When you first started your business, you may have done all the accounting and reporting yourself because you could not afford to pay others. Then, when you could afford to do so, you took the step to engage a part-time, maybe outsourced bookkeeper.
Now that your business is further along, you may find yourself wondering about the arrangement: I think I have outgrown my part-time, outsourced bookkeeper. I'm planning to fire her and hire a CFO. Is this a good idea?
What I hear in this oft-repeated question is "My business is growing in size and complexity and I am not getting the necessary information to manage and plan the business."
Two likely causes of not receiving the necessary info are your bookkeeper's skills and bandwidth and/or your information system. Both might be the same as when you started the business several years ago and maybe now you have outgrown one or both of these arrangements.
For CEOs who ask this question, I have this to say: You are thinking along the right track, but you may want to consider some analysis and alternatives.
Do You Need a New Bookkeeper and/or CFO?
First, separate the volume of work to be performed and the type of information needed.
Depending upon the type of business and the number of transactions and employees, you might be ready to have a full-time employee processing transactions (e.g., data entry).
It might be a bigger role than bookkeeper—maybe you'll need an office manager. An office manager could also handle payroll, bank deposits and statement reconciliations, sending out invoices, contacting slow-paying customers, reviewing credit card statements and more.
As your business grows, you may need different types of reports. A CFO usually prepares these, and a dashboard can help you quickly see the health of the business.
However, if your sales are below $2 million, you might not be able to afford a full-time CFO, as this can be an expensive position.
Instead, consider hiring a part-time CFO, which are known as “fractional CFOs." She might spend a few days in the office each month closing the books on the information processed by the office manager, interpreting data and generating management reports.
If you have a board of directors, then she can provide the board financial package. At other times during the month, the fractional CFO is available to you for a Q&A and maybe special projects.
You could try to hire a CFO to do the bookkeeping and reporting, but this is not economical as contract bookkeepers have a billing rate in the range of $35-50 per hour, while a CFO's billing rate is $100+ per hour. You may want to consider getting a full-time bookkeeper/office manager to handle the transaction processing, and a fractional CFO to “close" the books and provide the management and board reporting.
It is also a good idea to have a CPA handle taxes. Businesses that are LLCs or S Corps may want to have a CPA handle the company and the owner's personal taxes.
Ask your CPA for recommendations on a new bookkeeper who can handle your volume and complexity of work. They have a vested interest in this person since the data entry feeds the tax returns.
Does Your Information System Need Upgrading?
Note: This section is not titled, "Does your accounting system need upgrading?" (I'll get to this in a moment.)
Your business might need more than accounting information, which looks in the rearview mirror. The #1 forward-looking info you probably need is a sales pipeline: Who are your prospective customers, where are they in the sales cycle and what is the likelihood you will sign a contract with them? (This is particularly important in B2B business models.)
If you already have a sales pipeline, great. Does it include the timing for each prospect to reach the next stage gate? Does it include probabilities to close so you can have a "risk-adjusted" analysis? Both features are important improvements you can make to your pipeline.
Also important is your cash-flow forecast. Will you be able to make payroll, buy the desired equipment, expand, pay vendors, make loan repayments, pay yourself, etc. with the current cash flow or will you need financing?
If you have a cash-flow forecast, you are on the right track. Now consider having it by month for the next 12 months or through the next year end. Also consider using the info from the sales pipeline in the revenue section of your cash-flow forecast.
Now to the accounting information system. When you started your business, you probably used a spreadsheet to create your financial statements—and maybe this is still your process. But it may be time to consider upgrading to accounting software like QuickBooks, Microsoft Dynamics, Sage, Fresh Books and many others. They come in multiple versions depending upon your needs, and as your business grows, you can upgrade to versions with more features. Several are cloud-based and address doing business with the government or nonprofits.
When you find a bookkeeper or accountant, it helps to work with someone who knows your type of business and knows the particular software you plan to use. You can even ask them to set it up for you. They will include the information structure (e.g. code of accounts) and reports that will provide the necessary information to help you manage and plan your business.
Changing accounting systems is time consuming and can be messy, but it's better to get on it now rather than later. Your time is best spent gaining, onboarding and maintaining new customers, as well as focusing on your product or service.
Engage others and invest in information systems to provide you with the information you need to manage and plan your larger and more complex business. While the person's title and employment might change, the essential bookkeeping tasks remain.
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