Who Should Handle Your Business Finances

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Every business has a Chief Financial Officer — the person who has overall responsibility for the financial management of the company. In your business, that person might be you!

Here are some of the responsibilities of the CFO:

• Financial control over assets
• Internal control systems
• Bookkeeping
• Financial accounting
• Cost accounting
• Financial reporting
• Operational reporting
• Tax compliance
• Investor relations
• Lender and banking relations
• Cash management and cash flow forecasting
• Budgeting and financial planning and projections
• HR and payroll
• Insurance and risk management

In a new business, it is not uncommon for the owner to take on all of these duties, but eventually you’ll need to start delegating some of them.

Bookkeeping and accounting are both part of the financial-management process. While every business is somewhat different, here is a typical small-business scenario to illustrate the relationship between them:

Bookkeeping

As businesses grow, many owners look forward to hiring a bookkeeper. This makes sense — handling the day-to-day bookkeeping is probably not the best use of your time. A good bookkeeper will have specialized training and several years of experience in using the accounting software that your business uses. He or she should also have some basic knowledge of double-entry accounting, but an accounting degree is not required.

Your bookkeeper will be responsible for accurately and completely entering all of your day-to-day business transactions into the software. Bookkeepers also typically write the checks and handle the payroll. Depending on the type of business, they may also do the invoicing and handle the accounts receivable and cash receipts.

A certified full-charge bookkeeper will also be able prepare your monthly and annual financial statements using the accrual basis of accounting. However, not all bookkeepers are qualified to do this, and most will need to consult with your CPA on how to properly account for difficult or unusual transactions.

As accounting software packages have gotten easier to use, the barriers to entry in the bookkeeping field have gotten lower. Anyone can call himself or herself a bookkeeper, and seasoned CPAs can tell you many horror stories about the results of unqualified personnel “keeping the books.” To avoid this, ask your CPA to help you ensure that the person you are hiring is qualified, and be careful about promoting someone into that position who has not done it before. It’s not as simple as it looks!

Finally, once you start delegating financial tasks, internal control systems become very important, so consult an expert to help you set up your policies and procedures so that your financials are correct and your assets are not at risk. For internal control reasons, your bookkeeper should not be authorized to sign checks, and if they are reconciling the bank accounts, you or your CPA should review the reconciliations each month.

Accounting

Accounting is less concerned with data entry at the time of the transaction and more concerned with the analysis of that data and the preparation of managerial and financial reports, which are used to run and grow the business.

During the early years of your company, you will rely on your outside CPA to provide you with the sophisticated accounting, tax, and financial advice that your bookkeeper is not qualified to provide. As your business continues to grow, you will eventually hire a degreed accountant to oversee your bookkeeper and handle more sophisticated financial and accounting tasks. This person should also take on the controllership function for your company, which means they will handle banking relationships, cash-flow projections, budgeting, cost accounting, tax compliance, and other higher-level responsibilities.

Your controller should have at least a four-year degree in accounting, financial management experience in your industry, and preferably a CPA or CMA (Certified Management Accountant) designation as well.

Financial Management

Eventually your company will require a Chief Financial Officer. Many businesses start out with a part-time CFO. There are many highly qualified professional CFOs with years of experience who provide this service. They can help with strategic planning, obtaining financing, interfacing with investors, providing training and support for your other financial staff, and helping you look at your business in new ways.

Good financial management has saved many floundering businesses, and the ability of a professional CFO to analyze the situation, provide projections, and model alternative business plans can go a long way towards satisfying lenders and investors if things get tough.

You’ll know you’re on your way to success when you are able to hire a full-time CFO to oversee all of the financial management responsibilities of your business. In addition to allowing you to focus on other parts of the business, a good CFO will serve as your partner in driving business success and creating long term business value. Enjoy the journey!