If you think you can save money by having your bookkeeper handle typical CFO and Controller functions, you may need to adjust your expectations.
We’ve often seen business owners oversimplify what it takes to manage a growing firm’s accounting and finance function. It goes beyond just pretty books and beautifully balanced bank recs. (And yes, us accounting-types refer to balanced bank recs as “beautiful.”)
For a small company say, under $500K in revenue, having someone pay your bills, reconcile your accounts and get your invoices out the door may be enough. But even at this level, you still need to understand your numbers, have a handle on your cash burn, and an understanding of what is driving your profits.
You’ll need a more sophisticated solution if you’ve accepted venture capital or you transact in crypto.
If you have investors, you’re going to need to produce financials timely and solid projections and measure the appropriate KPIs. A good bookkeeper can produce accurate financials and may also be able to pull together KPIs with direction. However, projections, cash flow planning and financial modeling are often above a bookkeeper’s skill set.
The need for support beyond bookkeeping also applies if you transact in crypto. We’ve seen companies rely too heavily on crypto accounting software (and all accounting software in general) to handle the coding of their transactions. While we agree the automation provided by these tools is exceptional, there still needs to be a human touch when it comes to crypto accounting. Many companies expect their CPAs to do detailed reconciliations at the end of the year, but many don’t engage the CPA to do this detailed work. In absence of that reconciliation, the schedules provided by the various software programs are just rolled into the tax return without the necessary scrutiny, potentially resulting in additional, unnecessary taxes.
It’s time to get real.
We have worked with exceptional bookkeepers, and we have worked with not-so-exceptional ones too. But the biggest challenge we encounter is the business owner’s expectations of what a bookkeeper can and should do. In many cases they assume the bookkeeper will tell them when they are going to run out of cash and act like a CFO. Or the owner assumes the bookkeeper will automate the accounting workflow to create efficiencies, or to close loopholes to spot unexpected expenses, or raise the flag when expenses start getting out of control… all tasks a good Controller would do. Some bookkeepers can step into these roles, and some can’t.
Know they’re doing the best that they can…
This may sound like we’re downplaying the importance of bookkeepers. We’re absolutely not. They hold a critical, foundational role in every organization, and in their defense, many haven’t received formal accounting training. They’re working with the tools and skills they know, or workarounds they may find via Google. Maybe they were payroll clerks that grew into a bookkeeping role, maybe they are self-taught spouses who manage the books. Maybe they were bookkeepers working in a business and who decided to go out on their own and freelance. They are exceptionally resourceful, and figure things out the best way they know how.
So if the bookkeeper can’t do more than bookkeeping, who picks up those tasks?
The owner. Or the COO. Or someone very senior in the organization, who spends a lot of time putting together projections, trying to forecast cash flow, or, worse, finding and correcting the bookkeeper’s errors. Our guess is that unless they were trained in accounting, they’re trying to figure it out themselves– often spending time away from their core capabilities to fill these critical needs.
Bookkeepers aren’t Controllers, and they aren’t “cheap” CFOs.
If you want more out of your accounting and finance function, then you are going to have to make an investment. Whether that is investing in training, or hiring additional help to supplement what your bookkeeper is doing. Whether you bring in a Controller, or a CFO depends on your situation. Rapidly growing companies with demanding investors and changing business models often could use the strategic advice and financial modeling ability of a CFO– whether that is a full-time hire or an outsourced, fractional solution. If the company is growing and they first need to build a scalable accounting function so that the leadership team can have better control over costs and cash flow, then perhaps a Controller would be a better fit. Again, this could mean a full-time hire or a fractional outsourced solution.
In summary, bookkeepers have a critical role in all organizations, but owners need to recognize their limitations and readjust their expectations. While some see the Accounting function as strictly overhead, and want push tasks to the bookkeeper in the name of saving money, the reality is, that can cost more money in errors and unexpected expenses. In the end, someone in the organization ultimately does the CFO and Controller level work, you just may not realize that it’s you as the business owner.