Your Accounting and finance functions are vital to running your business. They help you make decisions, stay compliant, reduce costs, file and pay your taxes timely and accurately, and provide meaningful financial information to management and external stakeholders.

Staying on top of the numbers becomes a challenge as you grow, though. You only have so much time in a day. Most executives prefer to spend those finite hours building their businesses rather than keeping the books.

Yet the accounting and finance functions will only become more critical as your business increases in complexity and size. Eventually, it becomes necessary to have someone else manage the number if you hope to sustain business growth.

No longer do you need to hire in-house — thanks to technology and the global economy, outsourcing provides you with quality accounting and finance experts in a cost-effective manner.

Below is your comprehensive guide to outsourced accounting and finance functions. Using this guide, you will gain a better understanding of each role your growing company needs and determine whether outsourcing that function makes sense.

Senior accountants are responsible for ensuring the accuracy of the “ground-level” accounting functions. These include tasks like bookkeeping, recording of accounts payables and receivables, month-end closes, and general ledger reconciliations.

In larger businesses, there may be several senior accountants, each in charge of a team of junior or staff accountants. Senior accountants report to the controller, bridging the gap between the accounting department’s detailed accounting work and management.

Bookkeeping

Bookkeeping is the process of recording and tracking each financial transaction your business makes. Every bookkeeping transaction is recorded in the general ledger, known colloquially as the company’s “books” — which is why it’s called “bookkeeping.”

Accurate bookkeeping is fundamental to your business’s success, as it helps you:

• Make decisions
• Complete your taxes
• Create your budgets
• Prepare financial reports
• Be ready for audits

Bookkeeping is often used interchangeably with accounting. However, accounting is the overall process of managing your business’s finances — bookkeeping is one step within that process.

Many small business owners can perform their bookkeeping themselves using software programs. At a certain size, however, transactions become more frequent and more complex. You’ll need to hire an in-house bookkeeper or outsource.

Accounts Payable/Accounts Receivable

Two of your most important general ledger accounts are accounts payable (A/P) and accounts receivable (A/R). Each type of account has a subledgers bearing its name.

Accounts payable represents a short-term (current) liability that you owe to a creditor for buying goods or services without paying cash up front. You generate accounts payable after you approve an invoice for the transaction involved. For example, if you bought $300 of office supplies for your business on credit, you’d record the $300 purchase in your A/P subledger after approving the invoice the vendor would send you.

Accounts receivable is the opposite — it’s a current asset that represents money you’re owed for the sale of your goods or services. If you sold $500 of goods to a customer, you’d record this $500 sale in your A/R subledger. Generating an invoice is a part of creating an accounts receivable transaction for most companies.

Month-End Close

Each month’s transactions need to be distinct and organized for accurate reporting to management, lenders, investors, and regulators. Since businesses don’t stop operating when the 1st of the next month arrives, you need a way to separate last month’s transactions from this month’s.

This is what the month-end closing process is for.

During month-end closing, you review, verify, and reconcile account balances for accuracy. Several journal entries are also involved to ensure income and expenses are allocated to the correct month.

Every business’s month-end accounting procedures will differ depending on the type of business, the financial accounts it has, and the accounting method it uses.

General Ledger Reconciliation

Every transaction must have an equal and opposite transaction to ensure your books are balanced. Thus, every transaction requires a debit to one account and a credit to another.

Errors can occur, however. You may debit the wrong account by accident, or perhaps you forget to record a transaction, or you may enter an accounts payable transaction in the A/R subledger.

General ledger reconciliation is an internal control procedure that exists to find these errors (and other events, such as fraud) so you can fix them and ensure accurate financial information. Reconciliations are performed at regular intervals, often monthly and quarterly.

The head of the accounting department is called the controller. Controllers are a more technical position than an operational one, but they still perform some management functions.

Tasks for which the controller is responsible include creating budgets, forecasting future performance, ensuring accurate financial reporting, maintaining compliance with laws/regulations/GAAP, creating and monitoring internal controls, and implementing new accounting systems.

In addition to these core tasks, controllers may also be tasked with hiring and training new accounting staff.

Budgeting and Forecasting

Every business engages in both budgeting and forecasting. Neither process is mutually exclusive of the other.

Although both processes seem similar, there are some key differences. Knowing the differences will help you allocate resources appropriately and assign each task to the correct staff members or teams.

The difference between budgeting and forecasting is that the former is a plan, while the latter is a prediction.

Budgeting involves outlining what your business wants to achieve in revenues and expenses over a certain timeframe. This process tends to involve more granular details about expenses.

Forecasting looks at predictions of revenue and overall expenses at a higher level based on previous financial data. They consider historical data and external market indicators. This process is more concerned with potential sales.

Both elements work in tandem.

Financial Reporting

Financial reporting involves disclosing various statements detailing your business’s financial positions to management and external stakeholders (such as investors, lenders, regulators, and customers). In general, you release financial reports quarterly and annually.

There are four main types of financial statements.

• Balance Sheet (also called Statement of Financial Position):
  • Contains information regarding your assets, liabilities, and owner’s equity at a certain point in time.
• Income Statement (also called Profit and Loss Report or P&L):
  • Contains information on your income, expenses, and profits over a timeframe.
• Retained Earnings Statement (also called Statement of Changes in Equity):
  • Contains information on changes in your company’s equity over a timeframe.
• Cash Flow Statement:
  • Contains information on your positive and negative cash flows from operating, investing, and financing activities.

You don’t have to disclose most of your financial information to external stakeholders if you’re a private company — since you don’t sell stock to the public — but financial statements remain helpful tools for analyzing your business’s performance and making decisions for the future.

Compliance

Your business must follow a lot of laws, regulations, and guidance regarding accounting and finance. You need clear processes for recording, verifying, and reporting all of your financial information to ensure compliance.

Two important compliance issues with regards to accounting include the following.

• Generally Accepted Accounting Principles (GAAP):
  • Generally Accepted Accounting Principles, or GAAP, are a set of rules that encompass the complexities and legalities of business accounting. The Financial Accounting Standards Board (FASB) promulgates GAAP as the foundation of its comprehensive set of accounting methods and practices.
    U.S. law requires businesses that release financial statements to the public and companies that are publicly traded to follow GAAP. However, private companies must also report in accordance with GAAP if required by their stakeholders.
• Sarbanes-Oxley Act of 2002 (SOX):
  • SOX sets several standards public companies must follow in regard to accounting, financial reporting, and internal auditing (discussed next).

Internal Controls

Internal controls are a set of policies and procedures that protect your assets, ensure reporting reliability, assure operational effectiveness and efficiency, and minimize the chance of fraud occurring. They came into the limelight after the accounting scandals of the early 2000s, although they’ve been around much longer.

Segregation of duties is a typical example of an internal control, especially when it comes to cash.

Making one employee responsible for receiving cash and recording the transactions puts you at risk for fraud. That employee could pocket some of the cash and record the rest as the total amount of cash received.

Instead, you would ensure that a separate employee is responsible for recording the cash receipt.

An internal audit department is responsible for providing an independent evaluation of your business’s internal controls and analyzing the effectiveness of your risk management and governance processes.

Accounting Systems Implementation

An accounting system that suits your business is crucial to surviving today’s high-tech business environment.

Whether you’re implementing your first accounting system or transitioning to a new one, you’ll find it to be a monumental task. An implementation can take a few months to a few years, depending on its complexity and the size of the company.

Implementing new accounting systems entails significant risk to the integrity of your data — it can also cause major organizational disruption when not performed properly. Hence it’s essential to follow a proven approach to implementation.

The Chief Financial Officer (CFO) sits at the top of your business’s financial management. Their role is more operational in nature, using the company’s key financial information to help the CEO develop strategy and work towards company goals.

CFOs are in charge of strategic decision-making, overall financial projections and modeling, and mergers/acquisition activities.

Financial Projections and Analysis

Financial projections and analyses are vital to your business. Investors want to see what they can get by putting money into your business. Similarly, creditors need to know how likely it is you’ll be able to pay back the money that they lend you.

Mergers and Acquisitions

Mergers and acquisitions (M&A) occur when two businesses combine.

Mergers involve two firms of similar size joining forces to create a new, joint organization. The old firms cease to exist. For example, when Exxon and Mobil merged in 1999, both companies ceased to exist. ExxonMobil emerged in their places.

Mergers generally occur on friendly terms. Companies may merge to expand into new markets, cut their operational expenses, diversify their products, and more.

Acquisitions occur when one larger business purchases another smaller business. The latter ceases to exist as a corporate body, and its assets become part of the former. For example, when Pfizer acquired Warner-Lambert in 2000, the latter ceased to exist.

Acquisitions are often hostile. The Pfizer acquisition mentioned above, for example, was one of the most hostile acquisitions in history.

Financial Modeling

Financial models lay out your historical performance and forecast predictions in a spreadsheet. You can build a variety of financial models for different goals.

The most basic type of financial model consists of an income statement, balance sheet, cash flow statement, and supporting schedules, all showing your forecasts. This type of model is known as the 3 Statement model.

Using the 3 Statement model, you can build a variety of more advanced models, depending on your needs.

Growth Strategy

As a senior executive, one of the CFO’s foremost responsibilities is using financial information provided by the accounting department to formulate strategies for growth.

Depending on the strategy you implement, you’ll focus on different parts of your financials. Strategies you can employ include the following.

• Reinvesting profits:
  • For faster growth, you can reduce your owner’s salary and reinvest profits into your business.
• Streamlining:
  • Cutting your costs and improving efficiency leads to more profits — which feeds back into the first strategy.
• Increasing revenues:
  • Raising your prices can increase revenues.
• Building strategic business relationships:
  • Contracting or partnering with other companies helps cut costs on the resources your business needs.
• Diversifying operations:
  • You could increase your customer base by selling new goods and services or expanding into different markets/industries.

Each strategy has its downsides as well. Don’t rely on financial information alone to formulate your strategies, but incorporate it with other factors.

Pitch Decks

Getting investors on board with your business requires a strong pitch deck. Your pitch deck contains all information that investors will find helpful — the problem you aim to solve, the market, your product, company financials, and more.

Pitching to investors can be tough. Your pitch must convey a substantial amount of information about your business, yet be concise enough to hold their attention. Plus, you have to prepare for Q&A.

The key is to tell a story that excites your investors. Thorough preparation, a compelling pitch deck, and inspiring storytelling will help you succeed in front of your investors.

Learn how to create a successful pitch deck that will secure funding here

From ground-level bookkeeping to strategic planning, there’s a lot to cover your business’s financial side. As your business grows, you don’t have time to handle the day-to-day accounting tasks.

CFO Hub can help you handle every aspect of your accounting and finance functions. With CFO Hub, you’ll receive the expertise and capacity of a full-time accounting department without having to hire in-house.

We tailor our services to your specific needs. You’ll gain back valuable time to work towards business goals while our knowledgeable professionals have your back.
Contact us today for your free, no-obligation consultation.

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