I thought that I had hired the wrong person.
Twenty years ago, having been a “single shingle” financial consultant to smaller companies for a couple of years, I decided to hire someone to help me crunch the numbers for my clients.
I wanted someone who was well-grounded in debits and credits, detail-oriented, meticulous, able to sit in one place and work tirelessly with data. The perfect accountant.
But I also wanted a person who could initiate contact on-site with my clients, who could deal with the ambiguity of long-range budgets, who would happily help clients collect delinquent receivables, and who could persuade the client’s employees to embrace the procedural changes that we recommended. The perfect finance manager.
The combination doesn’t exist – at least not at an entry level.
It turned out that I had hired a financial person.Jeanne was great with the CEOs and the rest of the management teams, but she wasn’t much help to the companies’ staff accountants – she had only an MBA’s overview of accounting. She had never run a set of accounting books.
So we focused Jeanne’s energies on clients with financial issues. She dealt very effectively with the balance sheet – collecting stretched-out accounts receivable, pacifying long-term creditors, restructuring bank financing – and managing budgets. She solved financial problems.
We soon added Chuck to our staff for the clients with accounting issues – confusion between cash- and accrual-basis accounting, inability to allocate revenues and expenses to the appropriate accounts, unreconciled account balances – the stuff that affects the income statement. Chuck was the consummate beancounter – he solved accounting problems.
For most smaller organizations, the first challenge in the finance and accounting area is to get timely and accurate numbers.
- To distinguish between revenues,which are booked on the income statement when they are earned, and cash receipts, which are recorded on the balance sheet as they are received.
- To record revenues and expenses in the right month. Your September rent payment should show up on the September income statement, whether you paid it on August31st or September 2nd.
- To match your revenues with the related expenses. When you record a sale of a product or service in September, you should record as well all of the expenses associated with that sale, including sales commissions that may not be disbursed until the customer pays you next month.
- To accrue for revenues and expenses not yet invoiced. Got a vendor who’s slow in billing you? Estimate the cost without the invoice (a good Purchase Order system will reflect the agreed-on price) and plug it in as an accrual for the month that you incurred the expense.
- To be consistent in classifying revenues and expenses. When the bill for repairing the copier comes in, don’t enter it in “Office Expense” this quarter and in “Repair and Maintenance” next.
These are some of the things that a good staff accountant learns in Accounting 101 and then practices for the rest of his/her career.
Jeanne had a theoretical knowledge of this, but Chuck was the person who had actually implemented the procedures and was rigorous in maintaining them. Yes, he was an historian, and he lacked her flexibility in dealing with the ambiguities of budgeting and forecasting, but when you looked at his monthly reports, you didn’t need to interpolate or make allowance for omissions.
His work was the basic building block; her efforts created the framework for the financial plan.
Don’t hire the wrong person. Despite the advent of excellent accounting software, a competent accountant still needs to know debits and credits, journal entries, the reconciliation process, and have a good feel for numbers.
We test our clients’ accounting candidates for these qualifications, and you can too: simply reply to this email with your request, and we’ll forward to you a complimentary copy of “Financial Managers’ 28Question Accounting Quiz.”
(And unlike the SATs or the GMATs we’ll even send along the answers to help you evaluate your next candidate for an accounting position!)
How many beans should a beancounter earn?
In the process of hiring full-time people to succeed us with several clients this year, we went on-line in search of salary guidance from Accountemps, from Salary.com,and even from the DOL’s Bureau of Labor Statistics. We found that comparable data is not easy to come by: those three, and others, emphasize larger companies and end up with very broad salary ranges.
So, having hired accounting people at various levels for four different clients this year, we offer the following basis for comparison:
- Staff Accountant – For $3M Boston service provider and would-be manufacturer;four years experience; BA in acctg.; handles all accounting functions reporting to the president. $42,000.
- Accounting Manager– For $15M Central Mass. manufacturer; 10-15 years experience;coordinates work of three others; some H.R.; reports to the president.$58,000.
- Senior Accounting Manager– For same Central Mass. company after first person left for personal reasons; job was upgraded to include budgeting and cost accounting.20 years experience. $70,000.
- Controller– For $11M Southeastern Mass. consumer products manufacturer; handles all accounting with staff of two; reports to president and works closely with outside investors and Board on budgets, forecasts, expense control, and financial analysis. 12 years experience. MBA. $82,000.
- Senior Controller– For $35M Westchester County service provider; reports to president while overseeing staff of five with multi-site operation, each with own detailed budget and monthly reporting; heavy analytical work;bank relations; risk management; real estate oversight. Twenty years’ experience. CPA. $130,000.
This is the normal career progression for excellent accountants, each of whom is primarily focused on internal company issues. For all of them, full accrual-basis accounting provides the foundation for everything else that they do. It all starts with timely and accurate monthly financial statements.
On an affordable retainer basis, FM serves as the part-time controller and senior financial manager for multiple clients, leading them to profitability and positive cash flow.
The goal is for the organization to outgrow Financial Manager’s services, at which time FM will take the lead in identifying and hiring the right full-time financial person for the firm, and effect a smooth transition to his or her management.
Draining the Swamp
“Numbers And Metrics You Can Use Right Now”
Budgeting. It’s the closest to strategic planning that a lot of smaller organizations ever get.
Many never get even that far, living month-to-month, or even week-to-week without a road map.
To get started on budgeting, consider just four key elements:
- Capital Expenses
The new budget for almost every other line item flows from your decisions in these four areas, and can be fairly straightforward.
Any budgeting effort is better than nothing, so dust off that Excel software and let’s get started…
…in next month’s issue.