As a CEO or owner, your first priority is not managing finances. You are the executive making decisions and setting the tone for the company. With this title, dually serving as head of finance is counterproductive. Your responsibilities only increase as a company grows. Delegating finances to a successful accounting department, frees up time to allocate elsewhere.
In this article we will dive into:
- Critical accounting functions of any business
- Which accounting roles can perform said functions
- 3 common in house accounting team case studies: a newly created start-up, a settled small business (SMB), and a mid-market company (MM)
Essential Accounting Duties for Healthy Finances
You may be a small business working hard for sustainable sales, or an owner wanting to move away from an outsourced firm to an in house accounting team. Where to begin? The first step is deciding what essential accounting tasks need to get done. These are the critical accounting responsibilities of any good business.
Bookkeeping
Highly valued in terms of finance fitness. Bookkeeping translates to recording the financial history of a business to create a consistent picture from month-to-month.
- Maintaining records of all accounts: receivable, payable, and payroll.
- A system in place to process invoices and transactions.
- Balancing the general ledger.
- Maintaining historical records: new hires, insurance claims, loan payments and other financial entries.
- Preparing financial reports by collecting, analyzing, and summarizing account information.
- Complying with federal, state, and local legalities.
Financial “Month Close” and Accrual Entries
Closing out the month is the best accounting tactic to track annual revenue.
- Requires clean bookkeeping.
- Reconciliation of all accounts
- Preparation of a financial statement with a balanced ledger.
- Requires reviewal and approval of above financial statement.
- “Closing out” of the month where no additional transactions are entered and a new period begins.
Managing Accounts Receivable and Accounts Payable
Organizing money coming in and paying your bills, keeps you operable. With good AR/AP you avoid cash leakage.
- Collect outstanding payments
- Verifying cash flow for accuracy: payments and transactions
- A system in place to process invoices and transactions.
- Manage billing dates and paying in a timely manner
- Maintaining account ledgers
- Preparing account reports
Income Tax Filing and Tax Planning
All businesses have to pay the taxman. Having a polished record will make taxes a breeze.
- Having proper paperwork: business and employee tax documents
- Scheduling and meeting deadlines: quarterly or annual
- Clear financial statements in case of an audit
- Consulting outside help to eliminate errors
Sales Tax Filing and Review
Sales tax needs to be collected and paid at the state level. All states have different parameters for filing. Keep tabs of sales tax rules in the states your business is connected with (also called nexus states)
- Understand your nexus states
- Collect sales tax in nexus states
- Accurately report and file state sales and use tax
- Meet important due dates for filing
Payroll
Workers make the business thrive, so they should be paid. Payroll has complexities associated with HR compliance, data entry, and record management.
- Calculating hours and labor costs
- Processing checks or deposits
- Paying employees on time
- A system in place to record employees payments
- HR compliance: meeting guidelines for workers compensation, insurance, retirement funds and minimum wage.
- Dropping Accounting Diamonds Weekly
Typical In House Accounting Team Positions
Certain accounting professionals are trained to perform certain accounting functions. Each industry is going to require its own criterion of experience. As you can imagine, this hinges on your size and specific type of revenue model. Knowing how you can utilize each role, will get your accounting team on track. This list goes from low-high costs of labor.
Bookkeeper
This is the most common position you will find in the accounting department. They keep a tight grip on all accounts. Many bookkeepers deal directly with the business ledger via hard copy, or more common through software. Their work is overseen by an accounting manager or the owner. Here are typical duties of an in house bookkeeper:
- Bookkeeping
- Accounts Receivable (AR): Recording all incoming money and prepares AR Ledger for reports
- Accounts Payable (AP): Recording all outgoing money and prepares AP Ledger for reports
- Prepare Account Reports: Monthly, quarterly and annual reports for review
- Maintains and verifies ledger manually or digitally
- Payroll: Processing checks for approval
Accountant
While an accountant can take on the role of bookkeeping. It would be an underutilization of their skills. In short they are taught to make educated moves based on the numbers. Their insights focus on improving record-keeping. Their work helps a business stay compliant with the law. Accountants usually take on these roles:
- Accounting Systems Oversight: Managing accounting software data.
- Financial statement preparation for review
- Tax preparation for review
- Bookkeeping
- AR/AP
- Payroll
Controller
This position is most dedicated to managing the in house accounting team. Controllers meet superb standards of financial accounting. They serve as a checkpoint for bookkeeping and financial accuracy. We love how Accounting Tools defines a controller as a mediator between information systems and the accounting team. This is their role on the accounting team:
- Accounting Manager: Enforces accounting policies. Review Financial Statements.
- Treasurer: Manage cash flow and budgets while mitigating risk.
- CPA: Acting as representation for business by preparing, reviewing, and filing tax documents.
- Information Systems Manager
- Payroll Manager
- HR Manager
CFO
In virtually every company we look at, the CFO is becoming the second most important C-suite executive. An effective leadership team depends on the CEO and CFO being a great double act. – David Axson
The Chief Financial Officer isn’t all about the numbers. They have keen insight into business motives and the overall industry. They carve out a financially sound path, with all players of the business in mind. They keep the business in line with the law. Most importantly the CFO is a soundboard for the CEO. Someone that supports the mission of a company, with a pragmatic approach. The CFO can wear many hats for a company:
- Accounting Manager: Managing the accounting team. Final review and approval of reports and statements.
- Expenditure and Forecast Reporting: Making projection reports, setting operational budget, allocating capital to future investments.
- CPA: Acting as representation for business by preparing, reviewing, and filing tax documents.
- Sales Manager: Targeting markets, finalizing large accounts or investors.
- Information Systems Manager
- HR Manager
CEO or Business Owner
This position is the most overlooked and underrated position on the accounting team. Owners are the business historian, having been with it from the start. Their entrepreneurial spirit brought them to the top. This role interprets information provided by the accounting team, moving the business forward. Strong accounting teams have a CEO to understand and approve all functions.
- Strategy: Understanding accounting reports, setting future goals.
- Communications: Aligning business finances with investors/board
- Operations Manager: Approving statements, budgeting and investments.
Software
A paradigm shift is happening on the accounting team. Artificial Intelligence (AI) is quickly taking over. Accounting software can help business finances. All tech options listed require some form of human interaction, and of course WIFI. But, they eliminate the repetitious behaviors typical of outdated finance teams. Here is where software should be considered when building an accounting team.
Payroll – Third party payroll service providers (PSP) handle all aspects of paying employees. They streamline processing, tax payments, and deadlines. Professional Employer Organizations (PEO) will also provide payroll, 401K workers comp, HR compliance services, and business insurance at very cheap rates
Accounts Receivable – These systems allow you to personalize bill templates, send bills, set reminders for the customer, and collect pay. Automated invoicing software manages your sales for you.
- Examples: Chargebee, Xero invoicing, and QuickBooks Online invoicing
Accounts Payable – Processing bills and receipts is now faster than ever. Through pictures or document uploads, an AI can translate information with speed. The data integrates with common accounting systems.
- Examples: bill.com, avidxchange, and melio
Bookkeeping – Cloudbased site providers give you the tools to run your ledger. You can create invoices, record transactions, set due dates, and run reports that help you analyze various aspects of your finances.
- Examples: Bench, Xero, and QuickBooks
Expenses – This is software to track company expenses. Employees can submit expenses, which then will be processed, approved, and reimbursed all in one platform.
- Examples: Expensify, Zoho Expense, and Xero Expenses
Taxes – Many bookkeeping programs mentioned above have tax services. Most have sales tax tracking and can prepare tax documents.
- Example: Turbo Tax for Business
Common Accounting Team Scenarios
Now that you know the who and what of the finance team. Here is some practical advice on how to structure the accounting department. Surely all businesses are different. Determining your specific needs will shape how you hire. Here are some 3 case studies you can model your business after:
Start-up
A start-up is still a Seed ready to be watered. It is safe to say, funding is slim. The budget is constantly monitored. This should be an incentive to have a dedicated accounting professional help out. They can organize cashflow right out of the gate. If you are still under 5 employees, one of them should be in accounting. Here is an accounting team scenario for a start-up:
Bookkeeping – The largest hurdle for start-ups is bookkeeping. This task can be solved with a software subscription. Many small business owners and start-ups, opt for this in the beginning. Get comfortable with the software you choose. Have enough knowledge to review the data. There is always some percentage of error with technology. Also, learning these programs will better tune you to your future accounting department. Software is not the end all be all solution. However it will keep your finances clean. This is something you can integrate into your business before or with the consultation of your new hire.
Accountant – Hire a seasoned accountant first. The position could be a freelance contract worker, until a salary becomes available. Having an accountant during the initial phase of a start-up, will fortify business finances. This keeps you as the owner on track to grow. Eventually you may move on to hiring more members. However your first accountant can serve these general accounting functions:
- Informed partner in your industry
- Develop and/or manage accounting systems for: inventory, AR/AP, bookkeeping, and payroll
- Can prepare the books in cash or accrual accounting methods (whichever is determined best for your business)
- Can review reports for mistakes.
- Can give you some insights about your working capital
- Can identify cost cutting opportunities.
- Help with loan applications
- Some planning and budgeting
Small Business
As a small or medium sized business, with 100-1000 employees, the accounting team looks very different from a startup. The annual revenue of your business will shape the teams dynamic. In general you should have people: keeping track of what is coming in and going out; making sure the business is compliant with the government; and providing some level of foresight on the future of the business. On every CEO or owner’s mind is labor costs. It is possible for a business at this level, to run a slim accounting department. By leveraging accounting software to automate repetitive tasks, savings can occur. This comes with the stipulation that you have human oversight. Your team should consist of:
- Payroll or third party service
- AR/AP or automated invoice software
- Bookkeeper or bookkeeping software
- Accountant(s)
- Controller
- CFO (Part-time who also is a CPA)
At about $5 million in revenue it is time to consider an in-house CFO. They can help the business level up. A CFO will bring a much needed sigh of relief as head of finance. They will strategize ways to improve profit margins and forecast long-term goals. Also make sure they are a certified public accountant (CPA). These skills will come in handy for tax purposes. This person can be a contractor, freelancer, or part-time.
Mid-Market Company Accounting
Congratulations you are a CEO or owner of a mid-market company. There should be an accounting department in place. A group that works together and is functioning. Give the accounting team a review. At this level there tends to be discord because the company has stretched. Two common things arise to look out for: the team is underbuilt or overbuilt.
Underbuilt: There is too much work, the team isn’t meeting deadlines. In this situation, review what holes in the department are causing problems. You may need to split duties in AR/AP, or add accountants. If it is a management issue but you have budgeting concerns. Consider hiring a temporary accounting manager to see the department through the storm.
Overbuilt: There is too much waiting for upper levels and nothing is getting done. Also known as TPS Report Syndrome. Re-evaluate the approval process in the department. Consider passing the torch to a trusted accounting manager versus siphoning power to one or two people.
The Right In House Accounting Team
This resource should help you work through any pain points in the accounting department. Finances can be stressful, but they don’t have to be. Now, you have the knowhow to build an in house accounting team, select the positions to fill, and get working. Things run smoothly, when you have good people by your side. Because more heads are always better than one.
