Regardless of whether you run a consulting firm, a trading firm, or an SaaS business, you’ll likely face the similar challenges as you scale up:
As your firm grows, and you start to take on more clients and recruit more employees, this makes your business more complex. Here, you might find that it’s increasingly difficult to manage and optimize your firm’s finances.
After coming to the realization that you need to improve your grasp on your company’s finances, the next step is to decide whether you want to enlist the help of an accountant vs controller vs CFO. Who is the best candidate to help your company move up the hierarchy of financial needs? Who should you get to help you with planning and strategy setting?
In this blog article, we walk you through the four levels that make up the hierarchy of financial needs, and discuss the differences between a CFO vs controller vs accountant. Read on to learn what sort of role you need to hire, based on your specific needs.
The Hierarchy Of Financial Needs
Think of the hierarchy of financial needs as a pyramid, with each level of the pyramid representing a different level of need.
You’ve probably heard of Maslow’s hierarchy of needs; this is pretty much the same thing, except it deals with a company’s financial needs instead of an individual’s developmental needs. At the most basic level, there’s record keeping, which is something that all business need to do, including startups and newly-founded companies. One level on top of that is reporting, and
CFO vs Controller vs Accountant: Who Do You Need ?
Whether you need a CFO, controller or accountant depends on which level of the pyramid you’re at (and whether you’re in the midst of transitioning to the next level).
Record Keeping
Record keeping is fairly self-explanatory; this involves tracking all transactions within your business, including sales and purchases, expenses, rent, etc. Most teams outsource this task to a bookkeeper and/or accountant.
Reporting
Reporting builds upon record keeping; here, you’re translating your records to information that managers or business owners can use to fine-tune their processes.
Take your profit & loss statement or your cashflow statement, for instance. If you simply look at these reports as-is, it might seem as though they bring little value to the table. That said, if you look at a tailored, condensed version of these reports — one that focuses on the past performance of specific products, processes or clients — this can allow you to uncover useful observations and insights.
Note that the value of these reports is directly linked to the skills of the person making them, and their understanding of the key processes in your business. As such, while a bookkeeper can take care of basic reporting, working with an experienced controller or CFO for this same function will bring you better results.
Planning and Forecasting
As Winston Churchill famously said, he who fails to plan is planning to fail. This is exceptionally true for businesses in dynamic environments, where the customer demand and business demand is ever-changing.
The previous levels of needs we discussed (record keeping and reporting) were backward looking, but once you start working with your controller or CFO to plan and forecast demand, you’re looking forward and taking things in your own hands. By using historic information and combining it with information about the future, you can produce an accurate forecast for the next time period, and identify the probable outcomes of your current path and future choices.
At this stage, you’ll want to work with an experienced controller or CFO who’s a proven value creator. This person will provide insight in the future consequences of management decisions made today, identify problems that might occur further down the road, and provide recommendations on how to address these problems.
Strategy Setting
At the top level of the hierarchy of financial needs, finance will become an integrated part of your business strategy and day-to-day operations. Here, the CFO’s role is to cooperate with each process and each team to identify:
- Opportunities to increase conversions and revenue, and
- Opportunities to reduce costs & increase profits
On a higher level, the CFO enables and drives strategy, providing a lasting impact on your business. This could include M&A decisions, international expansions and business models.
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When Is It Time To Move To The Next Level Of The Hierarchy?
When your business is growing rapidly, and you find that you can no longer cope with managing your finances on your own, that’s a clear sign that you should move up the pyramid.
The more you take on new clients, the more you’ll benefit from receiving structured information from the finance function. Running in the same vein, the bigger and more complex a business becomes, the more value a controller or CFO will be able to bring to the table.
On the flip side, if your business isn’t taking off, and you need to relook at your business model and possibly pivot, this also calls for more structured information. With more information and data on hand, you’ll be able to identify the best areas to focus on, and understand how to turn the business around.
Moving Up The Pyramid As A Consulting Firm, Ecommerce Store, Or SaaS Business
If you’re running a small consulting firm, you’ll find it easy to keep track of your firm’s finances. But as your firm grows, you might start adding new products and services to the mix, and this complicates your business model. At the same time, adding new members to your team (some of whom might be remote workers, some of whom might be freelancers) adds complexity to your costs and expenses.
At some point, you’ll start to find keeping track of your finances difficult, and when this happens, it’s an indication that you need to move up the hierarchy of financial needs.
With eCommerce stores, the same thing goes. If you start off selling just one product or product line, this will be fairly straightforward to manage. But as time goes on, you’ll probably expand your range and number of SKUs; you might also be working with multiple suppliers (all of whom have their own payment schedules and terms) instead of one supplier.
When this happens, you’ll want to outsource the handling of your finances to an experienced CFO, so that they can help you better manage your cash flow. On top of that, this person will also be able to provide insights into profitability (ie: which of your products are making you the most money?), forecasting, and more.
Finally, SaaS business owners might be able to take on the responsibility of managing their company’s finances in the first year or so, but as they scale up, they’ll also want to add an experienced CFO to their team.
Business owners might be able to handle lower-level activities such as reporting (getting insight on CAC, Churn, Payback period etc) on their own. However, they might not have the expertise to engage in forecasting to help them identify the cash impact of a new feature they add to their product. At the same time, they might not be able to appropriately analyze their data in order to provide insights into strategic decisions involving their business model, pricing model, and market expansion. That’s where a CFO comes in.
A Final Word On Moving Up The Hierarchy Of Financial Needs
Want to move to the next level in the hierarchy of financial needs, so that you can grow your company more quickly? If you don’t have a dedicated CFO or finance team, consider working with Insight Matters to understand and improve your finances. Our CFO’s will be happy to help you with the full spectrum of financial activities from bookkeeping to strategic
This is really helpful as a small business owner. I really like the pyramid representation and delineation between responsibilities as well. One thing that I’ve also run into is hiring a CPA vs. outsourced CFO service and also the term “bookkeeper” being used synonymously with accountant. There is a lot of overlap, but the responsibility differs in my understanding.
Thanks again for the post.