From Bookkeepers to CFOs: A Primer on Small Business Accounting

Growing a business is hard, and there are many documented reasons why.  However, there is a reason that you don’t see discussed as often.  Smaller companies struggle to fill the same functions as a large business, albeit at different levels.

Before going further, let’s differentiate between function and employee.  An employee may be a bookkeeper, but the function is accounting.  A small business has the same functional accounting needs of a bookkeeper as a large business, just a different level of requirement.  For instance, a smaller company may only need 5 hours each month of a bookkeeper’s time, where a large enterprise may require a whole fleet of accountants.

The problem growing business owners often face put them in a difficult position – how do you fill functionality when you don’t have the budget or full time need for an employee?

This isn’t only a problem with just the accounting function.  The problem persists within marketing, sales, operations, and technology.  No wonder that most business owners end up acting as the CFO, COO, CRO, and CTO of their own company. 

After pointing this out to many business owners, I have been told for years that it is the only way. They bring up two concerns; first, they don’t have the budget for a full-time role.  Second, they don’t require a full-time position.  As a result, business owners end up spending 10-15 hours weekly on each role. 

An owner needs to decide if they want their business to grow, or if they are happy where it is.  Despite what you might read, either answer is OK.  Some people want to build a lifestyle out of their business.  However, a growing business needs to invest in making sure that all of its functions are adding value.

I Speak from Experience

Along with helping business owners as an outsourced CFO and bookkeeper, I also run a small franchise system called Monkey Bizness.  Monkey Bizness is an indoor kids entertainment center with 2 corporate locations and 4 franchised locations.

When I took over Monkey Bizness in 2015, I had several employees who worked in our corporate stores.  However, I only had one other corporate-level employee.  Between the two of us, we had to take on all the functions of a typical business. 

I came from an accounting background, so I felt comfortable with that function.  However, I also had to take on several other functions, including marketing.  I always thought I knew enough about marketing to be dangerous.  And dangerous I was….

The first problem I faced was I was unfamiliar with the function. It took me twice as long to do a task than it would have a person with a marketing background.  For instance, getting my Facebook ads up and running took me two days. 

The next problem I faced was overall strategy.  While I could figure out how to post on social media, I didn’t have the experience to determine what an effective strategy was.   For instance, we didn’t have any uniformity between our messaging on our website, social media, and paid ads.

The last problem was expertise.  I needed to have digital assets created (a fancy word for images).  In addition, I didn’t want to just post and image and say “Come On In!”.  Then, I wanted to post a picture with our logo, in a frame, with wording.  I eventually figured this out, but my images lacked professionalism at times. 

Instead of spending a chunk of my time working on these components, I was introduced to Kim who helped me out immensely. Kim and her marketing team were able to fill all of these roles.  I was able to pay a fraction of what a full-time person would typically cost.  I also filled all the roles I needed from digital marketing to social media, to overall strategy. 

The marketing solution that Monkey Bizness will work for most business owners to take care of their functions.  The best option for small business owners is to find a partner whom they can rely on to execute the function.  In most cases, this requires turning to a consultant.

The Accounting Function

Whether it be the accounting function or another one, there must be one main priority: creating value. Functions that don’t create value for your business need to be analyzed and re-configured.

Where do business owners say that CFOs and the accounting function create the most value? McKinsey asked non-finance leaders of companies areas in which their CFO and accounting function created the most value.  Here were the top 4 answers –

  • 47% said value was created in traditional finance roles, such as accounting and controller.  Think of this as bookkeeping and reporting. 
  • 42% of business owners said value is created from cost and productivity management.  These are tasks such as budgeting, modeling, and measuring operation efficiencies (such as utilization). 
  • 27% said specialty finance roles created value.  Think of this as special projects. With my franchise clients, I help their prospects project out their financial results. 
  • 25% said value from strategic leadership. CFOs are positioned to be the strategic stewards for companies.

I think most business owners look at this list and agree they would like their accounting function to create this type of value. 

The first person an owner often turns to for help is a bookkeeper.  Bookkeepers are well equipped for multiple of the traditional finance roles.  For instance, they know how to close the books each month and reconcile the accounts.  However, bookkeepers are not trained to bring the values listed elsewhere on the list.

The optimal solution for a business owner is to employ an entire accounting team, complete with a CFO, controller, and bookkeeper.  In most markets are this is a minimum cost of $350,000.  Additionally, a business needs enough work to keep everyone busy.

The truth is, it is not a realistic scenario for most businesses.  Even when I was an auditor and would travel to companies of all sizes, most could only afford to allocate 1-2 full-time roles to the accounting and finance function. 

The best solution for a robust accounting and finance function is to find an outsourced option. Imagine paying for less than one full-time employee a month to maximize the value that most businesses only dream of out of their accounting function.  Talk about an advantage!

Imagine having a full team that coordinates with each other and can take an integrated approach to deliver value.  Krieger Analytics, along with other similar firms, strives to provide a full suite of accounting services from bookkeeping, tax, and CFO advisory services. 

It is essential to define each of these roles, and more importantly, how they provide value.

The Bookkeepers Role

Perhaps one of the most misunderstood roles in the accounting function is the bookkeeper’s role.  Many business owners put far too much weight into their bookkeeper’s capabilities.  The best bookkeepers I know are limited to reconciling and closing the books monthly, which I don’t want to downplay.  However, business owners looking for reporting and analysis from a bookkeeper are setting themselves up for disappointment.

Don’t’ get me wrong…a competent bookkeeper brings incredible value to a business.  The cornerstone of an effective finance and accounting function is having accurate numbers.  Without correct numbers, tasks such as budgeting, reporting, analysis, and strategic planning aren’t possible. 

Simply put, the value a good bookkeeper brings is the ability for owners to have clarity in the performance and potential of their business.

The Tax Preparers Role

Too many business owners look at tax preparation as an annual task.  Tax preparation is often segregated off from the rest of the accounting and finance function.  Taxes are usually done by someone who has little background of the company beyond the numbers they are provided. 

Typically, in January, a business owner gets an email or call from their tax preparer with an engagement fee and a list of requests.  About three weeks later, they get a follow-up email.  Over the next few weeks, the business owner slowly starts to send items over to the tax preparer.  Eventually, after the preparer has everything they need, an email comes back from the preparer with 5-10 questions and requests.  The tax return is done after a few emails.  There is usually a phone call to quickly discuss how the year went and a promise to meet up after the 15th

Does this sound somewhat like your process?  Personally, I know this process because I have lived it in public accounting for 10 years.  I couldn’t stand it. 

The tax process should be integrated into the monthly accounting process, in my personal opinion.  What does this look like? Two or three check-ins every year where you and your tax preparer discuss what has happened, what the plans are, and how to best go about your strategy to limit your taxes.  It involves in an depth tax plan to reduce tax liabilities.

The CFO Role

I believe that a high functioning CFO should be a CEO or business owner’s partner.  A CFO is best positioned to drive value by delivering in three areas:

  1. Analysis
  2. Processes
  3. Strategy

Analysis takes on many different forms. It could be reporting, such as building dashboards or key performance indicators.  It could also mean budgeting or forecasting so an organization can plan for the resources they will need.

Every organization is made up of a series of processes.  A typical CFO comes from a background rooted in processes as well as efficiencies and effectiveness in processes.   CFOs can help streamline processes and build efficiencies where others might now see them.

Lastly, every business must have a strategy.  “Strategy” is such a common word it has lost meaning these days.  However, there is a process to strategy.  Unless an organization has a formal process around building strategy, they are often just throwing darts at the board.  A CFO needs to lead the strategic process of an organization.

Still today, I talk with many business owners who tell me they don’t need a CFO because their tax accountant fills that role for them.  Knowing how the tax preparation process unfolds, it’s amazing how business owners equate this to the value of a CFO.

A real CFOs value is providing direction for a business.  Through in-depth analysis, effective processes, and sound strategy, they enable companies to find the best path forward to growth.

How to Maximize Value on the Accounting Function

Whether it be marketing, sales, accounting, or some other function of a business, one of the keys to maximizing value is being able to fill out all roles.  Each of these functions has such a broad range of skills and tasks that it creates difficulty for growing businesses. As with other functional areas of the business, an owner needs to go about piecing together their team. When it comes to accounting, this includes varying levels of all three roles described above.   

I am a true believer that a business owner gets what they pay for.  They don’t often find a great bookkeeper for a rock bottom price.  However, I also believe that a  business owner should be able to fill out their accounting and finance team for significantly less then they would pay for one full-time bookkeeper.

One of the great traits of an outsourced team is the ability to flex their time and efforts based on the business need.  I have a client who is in the process of opening up multiple stores.  The amount of time they require from me as their outsourced CFO is significantly different in the months they are getting ready to open a new location.

Lastly, coordination between these parties is essential.  If you can find a partner that provides all of these services under one roof, that is a huge advantage.  When these three roles are coordinating, it can be a massive multiplier of value for a company.  If that is not possible, find an outsourced CFO who is willing to take on the role of being the hub of the bike wheel to coordinate all of this. 

Remember, the key is to get value out of the accounting and finance functions of your business.  Too many people in the accounting and bookkeeping profession tout the different tasks they can accomplish.  As a business owner, look past that and ask a provider what value they will create.  After all, creating value across your organization is the key to growth.

About Krieger Analytics

My name is Matt Krieger, and I am the founder of Krieger Analytics, an accounting and advisory partner for small businesses and franchisors.  Our goal is to completely outsource your accounting department from bookkeeping and taxes to CFO advisory services. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.

As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations.  Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO or bookkeeper.  To better fit my clients, Krieger Analytics is a part-time resource.  While most think of CFO’s being involved in finance and accounting (we are), we are also involved in much more.  We partner with clients by coaching, giving them clarity into their business, and creating growth strategies.  Conversations are free, so don’t hesitate to reach out to me at [email protected]

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