When To Add Financial Expertise in a Growing Business?

Of the many decisions a business leader faces with a growing enterprise, decisions about when (and at what level) to add financial expertise can be one of the most obscure.  It’s neither an obvious nor an easy decision to make.  There are no precise levels of scale (be it measured by sales volume, number of customers or number of employees) or other metric that signals when you need to add a certain level of financial skill to the team.  Let’s approach that uncertainty by using some rough measures of scale, measured by sales volume, to simplify the decision-making process.

Startup to $1.0 million in Sales

At the start up stage, your most important mission is to get the accounting fundamentals right.  That means a basic accounting package (QuickBooks or Xero come to mind) needs to be selected, a chart of accounts established, initial capital entries booked and a process put in place to book monthly journal entries and produce basic reports, such as a trial balance and any other basic reports you need to run the business – accounts receivable, accounts payable and payroll are the typical basic reports all businesses need.  If the business takes off and begins to grow, you can keep it on the initial accounting package for a time.  In this range of sales, your employee headcount is typically at the ten or below level.  HR issues are often easily manageable.  A good bookkeeper is often all you need to manage the transactions, although a consulting CFO or Controller is helpful with the set-up of the accounting system including the chart of accounts and design of initial reports including the trial balance captions.

$1.0 million to $5.0 million in Sales

As sales scale up, complexity emerges as an issue.  Information needs become more demanding.  Finance people are often using electronic spreadsheet software to do analysis on information coming out of the simple accounting system. This is because the accounting system either does not offer a module to do the analysis they need or because accounting doesn’t have the budget or time to implement it.  In effect, the accounting staff is doing a “work around” of the accounting system. It’s common, but it has risks and business leaders would do well to pay close attention to those risks. At this level, employee headcount may well reach twenty to twenty five people.  HR issues become more complex.  Employee benefits become a compelling issue and the enterprise must respond well to these issues or risk not being able to attract or retain employees.  In this range, you will likely need to add an accountant to manage end-of-month reporting and to oversee the bookkeeper’s transactional work.   A consulting CFO or Controller can enable you to set up some internal controls at the same time as well to introduce analytical tools and business advisory services from a financial lens on an as needed basis.

$5.0 million to $50 million

At these levels of business activity, some serious complexity begins to rear its head.  The employee headcount is typically more than twenty five and perhaps has even reached one hundred.  The HR issues can be complex.   There are typically symptoms that can be referred to as “growing pains” now that can require considerable resources to address all the symptoms arising day to day.  The finance staff at this level likely includes a bookkeeper (or two), at least a couple of accountants and an experienced controller.   You may even need to be looking at adding a VP and Director of Finance in addition to the controller although a consulting CFO can delay that need and/or mentor the controller in areas that need improvement.  This can also be the time to begin looking at changing accounting systems to a more robust one such as Dynamics, Intaact, NetSuite or others with more substantial capabilities.   I have rarely seen companies of this size that did not have opportunities for systems and business process improvement. Sometimes the improvements were prerequisite to further growth.

$50 million and Up

At $50 million and more, you are managing a complex organization and the demands are serious and substantial.  Complexity demands more of the skill sets of the human capital in a business and the software systems supporting the business must be robust enough to allow people to do their jobs effectively and efficiently.  HR is so complex that you need an HR team to support the employee population.  The finance staff has to be robust as well.  At this level the team likely includes:

      1. Bookkeepers (two or three)
      2. Accountants (three to five)
      3. Assistant controllers (one to two)
      4. Controller
      5. VP & Director of Finance
      6. CFO

These are all people working full time on a permanent hire basis in the business.  They may need some temporary help from time to time to meet specific project demands in planning, internal audit, transactions (such as M&A), system implementations or temporary general accounting support.  There are a variety of needs that arise in a business of this scale from time to time that require temporary expertise to lead or “arm and leg” support to implement important initiatives.

CFOs2GO works with businesses in all of these size categories and advises leaders on issues that arise with them regularly whether as a recruiter or as a consulting CFO.  If you are facing an issue in your business about financial resources we can help you resolve it.

 


 

Doug Kennedy has extensive knowledge and hands-on experience in building robust foundations for family offices and serving the role of trusted advisor. He performs business advisory services and financial consulting work for a variety of  family-owned businesses from start-ups to mature successful enterprises. His experience has been spent in family dominated publicly owned companies, high net worth individuals, estate planning, wealth management, succession planning, leadership transition and risk management.

If you would like to speak with Doug, please use the comments section to make a request.

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