Updated on September 6, 2024 by David Korpel
Introduction
Effective financial management is critical for the long-term success of any small business. It ensures you have a clear understanding of your cash flow, expenses, and profitability, which in turn helps you make informed decisions for growth. As your business evolves, so will your financial management needs. Whether you’re just starting out or preparing for strategic growth, deciding when to manage finances yourself, hire help, or build a full-fledged financial team can be challenging. Throughout each stage, ENGAGE CPAs is here to help with tax projections, financial oversight, and tax preparation, serving as a constant partner in your financial journey from step 1 to step 5.
While you may delegate tasks over time, as the owner, you always bear the responsibility of financial oversight.
1. DIY Bookkeeping: Starting Out
When it’s appropriate:
At the very early stages of a business, it often makes sense to manage bookkeeping on your own. If your business has simple transactions, minimal expenses, and low revenue, DIY bookkeeping can be an efficient way to stay on top of your finances without additional costs.
Key considerations:
However, DIY bookkeeping requires a time commitment and a basic understanding of accounting principles. Mistakes can easily slip in, especially if you’re juggling multiple roles in your business. ENGAGE CPAs can help at this stage with guidance on setting up systems and providing initial tax projections to ensure you’re on the right track.
Establishing good habits:
Even if you’re handling things yourself, it’s important to set up an organized system for tracking income, expenses, and bills. Use accounting software to stay organized and establish habits that ensure you maintain direct control over all financial accounts. ENGAGE CPAs can provide oversight as needed, ensuring that you’re properly prepared for tax time and maintaining accurate records from the start.
2. Hiring a Bookkeeper: Growing Pains
Signs it’s time:
As your business grows, the number of transactions increases, and your financial records become more complex. At this point, bookkeeping may start to take up too much of your time, which is when bringing in a bookkeeper becomes necessary.
Benefits:
A bookkeeper can help maintain accurate, up-to-date financial records, freeing up your time to focus on other areas of your business. They can improve your financial organization and ensure timely payments, all while allowing you to stay informed about your financial standing. ENGAGE CPAs will continue to assist with oversight, reviewing financials, and providing tax projections and preparation, ensuring everything stays aligned as your business grows.
Transitioning financial functions:
Start by delegating day-to-day tasks, such as bill pay and expense tracking. Implement a dual-control system for bill payments, ensuring checks and balances. Set up approval processes for different payment thresholds, allowing you to retain control over significant financial decisions.
Maintaining oversight:
It’s crucial to maintain oversight, even with a bookkeeper in place. Regularly review financial reports, bill payments, and bank statements to ensure everything is accurate and in line with your expectations. ENGAGE CPAs can assist with reviewing these reports, offering another layer of financial security and helping to spot potential issues early.
3. Bringing in an Accountant: Stepping Up
When to consider:
When your business reaches a point where revenue and expenses grow significantly, tax planning becomes more complex, and financial reporting is more detailed, it’s time to bring in an accountant. At this stage, ENGAGE CPAs becomes even more involved, offering comprehensive tax planning, financial analysis, and strategic advice to optimize your financial operations.
Advantages:
An accountant can offer expert financial analysis, optimize tax strategies, and ensure compliance with relevant regulations. They provide a deeper level of financial insight, helping you plan for growth while staying financially sound.
Expanding financial delegation:
As your financial functions grow, you’ll want to refine your approval processes further. A multi-level system for approving larger transactions ensures strong financial control. Setting up clear financial policies and procedures will also streamline the way your business handles money. ENGAGE CPAs will continue to provide oversight, ensuring that your processes and financial reporting align with long-term tax and financial goals.
Reinforcing control measures:
To ensure financial accuracy and security, separate key duties. For example, have one person handle bill pay while another reconciles bank accounts. This segregation of duties reduces the risk of errors or fraud, while ensuring your financial data remains accurate. With ENGAGE CPAs as your constant, we’ll ensure your controls are effective and your tax strategy is always optimized.
4. Adding a Controller: Scaling Up
Indicators it’s necessary:
As your business scales, you may have multiple revenue streams, business units, or need detailed financial forecasting. At this point, a controller becomes invaluable in overseeing the entire accounting operation.
Role and benefits:
A controller takes charge of advanced financial processes, including bill pay systems, financial forecasting, and budgeting. They implement more robust internal controls and provide strategic insights that help guide the company’s future direction. ENGAGE CPAs can help bridge the gap by offering tax projections, reviewing financials, and maintaining oversight of the growing complexity, ensuring compliance and alignment with business goals.
Enhancing financial controls:
A controller can introduce comprehensive approval matrices for various tasks, ensuring all financial processes are well-monitored. Regular internal audits of bill pay and other financial processes help maintain strong controls as your business grows.
Owner’s ongoing role:
Even with a controller in place, as the business owner, you must maintain authority over bank accounts and major financial decisions. Regular meetings with your controller will ensure you stay informed about your company’s financial health. ENGAGE CPAs will continue to be a key partner, providing tax guidance and ensuring the effectiveness of your financial controls.
5. Bringing on a CFO: Strategic Growth
When it becomes crucial:
If your business is experiencing rapid growth, preparing for funding rounds, or requires complex financial strategies, it’s time to consider hiring a Chief Financial Officer (CFO). As your strategic partner, ENGAGE CPAs will remain a steady resource, ensuring tax planning and financial oversight continue to support your growth objectives.
Value added:
A CFO focuses on high-level financial strategy, helping to manage stakeholder and investor relations, long-term financial planning, and risk management. They bring a strategic perspective to financial decisions and ensure the company is well-prepared for future expansion.
Advanced financial oversight:
A CFO will implement treasury management systems, establish relationships with multiple financial institutions, and develop sophisticated cash management strategies. This level of oversight ensures your business’s financial systems are secure and efficient. ENGAGE CPAs will remain your trusted partner, handling tax projections and preparation while offering insights to complement the CFO’s strategic vision.
Owner’s continued responsibility:
Despite the CFO’s expertise, you still retain the final authority over critical decisions, such as changes to bank accounts or strategic investments. Regularly reviewing high-level financial reports and maintaining relationships with your banking partners are essential responsibilities that remain in your hands. ENGAGE CPAs will continue to support your financial oversight, ensuring tax compliance and strong financial controls, even at the highest levels of growth.
Maintaining Control and Checks & Balances Throughout All Stages
Importance of oversight:
At every stage, it’s crucial to stay involved in reviewing financial reports, bank statements, and maintaining control over your company’s bank accounts. Implement robust approval processes for financial transactions to ensure accuracy and prevent errors or fraud. ENGAGE CPAs will help you maintain these controls and review your financials at each stage, ensuring your business remains compliant and prepared for tax season.
Technology and security:
Leverage accounting software with strong user permissions and multi-factor authentication to safeguard your financial data. Regularly audit who has access to your financial systems and bank accounts, making necessary adjustments as your business grows.
External oversight:
Engage external auditors to periodically review your financial processes, including bill pay and bank account management. For larger businesses, consider an advisory board to provide additional financial oversight. Regular meetings with your financial team will help ensure continued performance and security.
Conclusion
Regularly assessing your business’s financial management needs is essential for sustainable growth. Whether you’re doing it yourself, hiring a bookkeeper, or bringing in a CFO, having the right expertise at the right stage of growth can make all the difference. However, even with a capable financial team in place, ultimate responsibility for financial control always rests with you. ENGAGE CPAs will be your consistent partner through all stages, offering expert tax guidance, financial oversight, and tax preparation services, keeping your business on track as you grow. By maintaining a strong system of checks and balances, especially in areas like bill pay and bank account management, you can ensure your business remains on a solid financial footing.
