The accounting function for most small business starts out being handled by a part-time bookkeeper. As the company outgrows the part-time bookkeeper, the accounting function is brought in-house and a full time accountant is hired. As the company continues to grow, the accounting function expands to keep pace and is eventually headed by a controller, who will supervise a handful of accountants or clerks who look after payroll, accounts payable, accounts receivable and general accounting duties.
You May Need More than a Controller
However there comes a time in a company’s growth when you should expect to get more out of their accounting function than can be offered by the typical controller. When your company’s activities start to require financial input into strategic and operational decision making, it’s time to rethink who should be leading the accounting and finance function.
Do You Need a VP Finance?
Large companies will typically have a vice president of finance directing all aspects of the finance function. This will include treasury, financing, strategic planning, setting up performance measurement systems, capital budgeting and high level financial analysis. The accounting function, including generation of financial reports is handled by the controller.
Smaller, growing companies typically don’t have the budget or requirement to justify having both a controller and a vice president of finance. However they do need someone who is hands on enough to oversee the day to day accounting function but heads up enough to add real operational value to the organization.
This combination of a hands-on and heads-up in small and medium sized enterprises usually carries the title of Director of Finance.
The Role of Director of Finance
The Director of Finance oversees the accountants and clerks in his or her group who look after the traditional accounting duties of A/P, A/R, G/L and payroll. He or she will issue the required financial statements, deal with the year-end audit and ensure that tax compliance matters are looked after – all the duties associated with the controller role.
What makes a Director of Finance position distinct from a controller is the forward looking value-add function they bring to the table.
Contribution to Operations
At an operational level, the Director of Finance provides management reporting to the executive team that helps them measure the performance of their areas of operations. Sales leaders understand their true cost of sales, margins and performance relative to budget. Operations executives understand their input and process costs, ROI on capital equipment decisions and the impact of currency and interest rate fluctuations on margins. A director of finance can help everyone in the management team understand the real-time financial impact on the company of their operational decisions.
Contribution to Strategy
At the executive level, the Director of Finance is a key contributor the formulation of the company’s strategic plan. He or she can assist the you and your management team analyze the company’s strengths, weaknesses, opportunities and threats (SWOT) and provide financial input into a strategic plan that will help the company deal with the various challenges and opportunities facing the business in the years to come.
The person who heads up finance function can be much more than the steward of the company’s accounting. They can be a trusted business advisor to the CEO and make a real contribution to the operations and success of the business.