Do You Need a CFO?

If, like hundreds of thousands of Canadian businesses, your company fits within the small and medium enterprise (SME) category, you probably employ fewer than 50 people and have less than $10 million in annual sales. So why do you need to know about corporate financial management?

No matter the size of your business, there are certain universal functions that have to be performed, in one sense or another. Every business needs a bookkeeper, controller, and a chief financial officer (CFO). In smaller businesses, they may not be called the controller or CFO, but someone is doing the job.

By analogy to construction, think of bookkeepers as the skilled trades like the carpenter, electrician, mason, or plumber who builds a building, while the controller is like the general contractor who manages the construction of the building. The CFO is akin to the architect who designs the building.

Isn’t comptroller or controller or chief financial officer just another name for my year-end accountant? My bookkeeper keeps track of my income and expenses, then my accountant prepares my financial statements and tax returns — why would I need a controller, too?

Yes, most controllers are accountants, but no, they are not the same as your external accountant. Your external accountant provides what is called assurance services and compliance services — preparing year end financial statements and filing tax returns. These are compliance services because they help you comply with the law that says you have to file income tax returns or provide them to banks, bonding agencies or any regulatory agencies that require them. When the accountant provides assurance services, they conduct a review engagement or audit of your financial statements to provide assurance to the financial statement users, such as shareholders and banks.

Typically, you will talk to your external accountant once a year or several times during the year, while you should be talking to your controller monthly, weekly, or even daily. Controllers are intimately bound up in the management of the day-to-day operations of the business and spend their time taking care of the financial health of the business throughout the year. They do so by performing a broad range of duties within the business. Depending on the nature of the business and the size of the business, they may do everything themselves, or have a staff working under them.

{advertisement} Controllers may concentrate on financial management such as cash flow monitoring and forecasting, collections, purchasing and inventory control, payroll, and preparation of financial statements. They may also be responsible for human resource management, information technology management, and other management areas.

The CFO is responsible for overseeing the controller and for strategic planning. The CFO considers when or if to expand, how to acquire new plant and equipment, how to finance expansion, and similar high-level planning functions. Another way to distinguish the roles is to say that the CFO makes the plans, while the controller takes care of implementing the plans and the bookkeeper records the results.

In a small or start-up business, these functions will generally be performed by the entrepreneur, family members, or minimal staff. Because the business is small or just starting up, it cannot support hiring professional staff such as a full-time controller and the accounting and management systems are simple, or don’t really exist.

In contrast, a larger or more established business can afford to hire professional staff and establish accounting and management systems that help to keep control and management of the business in line. This is a big advantage and is one reason so many start up businesses fail within a few years — they can’t compete with larger businesses that have good systems in place because the start-ups have not replaced the early “by the seat of the pants” management style with a more sophisticated system of management and financial controls.

The jump from start-up to established business can be very difficult, especially if you try to do it all yourself. Take advantage of expertise available to your business, and look at engaging a part-time controller or CFO whose experience and abilities can help you take your business to the next stage.

Joyce Smith, CGA, CFP, is the president and CEO of J.A. Smith Business Solutions Group in Nanaimo. Call 250-751-3383 or visit her website.