One of the distinguishing characteristics of nearly all entrepreneurs is the passion they bring to their businesses. But whether you’re a skilled butcher, a terrific baker, or the best candlestick maker in town, there are functions of your company that you’ll need help with. And there’s no aspect of running a small business where this is more apparent than your finances.
“Money is so personal and that makes many entrepreneurs more skittish about handing over control,” observes Mark Koziel, CPA and vice president of the American Institute for Certified Public Accountants (AICPA), the world’s largest association representing the accounting profession. “A small business owner who wouldn’t think twice about reaching out for IT help is often the one who thinks that they, or maybe a bookkeeper, can handle all their finances.”
To figure out the kind of financial expertise your business needs—and when it’s time to hire a controller or even a chief financial officer—experts say it’s essential to answer a few basic questions:
- What kind of growth do you envision for your company? Will it remain a fairly small venture or will the business eventually expand to the point where it requires hiring dozens of employees?
- Does the business finance receivables and inventory? Will it need funding for additional locations, offices, and equipment?
- Are you looking to attract venture capital or any other type of private equity?
“When I work with small business owners I ask them to honest with me about how big they really want their companies to be,” says Barbara Steinmetz, president of Steinmetz Financial Planning in San Mateo, California. “Not every business owner wants to run a huge company with hundreds of employees.”
In that case, she says, a good bookkeeper is often enough. This person, says Steinmetz, can be full-time or part-time and should be able to keep accurate financial records that are detailed enough to enable an outside accounting firm to prepare your company’s taxes. Don’t wait until tax season, however, to discover that certain information might be lacking. Advises Steinmetz: “Keep in touch with your tax professional throughout the year. Ask if they have the documents they need and if they truly have your company’s complete financial picture.”
Despite what many small business owners may believe, there’s not one milestone revenue figure that signifies it’s time to move beyond a bookkeeper and hire a controller. Even if your business is small sales-wise, if it’s growing quickly and adding customers at a rapid clip, you should hire a controller, says Koziel of the AICPA.
Peter Fazio, executive vice president of Sterling Affair Caterers in New York City, first hired a controller two years ago when he was “done making so many mistakes.” In the early days of his company, he says, having a bookkeeper on staff was enough to handle Sterling’s bills and its receivables. But as his company grew—it now caters nearly 500 events annually—and Sterling began working with more and more vendors, Fazio says he knew it was time to bring in someone who could take a more holistic approach to Sterling’s finances.
For instance, when he was interested in looking for alternatives to the company’s outside payroll vendor, his controller was able to investigate different options and negotiate a better price, saving the company about $15,000 this year. Sterling’s controller was also the person who initiated conversations with different banks to get a better rate on the company’s line of credit. “I may have the idea of different things to look into, but I don’t have the time to follow through,” Fazio explains. “[The controller] has enabled me to take this company to the next level because I have her to focus on all the financial issues while I run the company and plan our events.”
One of the biggest obstacles in hiring any financial expert on staff is the trust factor. Fazio admits it was tough at first. “This employee knows every single thing about your business, including what you pay each employee and how much money you make,” he says. However, he is adamant about one thing: “If you try to segregate out information or just give a controller some information and not all of it, the relationship will fail,” Fazio warns. “Sign whatever confidentiality agreement you have to, but make sure your controller has all the facts.”
In addition, if a company is looking to attract venture capital or any other type of private equity, then it’s likely to need a chief financial officer. Ron Johnson, president of WAGIC, a product design, engineering, and manufacturing company based in Los Gatos, California, has had a CFO on board since his firm’s earliest days in the mid-1980s. “We raised outside capital when we were first starting out and those investors wanted to know we had someone who had plenty of experience managing the finance side of the business,” he says.
Johnson does acknowledge that for many small, early-stage businesses, cost is a factor. “At the end of the day, it does come down to what you can afford,” he explains. “However, spending $3,000 or $4,000 a month to have the services of a part-time CFO may be the best money you’ll ever spend because of the level of financial expertise they bring.”