’re winning the work, doing the work, and doing all the admin, too. That’s a lot of hats to wear and seats to occupy. As your business grows, you’ll want other people to wear some of those hats, and choosing the right seats to relinquish is important to maximise your productivity and ultimately your profit.

If you’re one of the 1.4 million with team members, or planning to join them, you already have a variety of seats that are occupied. I’d recommend re-evaluating those seats and possibly even redefining some of them, specifically in your finance team. Here’s why …

There are many job titles relating to finance and they can mean different things to different people. It’s important to get this right, as the job title is the label on the chair you want other people to sit in. It will define what they need to bring to the business to help you, the business owner, get to where you want to be.

My experience has shown me that job titles don’t always accurately reflect the role, or more specifically the deliverable required from that role. Often, job titles are used to recognise a person’s seniority in the business, their length of service, or the most senior element of the mixed role they perform. And that’s a danger zone for any business owner. Let me explain.

Most growing SMEs have some internal support for bookkeeping, debt chasing, and similar tasks. The person who adopts this role can have any one of a number of titles ranging from bookkeeper to financial controller, or for larger businesses finance director, and many others in between. This can cause some confusion when assessing the needs of the business and the level of support you need to get you to your next level of growth.

I’ve set out below an easy comparison between key finance functions and what you should expect from each. I’ve also summarised my recommendations for how a business owner can get the most from each role.

Bookkeeper

  • Recording financial transactions
  • Handling accounts payable and receivable
  • Paying regular bills for the company
  • Maintaining company ledgers
  • Appropriately coding payables to prepare them for the accountant’s reporting
  • Preparing purchase orders
  • Preparing sales invoices
  • Monitoring debt levels
  • Chasing debtors
  • Recording cash receipts and handling bank deposits
  • Maintaining petty cash

You should expect accurate and current financial records to be always available.

Accountant

  • Completing tax forms
  • Managing profit and loss statements and balance sheets
  • Maintaining an annual company budget
  • Reporting deviation from budgets to the business owner and/or financial controller
  • Forecasting cash flow
  • Preparing information for auditors
  • Management reporting
  • Working with your accountant for annual accounts and corporation tax returns
  • Overseeing the bookkeeping role

You should expect regular reporting on key financial data to aid you in business decisions. An accountant should demonstrate a high level of accountability for highlighting anomalies between anticipated and actual cash flow, expenditure, sales turnover and more.

Financial Controller

  • Overseeing the bookkeeping processes to ensure all accounting records are kept accurately and up to date
  • Managing the bookkeeping team across all ledgers and reconciliations
  • Detailed analysis of industry specific metrics such as stock, work in progress, project valuations, etc
  • Participating in the setting of budgets and ongoing monitoring and management
  • Reporting both current and anticipated future impact on the business caused by deviation from agreed budget
  • Reporting on KPI’s such as sales targets and debtor days
  • Assisting or sometimes fulfilling the role of the accountant

You should expect a greater involvement in business decision making. Your financial controller will produce projections and data and be able to help you make informed decisions.

Finance Director

Typically, a full-time finance director would only be beneficial in an SME with aspirations to scale. They would be tasked with:

  • Strategic view of how finance can be leveraged to fulfil the vision of the owner
  • Taking appropriate action to course-correct when budget adjustments are made
  • Instrumental in major decisions, such as staffing, marketing drives, sales initiatives, business acquisitions
  • A finance director will consider the whole business, not just departmental silos. For example, the acquisition of a new piece of production machinery will impact cashflow and short term profit but has the potential for long term profits. It will possibly require a marketing budget, strategy and sales drive to generate revenue to make it a profitable purchase – your Finance Director will consider all aspects and work with you to make a strategic decision that lowers your risk and protects the business interests
  • Guiding business decisions based on accurate, current financial data and forecasting, including profit and loss, balance sheet and cashflow
  • Sourcing financing solutions to meet the needs of the business both current and future
  • Overseeing all other finance roles

You should expect your Finance Director to actively participate in guiding the business to higher profitability and sustained growth or to scale. An effective Finance Director will guide you, the business owner, in how to continually improve the financial health of the business and help you the business owner achieve your goals.

As you can see, these are very distinct roles with diverse levels of responsibility.

The key for business owners is to get the right level of support for their business. This often means splitting a role between different levels. This can be tricky when recruiting for team members, as often the high-level responsibility comes at a commensurate cost, but the individual spends 80% of their time in the trenches doing lower value tasks. The result is they overpay for an underperforming individual – the business loses and the team member is undervalued or underwhelmed. Nobody wins.

If you already have team members in your finance function, I recommend reviewing their roles and realigning their responsibilities accordingly. It may require you to find an alternative resource for some tasks to allow them to deliver their true value.

Over the next few weeks I will share with you some thoughts on outsourcing critical elements of your finance function. My aim is to show you how you can get a high level of service, at a cost commensurate with the outcome.

Watch this space …

Paul Meades

If you’re stuck and can’t wait for the series, just give me a call. I’ll be happy to discuss your situation and fast-track you to a solution. You can book a time to suit you in my calendar, here.