If you are building a company you are charged with creating the product vision, attracting the talent to build your product, and then leading the charge to market and sell that product. But what about the finance and accounting (F&A) team? Where do they play in all of this? When is the right time to bring in the people who help you understand your market’s economics and those of the very company you are building? When should you start counting the beans? Is it important to get audited? Do you need help raising money or managing the money you already have? Is there someone watching and managing the internal operations of your company? These are questions which are often left behind in the rush to market, and to the great detriment of founders, leaders and investors of growing companies. Ignore this and you may see your growth capped early or you may fail to get out of the starting gate. Do it right and you give your company a tremendous advantage in fundability, profitability, scalability and even market success.

Let’s start with what accounting and finance do at small (<500 EE) companies. I find a lot of misconceptions and differences of opinion. At most small companies they will do some or all of the following:

• Accounting
  • Transaction entry such as bills, customer invoices and journal entries for actions that are not discrete activity entries
  • Preparation of financial statements
  • Tax management and reporting
  • Audit preparation and execution
• Financial Analysis
  • Market economics
  • Product economics
  • Company economics
  • M&A analysis
  • Project analysis
  • Endless scenario analyses
• Fundraising
  • Venture capital and private equity
  • Asset-backed debt and venture debt
• Treasury and cash management
  • Selecting and managing investment vehicles
  • Managing week-to-week cash needs of the company
  • Maximizing returns on investment – which is trumped by…
  • Ensuring the security of the company’s cash and investments
• Human resources leader
  • Performance management
  • Recruiting
  • Benefits
  • Retirement programs
• Human Resources – at small companies this commonly falls on the F&A group
  • Benefits purchasing and management
  • 401k program acquisition and management
  • Payroll
  • Recruiting
  • Personnel reviews
• Legal resource virtual corporate counsel
  • Contracts
  • Employment issues
  • Leases
  • Licensing and IP protection
• Liability insurance
  • Selecting the right coverages for your business’s needs
  • Knowing what is and is not covered
  • Managing premiums and ensuring ROI
• IT/IS leader
  • Financial systems and often Business Intelligence and full-blown ERP/MRP
  • Often includes company networks, servers, hardware and software
  • Desktop support
  • Phones and connectivity
• Administrative leader
  • Office management
  • Facilities
  • Administrative assistants
• Advisor to the CEO and the Board of Directors
  • Operations strategy
  • Financing strategy
  • Overall corporate strategy
  • Foil to the CEO
  • Lead compliance manager and investor advocate
• “Inside” company leader
  • HR, IT, facilities, legal and more
  • Solid and steady face of the executive team
  • To all managers on personnel/performance issues
  • As counselor to employees and managers

Many F&A duties have nothing to do with accounting or financeThat is an incredibly long list of responsibilities. Take another look and notice how few of those tasks actually have to do with finance and accounting and how few of these an accounting or finance professional are trained for. Now consider how many of these tasks are optional for your company. Probably few or none. Next up, let’s look at what positions do what work:

• Bookkeeper: basic accounting entries such as payables, invoicing customers, entering payroll, etc. This person is typically found at very small, private companies doing non-complex accounting and data entry. This position typically leans on a contract CPA coming in for monthly or quarterly visits to do the more complex journal entries or to answer any new issues that come to light.
• Accountant/CPA: higher-level accounting including journal entries, capitalization and amortization, deferrals, revenue recognition. This position may be a full-timer at a slightly larger, yet still small, slow or no growth company. They may be the consultant that comes in monthly to help your bookkeeper keep the books straight.
• Accounting Clerk: usually very low level data entry. No accounting credentials nor significant experience. They are used for repetitive tasks such as filing, basic accounting system entry, etc.
• Accounting Specialist: typically a narrowly focused payables or receivables clerk, sales tax entry, etc.
• Accounting Manager: manager of a department such as payables, receivables, asset tracking, etc. They are experienced in the area they are managing and perhaps some others as well. The more “big company” their background, the narrower their experience purview.
• Corporate Controller: This is typically the owner of all things accounting at your company. The only time that is not true is when the company uses the Chief Accounting Officer title. Depending on the size of the company and the scope of the job, this could be a director, VP or CXX level position.
• Chief Accounting Officer (CAO): The head of accounting for, typically, a massive organization. The “C” of the CAO role puts this position on more equal footing with the other senior executives at a company and is typically used at companies who are large, public, and where the quality of the accounting is of paramount importance to investor trust and the entity’s market value.
• Financial Analyst: often an MBA, this person analyses all variety of business issues from a financial and often operational perspective. They look into products, processes, operations and analyze them to a)learn how they tick, and b)understand how a company might change/improve upon existing processes. They also analyze possible products, businesses, capital investments and the like for things like ROI, profitability, total investment required, etc. They also run low level budget and forecasting processes. This position is typically the most junior in the “finance” side of the corporate F&A world. It is usually a young MBA without a lot of real-world experience but a lot of intellectual horsepower and the tools (excel, basic analytic capabilities) to create meaningful output.
• Finance Manager: The next rung up the finance ladder. Finance managers take the analyst position up a notch. Sometimes they have analysts working for them, while other times the manager title is given as a means of acknowledging a higher skill level, but may still be an individual contributor. All of the tasks of an analyst would be on this person’s plate, but the expectation is that someone with more experience will have better insight, build better models, know more about operations and help drive better decisions.
• BU/Product Line Controller: at companies with multiple product lines, there is commonly a highly skilled finance and accounting manager assigned to the product group to assist with financial analysis, making sure the accounting at “corporate” is correct (so that it reflects properly on the BU/product line), budgeting, forecasting and general F&A issues. At companies that produce physical product this position may also own product costing (COGS), gross margin analysis and the like. Despite having the word “Controller” in the title, this is commonly not a CPA or technical accountant and often more of a finance manager/director with solid accounting chops. This is often a director-level position.
• Finance Director: Another rung up the same finance ladder. Very experienced with significant depth in multiple finance disciplines. May have some exposure to the financing side of business. Typically partners with product line or other business executives on an ongoing basis. May manage staff (or not, at smaller companies). Owns the budget and forecast in a way the analyst does not. That is to say they may have some responsibility, along with the business-side manager, for seeing budgets and forecasts are met – not just created.
• VP of Finance: Typically owns all FP&A (Financial Planning and Analysis) at a company. May be a member of the top executive team (or the expanded exec team if there is a CFO above them at the company). Responsible for helping drive all of the business to the budget and forecast. Responsible for all analyses of new business opportunities, often including M&A analysis. Has deep experience in finance and operations. May play a significant role in financing operations.
• Treasury: Usually a separate function found in larger companies with a lot of cash to manage or with international operations where cross-border transactions necessitate multi-currency management. Almost never seen in very small companies where the responsibility is owned directly by the CFO.
• Chief Financial Officer (CFO): Responsible for all FP&A and all accounting (unless there is a CAO). Also responsible for company financing (equity and debt in all forms), cash management, investor relations, M&A analysis, process and execution (remember, smaller companies), often a broad swath of internal company operations such as HR, IT, Legal, administration and others.

The key for small companies is what to do and in what orderWith the who’s who out of the way, let us get back to the business of when is the right time to do what in small company finance and accounting. As I noted above: most companies can benefit from doing all of the tasks listed above, but the key for small companies is what to do and in what order. The caveat here is that every company is different so your mileage may vary, but this discussion will help to inform and frame your thoughts.

Employee one through fifty: The smallest companies may be small for a variety of reasons, which will determine what skills you need. If you are an established company with a slow or non-growing business, you may only need basic bookkeeping and accounting. This can be done with some combination of bookkeepers, CPAs and auditors. The bookkeeper/CPA may be part or full-time depending on the transaction volume. If you are a high-transaction business and are not automated, you may need a payables or receivables specialist to manage the volume. You may or may not need an audit to certify your numbers at year end.

If you are a rapidly growing company you may have a completely different set of needs. You may be trying to figure out your revenue model and future profitability while still developing your product. At the same time you may be raising $20 million from the venture community and figuring out how to bring 30 engineering on board – half in Silicon Valley and half in Asia. In this case you may well be looking at needing a CFO and perhaps some accounting help as well to manage the day-to-day transactional volume. If you have big plans and will need clean books and solid revenue recognition as well as other policies, that “accounting help” might need to be a Corporate Controller. CFOs can often do a lot of their own spreadsheet jockeying and at smaller companies should do so. But at slightly larger, growing companies they will want the help of a variety of other financial talent – from analysts to BU Controllers if appropriate. An audit may be needed if you think your fundraising sources will want one. If you are an early stage development company and your only entries are simple expenses and depreciation you may not need an audit even if raising funds.

Employee fifty-one through one hundred fifty: This is the awkward in-between stage where, depending on your company’s growth profile, you may want or absolutely need to start building F&A infrastructure. Once you get above fifty employees a few things start to take up more than just a few hours each week. Such as payroll, payables, receivables, analysis, etc. Here you will start building a lower-level transactional team – happily also lower cost on the accounting side. You may also start to add analyst types on the finance side to help you analyze your business’ profitability and processes.

The larger you become the less you can count on a small core team of high quality employees to drive your business’ success. This means expanding your team in size and capability. It often leads to a narrowing of job responsibilities. That is, yesterday’s whole-business analyst or accountant becomes today’s BU analyst or receivables manager.

Employee one hundred fifty through five hundred: At this point finance and accounting are growing in lockstep with your business. You may have separate groups focused on sales finance, operations, FP&A, manufacturing/operations, etc. Your accounting group has grown to accommodate ever-growing transactional volume and have a raft of specialists. You are perhaps global and now have tax specialists and someone in treasury. Each group is built to match the business and some groups may be centralized while others are distributed among businesses or product lines. At the same time you probably have a cross-functional team working on updating you financial system to accommodate the growth and help streamline and automate processes.

Question: We are a privately help company, do we need audited financials?
Answer: Maybe. You only need audited financials if someone you care about wants on or if there is a requirement in one of your company’s agreements. Who would care? Investors and debt financiers for one. If you want a new round of equity or if you are trying to raise either asset-backed or debt for growth, chances are those constituents will want audited financials. With all of the financial shenanigans going on recently there is heightened concern that investors are getting what they paid for. Financials audited by a “name brand” firm are not a panacea, but certainly help ease concerns. You may also care to know that your numbers are solid. This is not a “trust” issue between you and your accounting group, but rather a matter of having “verified” financials for yourself to aid you in guiding the company.

Question: When do I need financial analysis?
Answer: When you don’t know the answer to the question: what is my future profitability likely to be in this or other businesses/lines of business, or, what drives my business’s economics? Mind you, I am not saying it needs to be full-time analytical help. There are plenty of good consultants out there for this, although, if your needs run to more than the occasional analysis, you may want to hire full-time. But the bottom line is that analysts analyze your current and future business prospects. This is not something which can or should be done on the back of an envelope unless you are in a very well known industry. Those of us in growth businesses who are constantly dreaming up new things need a way to turn those thoughts into cold, hard numbers. An analyst may be a newly-minted MBA or it may be 20% of your CFO’s time.

Question: Who watches the business while the CEO is out creating sales?
Answer: Typically, the CFO. Unless your company has a COO, President or some other head of business operations, chances are your CFO is charged with managing all of the company’s internal operations. This does not include product development or marketing, sales and business development (the latter three typically being very much led by the CEO). This does include, in addition to finance and accounting, HR, IT, facilities, legal, administration and many related activities. The need for part-time management of this bundle of important activities often drives companies to bring on a CFO earlier than you would otherwise think. It is simply not efficient to bring on 10%-40% of a person for each of the above activities when one CFO can do it (or do most of it) all for you and give you the other things a CFO does. That’s why CFOs work 80 hour weeks.

Summary: There is no one right structure. Every company is different and those differences lead to a wide variety of accounting and finance organization development. If you build finance and accounting consciously and conscientiously and they do their job you should be gaining capability and productivity as appropriate for each stage of your company’s life. However, if you don’t build these organizations well or timely, you will end up not having confidence in your numbers and not knowing where you are headed as a business from an economic perspective.