How to Structure Your Accounting Department as a Profit Center
Businesses don’t often realize the need to plan for the growth of their accounting departments, or that they can be structured as profit centers right from the start. Many entrepreneurs launch their companies without an official accounting department, handling those functions themselves. As the business grows, various accounting functions become necessary, and the roles within an accounting department evolve. A strategy for how this happens can mean the difference between an accounting department that functions as a profit center and one that is merely overhead.
Often the progression of an accounting department goes something like this:
- The owner is manually tracking Income and Expenses, writing the checks, and depositing payment receipts.
- QuickBooks is installed – often incorrectly – and whoever has time enters the data.
- A CPA is hired to file the tax return and, in the process, reviews and revises QuickBooks.
- As the business grows, the owner may seek a loan from the bank, so a Balance Sheet is needed – and a bookkeeper, which may expand the need to Accounts Payable, Accounts Receivable, and Inventory clerks.
- Budgets and operational oversight then somehow morph into the accounting department function, and the need for a Controller becomes apparent.
- Now the business has grown which means more transactions, more time, and more costs. This department has taken on a life of its own, and begs the question: who’s in charge? Is the next step to hire a CFO?
When designed from a strategic standpoint, this necessary evolution of your accounting department can be structured in such a way that it contributes to your bottom line rather than being non-productive overhead and a financial drain. First, let’s review the roles and responsibilities your accounting department structure should include, from top to bottom.
Chief Financial Officer (CFO)
Represents the bridge between Finance and Operations and is responsible for directing all financial aspects of the business. Typically forward-thinking, s/he is involved in creating strategy, forecasting, financial planning, and setting policy.
- Develops and monitors financial metrics
- Manages bank, insurance, and CPA relationships
- Oversees tax planning and audit functions
- Supervises investment and financing activities
- Analyzes/reports on trends and opportunities
- Education and experience: BA with MBA and/or CPA preferred, with eight to ten years in senior management.
Manages accounting operations, staff, systems, processes/procedures, and monthly reporting. Responsible for internal control and external compliance and is engaged in capturing and reporting historical information.
- Supervises paying and billing functions
- Maintains Chart of Accounts and system files
- Manages Cash and Collections
- Establishes controls to mitigate risk
- Oversees month-end reporting processes
- Develops budgets and variance reporting
- Oversees transactional tax compliance
- Education and experience: BA and CPA preferred with six to ten years’ experience that demonstrates increasing levels of responsibility.
Manages the General Ledger and subledgers along with budget reporting and account reconciliation.
- Reconciles the Balance Sheet and bank accounts
- Prepares monthly journal entries
- Prepares budget/actual variance reports
- Analyzes transactions to match Income/Expense
- Prepares monthly and special reporting
- Prepares transactional tax returns
- Processes Payroll and Benefits
- Education and experience: BA, can be entry level in a large
Responsible for timely and accurate entry of accounting transactions and, typically, for processing transactions.
- Enters Accounts Payable and prints checks
- Supports accounting and maintains spreadsheets
- Posts cash receipts
- Prepares and processes billing
- Education and experience: High School or AA degree with direct
What does a Finance/Accounting department look like when it is a “profit center”?
- Most, if not all, transactions are processed in the accounting department. This information is then converted to valuable knowledge which moves up the chain within the accounting department.
- The owner receives regular, timely, and accurate financial statements with variances (i.e., exceptions).
- The owner understands how to read, analyze, and interpret financial statements, including the most important – the Statement of Cash Flows. Note: few businesses receive this all-important statement.
- The owner is able to apply an understanding of the financials to improve decision-making and validate previous decisions.
- The insight and understanding gained from this information provide the knowledge to make adjustments earlier.
- The owner is equipped to work with and improve both financial and operational Key Performance Indicators.
- The owner is receiving Forecasted Cash Flow projections regularly.
With an effective accounting department structure in place, most business owners can leverage timely and accurate knowledge of their business into profit. Those that do, come to view the finance and accounting function as contributing to the profitability of the company, rather than unproductive overhead.
Many small and medium size businesses don’t need a fulltime CFO, especially when the accounting department is structured and operating well. That’s where I come in as a Fractional CFO. Before I am able to optimize the benefits of a Fractional CFO, my first task typically involves converting my client’s finance and accounting department into a profit center. If you’re ready to make that change, contact me to discuss your next steps. I’d welcome the opportunity to assist you in converting overhead to profit.