What do you think would happen to your business if you sent our your invoices irregularly? Or you didn't pay your suppliers on time? Or your payroll clerk didn't follow policies and procedures correctly? Or maybe not at all. What if you could not show your banker or investors reliable financial statements that accurately reflect the financial condition of your business?
Obviously, this would create problems. As an entrepreneur or CEO of a small to mid-sized business, you probably do not enjoy spending your time following up on these things, but you need to have someone who does. That person is the company controller, whose primary responsibility is keeping your accounting and finance trains running on time.
"My company doesn't need a controller."
That is a fairly common reaction when small business owners talk about their finance and accounting needs. We agree that a small business probably does not need a full-time, in-house controller, but that does not mean the controller's work is not essential.
The controller oversees the entire accounting process – including invoicing and collections, paying bills, preparing financial statements, coordinating with your tax accountant who prepares your tax returns, implementing accounting policies and procedures, and ensuring all transactions are recorded correctly, in the right month, so that you can know whether or not your business is profitable and how much cash you generate from month to month. While the controller's role may not be as "exciting" as sales or product development, it is important to consider what could happen if you do not have anyone managing these things.
The solution: Outsourcing. Here, we highlight three compelling reasons to outsource the controller function.
1. There is not enough going on to keep a full-time controller busy
As noted above, it is fair to say that many small businesses do not have enough to keep a full-time controller busy day-to-day. And, because automation can simplify and streamline many accounting processes, small business owners feel they can get along with an accounts receivable clerk who sends out invoices now and then, a payroll clerk, and or a part-time bookkeeper to close the books at the end of the month.
But doing without a controller means taking on unnecessary business risks. Suppose it is a struggle to close the monthly books accurately and timely. In that case, you go months without monitoring the accounts receivables aging schedule; no one is verifying that sales tax returns are being filed correctly and paid on time.
In this case, outsourcing the controller function is the most rational, cost-effective solution. You only pay for the controller’s services as needed, and assuming you work with a reputable outsourcing firm; you know the individuals doing the work are experienced and competent.
In fact, tasks that are overseen by a controller, such as bookkeeping, sending out invoices, etc., may not require full-time resources either. In that case, it may be beneficial to outsource the entire accounting team.
2. You cannot afford to expand your full-time finance team.
Many CEOs realize that getting by with a bookkeeper and accounting clerk is not enough. They recognize the value of having either a CFO or a Director of financial planning and analysis (FP&A) and a controller, but adding both would increase personnel costs too much.
If you look at this as a choice between a CFO or an FP&A resource versus a controller, you are in a difficult position. A CFO or head of FP&A helps evaluate what is and is not profitable for the business and provides analyses for strategic decision-making that allows companies to grow. The controller organizes the financial aspects of transactions and obligations that are already “on the books.” This helps companies stay out of trouble by keeping the financial side of the business running smoothly. It also ensures that analyses performed by a CFO are based on solid, reliable information.
However, by outsourcing the controller function (or the CFO function), you are no longer in an “either/or” situation – you can have both at a very reasonable cost. Outsourcing means you only pay for the hours of work you need, and you do not have to cover payroll taxes or benefits. In fact, what you pay for an outsourced controller will likely be “recovered” in terms of greater accuracy and timeliness of your financial records. There is real value in knowing that your financial statements accurately reflect your profit or loss numbers and cash flows for the month, your sales and payroll taxes are properly remitted, expenses that could be capitalized are given the proper accounting treatment, and so on.
3. You need to seek a bank loan, raise equity capital, or have received an inquiry about selling your business but your books are not in order.
If your financial records are not organized, you cannot confidently describe your revenue and profit trends. You cannot know with certainty that your customers have been appropriately invoiced (we have seen cases where invoices were never sent and customers were billed twice) or whether suppliers are being paid correctly. Ultimately, that means you cannot attest to the balance sheet and income statement's accuracy or how much free cash flow the business is generating. That puts you at an extreme disadvantage when you seek to raise capital or are interested in finding a buyer for your company.
Hiring an outsourced controller to clean up your books and establish transparent processes to prevent them from "backsliding" would allow you to confidently describe the financial condition of your business, putting you in a stronger position to negotiate with providers of capital.
With outsourcing, you get the skill-set you need and a stable, reliable resource. Instead of using a part-time person that could leave at any time, an outsourcing firm offers you a team of experts that can expand or contract as the amount of time you need from a controller and the complexity of your situation changes.
If you realize that your firm would benefit from the services of a controller but you do not need someone full-time, G-Squared Partners can help. Contact us or book a meeting to discuss your company’s situation.