It seems pretty simple, right? A well performing business needs to be supported by an effective and efficient accounting and finance function. Without which, they will not know how they are performing and will not know where they are going. Which will generally lead to business failure.
But in reality, many finance functions don’t actually deliver on this.
So what does a business accounting and finance function do that enables a business to survive and prosper really look like?
Much like Janus the Greek God of beginnings and endings who looks both forwards and backwards, a business finance function should provide two perspectives to support business managers with informed decision making.
The first perspective is that of the past, being the recording of data to benchmark business performance and through this meet compliance requirements.
The past perspective looks at actual business performance and includes the following:
- Bookkeeping. This is the basic processing of data required to produce accounts and is required by all businesses. It is often the activity that requires the most resources and usually the first finance function activity to be implemented by a business. As the business grows, the roles specialise into dedicated activities such as creditors, debtors and payroll.
- Financial Reporting. This is the conversion of the data into meaningful reporting. This enables managers to accurately measure business performance on a regular basis to track progress against business goals.
- Tax and Compliance. Using the financial reporting, tax and other compliance requirements can be met in an accurate manner and on a timely basis.
The second perspective – and one that is vital to support business growth – is looking forward to the future.
The future perspective allows business managers to make informed decisions based on:
- Business and Strategic Planning: This is the bridge between the past perspective and the future perspective and builds on the historic reporting provided by the Financial Reporting function. A strong business plan will provide the non-financial pathway to achieve the financial goals set out in the annual budget. The strategy will articulate the business owners long term goals and the pathway to achieve this.
- Treasury and Working Capital Management. Ensuring the business has sufficient cashflow to meet requirements is critical to business survival, let alone success. The financial forecasting provided by the Business Planning process is extrapolated into a cashflow forecast and funding facilities put in place to ensure these requirements can be met.
- Risk Management. A key part of financial management is maintaining the internal controls framework that enables accurate reporting and reduces the risk of fraud and errors.
All these functions have varying degrees of complexity and would normally be performed by staff with differing levels of training and experience. The amount of manpower required to fulfil these tasks is typically pyramid shaped, with data processing – such as bookkeeping – at the base representing up to 50% of total accounting team resource capacity, versus CFO leadership that is generally between 10% – 20% of total resource available.
In an ideal world, a business would be able to support a diverse accounting team that could perform these functions, with the right amount of staff at each level. However, particularly in New Zealand, home of the SME, most businesses are not large enough to afford the expense of maintaining a team of accountants and clerks and therefore typically opts for a single internal person to cover their business accounting and finance requirements.
Our view is however, this this will produce a sub-optimal outcome due to the misalignment between the broad requirements of the business’s accounting and finance requirements and the limited capabilities provided by a single person.
If for example the business hires a junior accountant or bookkeeper, they will not be able to get the insights and analysis of an experienced finance professional that will help drive the business forward. If they go for a more experienced, senior level person such as a Finance Manager, they run the risk of that person leaving due to the more junior aspects of the role not being at keeping with what they are trained to do or want to do.
Furthermore, workflow analysis shows in-house accounting workflow peaks in the first two weeks of the month as the prior month accounts are finalised and reported on, and then tapers over the remaining two weeks of the month. Based on this, in some instances, internal accountants will be only be fully utilised for c. 50% of their time.
Filling the accounting needs of a business with an internal accountant has traditionally been the only solution available to business to meet their internal accounting requirements.
Virtual Accounting Team Solutions
Here at GECA however, we have innovated on this model. By leveraging the technological advances now available in most accounting software, the internal accounting function can be outsourced to a specialist provider, providing a business with access to a full spectrum accounting and finance team with resources at every level required by the business.
As an outsourced solution, it provides many benefits over an internal solution such as:
- Better alignment of accounting resources provided by an entire accounting and finance team to the business accounting and finance requirements as compared with an individual covering the role.
- Time saving for senior management by focusing on the outputs of the accounting and finance team such as reporting and analysis, rather than having to waste time managing an accountant in a specialist field that they are not experts in.
- Consistency and constancy of the accounting and finance function is improved by having accounting resources available 24/7 accounting function. With an internal accountant, businesses are exposed in the event the internal accountant is sick or absent from the office.
- Pay only for what you need. As outsourced solutions are done on fractional basis, the business only pays for what it needs at the time.
- Cost savings are achieved as outsourcing your accounting function is generally more cost effective than an in-house accountant.
Our clients operate in a world where change is constant and happening faster by the day. These smart business owners focus on their core service or providing an excellent product and/or service experience, and outsource non-core functions to specialists, be it Human Resources, IT or Accounting.
And increasingly we are seeing this occurring across the entire spectrum of business services providers from small consulting firms using contractor platforms such as at Odesk through to Tier 1 accounting firms with teams of accountants in the Philippines.
If you have an internal accountant and you feel you are not getting the desired outcome or results from this expensive resource, contact us today for a free assessment of your business’s accounting and finance requirements. We’d be happy to demonstrate how a Virtual Accounting & Finance Team could work for your business and give your internal accounting function “god like” powers to improve your business performance.
The author, Giles Ellis, is a CFO with over twenty years’ experience working with CEOs and Business Owners to improve, grow and exit their businesses. Call now on 0800 758 766 or email Giles at email@example.com