Guest article by Dave Tadman - Partner @ Stawowski McGill & Partners LLP.
The recent economic downturn has been a pivotal event causing many companies to assess their financial expertise in response to cash flow, revenue, and financing issues. The need to make strategic decisions, manage risk and forecasting is essential to provide the tools for a company to be successful and provide value to its shareholders/owner.
There are progressive levels of financial expertise required within a company as it grows and matures. Each is essential to take the next step in providing the financial efficiency and business insight to make informed decisions for the future.
The significance of the different levels of financial expertise can be illustrated in a client situation that we recently encountered…
This particular client had both a bookkeeper and controller in place who were doing a great job at keeping the books accurate and up-to-date; however, senior management didn’t have the information available that identified larger business issues. Inventory and cash flow was spiraling out of control, the bank was breathing down management’s neck as the bank covenants were suddenly offside, and vendors were ready to cut off supply as the company was behind in their payments to vendors.
In this case the bookkeeper and controller were doing what was required from them but the issues at hand are not typical areas where either position had experience or the expertise to help management make informed decisions. We worked with the client’s management team to set-up internal controls and systems in order to get inventory more in line with the business’ requirements while at the same time freeing up cash to pay suppliers. This resulted in over $1 million dollars being freed up to be used elsewhere in the business. We worked with the management team and helped them to create a strategic plan and financial forecast so they could show the bank how they were planning to get back on side of the covenants and maintain that relationship going forward. Lastly, we worked with suppliers to set-up a payment plan with our client and even turned some of the overdue payables into a longer-term debt instrument which would support the company getting back into better financial position sooner.
In this example the CFO’s role was to take a higher level look at the organization and its issues and help craft appropriate solutions to help navigate the different problems. The roles of the controller and bookkeeper focused on ensuring the company’s data that was accurate and timely. Without proper information it would be impossible to make appropriate decisions. The CFO works at the 50,000 foot level which gives them the ability to focus on the strategic, financial and operational issues that need addressing. Each level of financial expertise is very important but the focus of each position is very different.
Bookkeeper:
On a fundamental level a bookkeeper operates in the trenches primarily dealing with accounts receivable/payable, Payroll, GST, coding entries to the correct accounts, and reconciliations of accounts. Normally their role does not go beyond this level but is essential to the day-to-day operations of a company and provide the solid foundation to produce further financial analysis.
Controller:
In larger companies there are typically multiple bookkeepers/accountants working on the day-to-day accounting. A Controller coordinates the group of accountants to ensure accurate on time reporting is achieved as well as other tasks such as:
• Monthly detailed review of general ledgers
• Assisting with P&L analysis
• Review of monthly and quarterly reconciliations of all major balance sheet accounts
• Review of summary schedules prepared by the Corporate Accountants as part of the monthly senior management reporting package
• Review of audit working papers for interim and year end
• Compliance with internal Financial/Accounting procedures
• Perform and develop financial reports and budgets
• Developing policy and internal procedures
Many small to medium sized businesses do not have the complexity that would require a dedicated controller on staff. However, they still require a higher level of financial expertise to allow the company to achieve its strategic direction.
Chief Financial Officer (CFO):
A CFO works with the Controller (if the company requires one) and/or Bookkeeper to integrate the financial information required by the company to make well-informed business decisions. A CFO is responsible to gain an understanding of the business and the environment in which it operates within, and to plan, measure, monitor and mitigate the risks of the company. The following traits are typically found in a CFO within successful companies:
• A forward-looking focus based on strategic planning and forecasting is combined with the corporate and personal goals of the shareholders
• Implementation of financial systems and processes that allow the company to be scalable and quick to respond to its environment
• An understanding of the business as a whole that can drive operational efficiency, identifying market opportunities and how to respond to them quickly as well as the management of risk in these areas
• Integration of information from across the company, both financial and operational, to provide analytical capabilities such as planning and forecasting, scenario analysis and selection, monitoring, and understanding of key performance indicators
• Cash flow and working capital management and review with management
• Maintaining relationships with banks and other key lenders and service providers
• CEO/Owner support – providing the CEO/Owner with someone to discuss high-level business issues with as they typically have been the one and only key decision maker in the company as it has grown
The role the CFO plays is fundamental to the strategic direction and success of any company whether they are small, large, public or private. Many times in private companies this role is one of the many hats the owner wears as they work to grow their company, but unfortunately it is also the least understood. The strength of the bookkeeper and controller positions to provide the quality financial information for the company, and the integration of the information by the CFO can provide the difference to drive sustained business success, even during periods of market instability.
Dave Tadman
Partner
Stawowski McGill & Partners LLP
Stawowski McGill & Partners LLP is a leader in providing surrogate CFO services to energy services companies. For more information please contact David Tadman, CA at 403.229.0411 or david@stawowskimcgill.ca.
