Bookkeeper vs Controller vs CFO: What Do They Really Do?

Bookkeeper vs Controller vs CFO: What Do They Really Do?

Many business owners often ask what differentiates a Bookkeeper vs Controller vs CFO and why may it make sense to utilize the services of a CFO. Oftentimes, these owners become confused when identifying the role of their top financial person or what qualifications they should be looking for when hiring that person.  Let me begin with the traditional roles of the top financial person in any business.  For simplicity, this article will assume the financial roles are within privately held Companies and not a Public Company which has very specific reporting requirements to the SEC.  There are five basic functions that need to be addressed.

1. The first and most recognized function is the ability to develop accurate, timely and complete set of historical financial data.  This includes (but is not limited to) monthly financial statements (balance sheet and profit and loss statement), tax reporting, flash reports which are typically Key Performance Indicators (or Metrics) established by management, and any other operational reports needed to run the business.

2. Internal Controls are the internal policies and procedures that protect the assets of the Company.  As public Companies have learned, these internal controls have their own compliance requirements and are subject to Sarbanes Oxley definitions.  However, in the smaller privately held company, internal controls define specific roles and individual requirements of each employee with the intent of preventing errors, theft and embezzlement.  It becomes the balance of responsibilities or a segregation of duties so that no one person will control a process and be able (either intentionally or by accident) to falsify financial information.

3. Forecasting….whether to determine future cash requirements or a detailed operating budget requires both a skill set of the techniques available and the operations of the business.  There are many different forecasting/budgeting models available.  It becomes the responsibility of the top financial executive to determine which model works best for the Company AND to develop a very specific set of assumptions working with the other Managers.  These assumptions are the critical drivers of the budget and relatively small changes in the data could have a significant impact on the results.  It is the role of the financial executive to determine what is reasonable and realistic and to challenge input received from others if it doesn’t make financial sense.

4. Support and assist with all the other operating departments within the Company.  Although financial people are best known for preparing “financial reports,” the financial executive who works well with the other operating departments and supports their needs is the one who brings the added value to the Company.  Many operating department heads (and sometimes even the business owner) understand how to run their particular area, but don’t always fully understand the financial and/or tax ramifications of what they do.  The financial executive who can take ideas from these other departments and help them translate those ideas into financial rewards is critical to the business.  Since the financial executive typically knows the operations of the other departments, he/she is also best suited to assist in the implementation of the strategies.

5. Many business owners open their businesses because they have a special service or product they want to bring to the market.  They spend their whole lives developing the business but give very little consideration to getting out of the business when they’re ready.  The creation of an Exit Strategy is typically one of the last things the business owner will consider.  Most times, they don’t even know where to begin.  That’s where the seasoned financial executive will step up to the plate.  Even though it may not always be in the best interest of the financial person, he/she must keep their eye on the long-term goal which is to position the Company for the eventual transfer of ownership at the best possible price.

So now that the responsibilities of the financial executive have been loosely defined, how do you identify the roles of the Controller vs CFO?  Most Controllers have the skill sets and comfort levels to develop the historical financial data.  Their role is more accounting based and requires most of their time in the development of reports.  Some of the more experienced Controllers will also take on the responsibility of reviewing and implementing Internal Controls.  However, the business owner needs to be careful NOT to allow the Controller to have sole authority in certain critical areas.  That defeats the purpose of segregation of duties where one person is responsible to review the work of someone else.  This is a key element in the prevention of errors and threat.

The controller or bookkeeper is mainly responsible for managing daily financial tasks such as the general ledger, dealing with accounts receivable and payable, talking to the bank and producing month end financial statements.

A CFO, although capable of all those tasks should be able to help provide strategic financial input to the CEO, analyzing past business performance, industry trends and the company’s financial position to help plot a successful growth trajectory for the business while ensuring the company does not overextend financially.

In short a controller or bookkeeper looks backwards the CFO looks forward, playing an integral role in taking companies to a higher level of success.

Examples of how a CFO may help?

  • Understanding the real drivers of business performance

Once the key drivers have been identified, work with the CEO to ensure that the business maximizes these influences on the business, monitoring monthly or weekly via a tailored dashboard.

  • Anticipate potential pitfalls

Just as planning for success is important it is equally vital to have contingency plans to minimize the impact of adverse events such as increases in major costs, loss of key personnel or contracts, adverse movements in interest rates etc.

  • Growing the Business

Should a business grow organically, or by acquisition? Vertically or horizontally? What will add most value and which approach stands the best chance of success?

  • Where to concentrate?

Do some aspects of the business make significantly higher or lower margins? How to expand the winners and either revamp or discontinue unprofitable lines.

  • Is the capital structure correct?

A CFO should be able to identify the company’s capital needs and work with lenders and investors to ensure lack of financing does not inhibit profitable growth.

  • Is IT employed appropriately?

Technology, when appropriately employed in the financial management of a company should increase automation and improve critical controls to help protect company assets.

  • How does the company compare with competition?

A CFO should be able to benchmark company performance against other companies in similar businesses, highlighting areas for potential improvement.

  • Are investors and lenders happy?

A CFO should be able to communicate the company’s current and future financial situation in such a way that investors and lenders feel totally comfortable with company performance.

The experienced CFO will have the skill sets and expertise to manage all of the five functions explained above.  Their role extends far beyond the finance department and should be a participant in the Board Room.  They will spend less time in the actual preparation of financial data and more time using the data to develop new strategies for the Company and assist in the implementation of those strategies.

When looking to decide when is the proper time to hire a CFO, most small to mid-sized companies will not be able to cost justify a full-time individual.  Since most businesses in this range don’t have the dynamics and business problems on a daily basis that larger companies have, there is no need to hire a full-time employee. A B2B CFO® partner can provide the same expertise to the business owner and at a lower total cost.  Working with your full-time staff, the B2B CFO® Partner can deliver the same benefits.  You should also look for someone who will be available to work with your company as the business continues to grow.  The cost of missed opportunities and developing a new CFO consultant on a regular basis is counter-productive for the future of your business.

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