If you’re like most small business owners, you’re so busy running your company that the lines between bookkeeper and chief financial officer get blurred. A lot of times that’s because you or one of your people are responsible for both roles.
Business leaders often ask me why they need one or the other—or both. My answer is another question: “How much pain are you in?”
The Pains a Bookkeeper Can Solve
There are the four big ones.
1. It’s another chore you don’t like. When working with a new client, I asked, “What’s your password for QuickBooks?” He responded, “IMustDoThis.” That probably feels familiar.
If entering information into QuickBooks (QB) is drudgery, you’ll find any excuse to postpone this. And then you’ll try to get through it as fast as possible. That combination is a breeding ground for mistakes.
2. Your cash flow is out of whack. A construction contractor didn’t trust QB to accurately show how much money he had, instead relying on his bank’s website. Too often, he thought he had more cash than he did. Sometimes this led to bouncing checks.
What’s more frustrating than watching money needlessly go out the door when you get nothing in return?
3. You don’t get timely financial information. The owner of a fast-growing marketing agency was overwhelmed. She started getting short with her people whenever they brought her “bad news.”
The staff person handling QB saw that in two weeks the company’s bank account would be overdrawn. So she filled out a report mentioning this and put it on the boss’ desk, which was piled high with other papers. You can guess the rest.
4. You’re behind on billing. We were called in to help a painting contractor. The company was three months behind in sending invoices. Because so much time had elapsed, some customers caused further delays by disputing their bills.
Few things choke a business faster than not getting money for the work you and your people have done.
The Pains a CFO Can Solve
CFOs have three primary jobs. The first two are daily requirements, and the third is occasional:
•To be responsible for the design, maintenance and running of the internal accounting system and all of its processes
•To ensure the information put into the accounting system is accurate, and then make certain every internal and external stakeholder—from the management team to the bank—understands what it means
•To raise debt or equity capital to support the company
Having someone take ownership of the internal financial controls is easy to understand. The “financial intelligence” angle can be harder to understand. Here’s an example.
We were called in because a heating/ventilating/air conditioning company was on the edge of bankruptcy—despite having a large and happy client base. Their vendors were clamoring because payments for parts and equipment were way behind.
Putting on the CFO hat, we analyzed the numbers. The problem was easy to spot. The company was giving its customers net 60 days to pay their invoices. However, the terms for vendors were net 30. The solution was simple:
•New customers were given a 30-day term
•Existing customers received advance notice that they would be transitioned to a 30-day term
It didn’t take long for the cash flow crunch to disappear, and everyone went back to focusing on growth and customer service.
Do You Need Both?
Your job is to run your business. You’re not alone if you haven’t understood the difference between bookkeepers and CFOs. (A quick note on CPA’s. Their primary jobs are to ensure 1) your financials and accounting systems are sound, and 2) you don’t pay more in taxes than you should.)
Now that you know this, here’s the important question: “How much pain am I in?”
Are you uncertain about the quality and the meaning of your numbers in QB? Don’t know how much cash you have? Know you should be making better use of your time than sitting in front of QB? Then you need a bookkeeper.
Are you and your management looking at your numbers and using these to make good business decisions? Are you confident your financial practices are well run? If not, then you need the insights of a CFO.
Whatever your answers, you have plenty of options. Hire people. Use an outsourced bookkeeper. Turn to a part-time individual CFO or one from an agency.
And, of course, you can talk to me. We can see if providing our hybrid blend of bookkeepers with a CFO mindset is the right solution for you.
Whatever you do, do something. Remember: this kind of pain can drain your business—and it’s optional, not inevitable!
What Can I Learn Today to Improve Our Financial Performance?
You can hear when an engine is running smoothly—or racing or sputtering. The same is true for the financial drivers of your business.
You just need to know what to listen for. The good news is that your numbers are talking all the time!
Here are the best ideas we can find on how to ask your business for the information you need, to understand what it says, and take action on what you learn.
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What’s on Your Reading List?
- The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It, by Michael E. Gerber
- Profit First: A Simple System to Transform Any Business from a Cash-Eating Monster to a Money-Making Machine, by Mike Michalowicz
- Managing by the Numbers: A Commonsense Guide to Understanding and Using Your Company’s Financials, by Chuck Kremer, Ron Rizzuto and John Case