If you want to launch and scale a financially successful business, you’ve got to know your numbers.
Founders who recognize the significance of financial literacy in their business’ success often seek to improve their understanding through continuous learning, seeking advice from experts and building a strong financial team to support their endeavours.
In this article, I’m going to give you some expert advice on the key requirements for building a basic finance function that can keep up with your goals.
In a nutshell you need to consider the past, present and future, while also keeping in mind a requirement for both strategic and operational support. You are going to need to be mindful of the accounting cycle cadence and you’ll want to create key recurring meetings to hold the team accountable to timely reporting.
It’s my hope that if you read this entire article you’ll take away just enough information to improve your company’s finance function performance.
Leveraging your assets
I’ll start with the past, present and future.
A good team is leveraging the latest accounting software technology to efficiently track your financial transactions. They have set up some standard operating procedures (SOPs) that also keep payroll, bill payments and invoice issuance very efficient and accurate.
Processing transactions is the present. Recording transactions and analyzing trends is the past. At a minimum you want your finance team to be able to efficiently report on how your business performed in relation to plan, as well as previous periods.
Maybe you are behind plan by 20 per cent, but up 30 per cent over last year with 25 per cent less cost per sale. What are you now forecasting for the next few quarters? This forward looking perspective is ultimately where the real value comes from when you invest in a good finance team.
Keep in mind what I’ve described above is actually three different roles.
Bookkeeper is tracking and processing transactions. Controller is performing reporting and analytics and CFO is applying critical and strategic thought to predict where the business is headed.
All three of these key roles are critically important even for early stage tech start-ups. All three contribute to your ability to “know your numbers”.
Assuming you now have the team and understand their roles, there are a few key ways to ensure their success. Appreciating the accounting cadence is really important to efficiency.
What do I mean by that? Everything in an accounting department occurs on a set timeline. Payroll is processed bi-weekly (or semi-monthly, or weekly, or monthly). Invoicing may happen monthly. Bank recs should be reconciled monthly.
Once you understand the cadence of your accounting department, you can help hold the entire company accountable to that cadence – and ensure they are respecting it.
The amount of time that your accounting team may be wasting processing one-off transactions ‘by end of day’ would likely surprise you. As a matter of fact, most accounting departments that are not producing timely financial reports are behind because they are continuously reacting to off schedule requests.
Does the sales rep adhoc expense reimbursement really need to be processed today or can it wait to be processed on the same monthly cadence as everyone else?
How often should you meet?
The final area I want to cover in this article is meetings. You really should only need one meeting per month with your finance team. This meeting should be scheduled around the 3rd week of the month and you should request the financials 3-5 days before the meeting so you can review in advance.
In accounting there is a trade-off between timeliness and accuracy as well as cost. Holding the team accountable to monthly reporting by the 15th is optimal in my opinion.
It allows the team to complete all bank and credit card reconciliations and doesn’t require them to enter estimates (which may both be wrong, but also require more time to enter.)
Be disciplined and schedule a monthly financial review meeting so that it becomes ingrained with everyone involved that reporting is to be respected and prioritized. This should also lead to better team play and increased communication when the finance team begins confirming the impact of additional requests during sensitive times of the month.
At the end of the day, you don’t need to be an expert on finance and accounting in order to be a leader for your finance team. Simply recognize the strengths of each of the players involved, don’t expect one person to perform all three roles, respect the cadence of financial processes and hold everyone accountable by scheduling a monthly financial review meeting.