According to Gartner, the scarcity and cost of talented finance professionals should be a top concern for business leaders. If you're a professional with a knack for numbers and know your general ledger like the back of your hand, you'll likely take the reins as CFO and thus, need an accounting department structure that will enable you to succeed.
You know that you need a team to handle specific functions within your organization; however, you're likely going to wait until the very last minute to request additional personnel; finance leaders are notoriously hesitant to increase their own teams’ headcount, across all industries. As the infamous quote goes, “we are cursed, for we can see the numbers.”
This article is custom-made to help you justify those hiring decisions and grow your accounting team the right way.
Keep reading for my guide to structuring your accounting department for maximum efficiency at each stage of growth.
The Importance of Choosing the Right Accounting Department Structure
There are very few departments that rely on order and organization as much as accounting.
These professionals can ensure you’re compliant, prepared for the necessary financial steps, and equipped with the numbers you need to make informed decisions. You can leverage their expertise for astute financial decision-making determined by data-based insights into your business that reap short, medium, and long-term benefits.
Accounting Department Functions
When considering expanding your team, it’s critical to distinguish between the finance and accounting functions, as there are often many different skills required to succeed within each discipline.
The accounting department is responsible for recording, tracking, and analyzing your company's financial data, and for preparing an array of essential financial reports and documents. It manages taxes, internal financial audits, and compliance. It also maintains your business's current financial wellbeing.
Cash flow management, financial accounting, administration, capital allocation, and bookkeeping are essential functions, and getting them right takes time, attention to detail, and specialized knowledge. Anyone who's tried to spin all of these plates themselves will be aware that doing it alone is difficult, then impossible once you hit a certain rate of growth.
Let’s dive deeper into the core functions of the accounting department. If you’re a CFO looking for hiring advice, you can scroll past; if you’re relatively new to this world, you’ll stand to benefit from reading the following.
Bookkeeping is the process of recording your financial information, including sources of revenue, accounts payable, accounts receivable, loss transactions, amounts, dates, and references. Bookkeepers track entries in a chronological journal using documents such as sales receipts, purchase orders, and invoices.
There are four steps involved:
- Analyzing financial transactions and allocating each one to the appropriate account
- Creating journal entries
- Posting entries to the general ledger
- Performing a reconciliation at the end of each period
Accurate records form the foundation of financial health and facilitate smart and timely decision-making. Plus, having a good bookkeeper makes everyone’s lives easier when the tax man comes around.
Payroll tasks include making payments to employees, paying taxes on their behalf, and keeping records of payments, deductions, incentives, and company benefits.
Let's look at an example.
Gerald and his pal Brett set up a drop-shipping business as a partnership, and they have one in-house employee who takes care of their finances. The irony? The only person the business owners need to run payroll for is their accountant. If they don't, they're subject to hefty fines and penalties.
For sole proprietors and partnerships, the owner(s) don't need to run payroll for themselves, but they do for anyone with a contract. When it comes to limited liability companies and corporations, you'll need to run payroll for yourself, your directors, and your employees.
Creating financial statements is like getting blood work done; a necessary evil for good (organizational) health.
They inform investors and decision-makers about profits, cash flow, debts, and growth. Examples of financial statements include the following:
- Balance sheet (or Statement of Financial Position): An overview of your business's assets, liabilities, and equity
- Income Statement: Quarterly and annual statements showing revenue, expenses, net income, and earnings
- Cash Flow Statement: A statement with three sections, showing operating activities, investing activities, and financing activities
Stakeholders use these formal records to measure how effectively cash, assets, liabilities, and equity are being managed. If your business is in trouble, you should be able to spot it, troubleshoot, and problem-solve in time — provided your accounts are in order. Creditors, auditors, and the IRS also refer to these reports to measure profitability and ensure compliance.
Strong financial controls are essential for compliance, security, and an organization's long-term sustainability. Refusing to create internal controls creates an inevitable risk of fraud or major error that could get a business owner and directors in serious financial and legal trouble. Without having the necessary policies, procedures, and protocols in place, it's harder to manage resources, operate efficiently, or maintain full accountability and transparency.
Controllers carefully monitor the inflow and outflow of cash, ensuring all activities are aligned with the company's overarching financial goals.
The treasury team is responsible for ensuring a company has sufficient cash to meet its immediate needs. That means conducting intensive forecasting activities, optimizing the use of credit, reducing debt, and locating the best investment opportunities.
We've seen it too many times. One of the easiest ways to shut down your business is by messing up the annual tax return, incurring mammoth fines, and not being able to get cash flow back on track. Unless you're a super small sole proprietorship with minimal overhead, it's usually worth hiring a certified public accountant (CPA) to oversee tax preparation and filing. Better to be safe than sorry, as the old saying goes.
Accounting Department Roles
We've learned that taking a strategic approach to business is one of the smartest ways to build systems and processes into your company that prime it for long-term profitability. The way you structure and build your finance department is no different.
Let's look at some key accounting roles:
- Chief Financial Officer: That would be you. Working directly with the CEO and directing all financial elements of a company: setting policies, developing financial and operational strategies, improving operational efficiency, and using reports to make decisions.
- Treasury Manager: Monitors regulatory changes, enforces financial policies, and maintains relationships with creditors and investors.
- Controller: Prepares monthly reports, generates financial statements, and oversees payroll, as well as managing daily operations (including staff) and taking charge of compliance.
- Accountant: Manages the general ledger, prepares day-to-day reports, handles taxes, and processes payroll.
- Clerk: Data entry, including posting cash receipts, maintaining Excel spreadsheets or running accounting software, and printing checks. Many smaller companies have two clerks, one for accounts payable and another for accounts receivable.
Other important accounting roles include financial analyst, internal audit manager, credit and collections manager, purchasing manager, and accounting manager.
How Finance Roles Interact
With all the knowledge you've gleaned, you should have a good picture of what an accounting department needs to do and who's available to do it. The smaller your business, the more likely you are to rely on a few people or an outsourced provider to take care of every accounting duty.
As you grow, the workload significantly increases, and you'll need to hire qualified individuals for each role and establish a hierarchy. I know what you’re thinking: finally, the good stuff!
Keep reading for my guide to growing your finance department along with your company.
Choosing Your Company's Finance Department Organizational Structure
Your company’s revenue, age, and size will invariably dictate the structure and requirements of your finance department. It goes without saying that a startup generally won’t need, or have access to, the same resources as multinational organizations. Keep in mind that none of this information is one-size-fits-all. Factors like the industry you operate in, your specific needs, number of employees, and office locations will play into how you build and structure your finance team.
Let’s break down how a company’s age can affect the structure of its finance department.
In most cases, startups focus on growth and scalability with the goal being to develop a business model that can generate high profits. A smaller headcount usually leads to founders and key personnel wearing many hats. While you share CFO or Treasurer duties with other functions, consider investing in powerful accounting software such as Quickbooks.
As growth picks up, most of your finance team may be outsourced to specialist providers. As a startup, your main financial concerns are mostly:
- Keeping payroll moving on time while complying with tax withholding regulations.
- Having a keen eye and strict overview of the company’s cash flow, which includes payables and receivables.
- Monitoring company spend to ensure unreasonable expenses aren’t created during your growth phase.
If you're experiencing massive and rapid growth, it’s worthwhile to set an accounting department hiring plan in place and execute it as soon as workloads appear to become unsustainable.
The term “small business” can be a bit of a misnomer. In the U.S., the Small Business Administration (SBA) defines a small business as one with less than 500 employees. The strategic goals of a small business will depend on the owner(s)’ goals, but profitability is always a central objective. As your business grows, you’ll need to consider a fully-fledged finance department more seriously.
Payroll specialists and accounting managers can keep smaller tasks moving, such as setting up reporting dashboards to keep an eye on KPIs. A CFO and controller can focus on the bigger strategic picture, including departmental or operational reporting.
If you're looking to grow your small business, it's worth hiring a senior finance professional to help with the implementation of strategy and policies.
Large businesses, as in those with more than 500 employees and locations around the globe, usually target expansion into new markets and efficiency (or at least cost reduction).
If it hasn’t already been done, you’ll be looking to streamline and optimize your organizational structure. A key goal is to allow the C-Suite, and the CFO specifically, to focus on long-term strategies. Consider a VP of Finance to oversee the financial health of the business, including financial planning and reporting, as well as compliance and risk management.
Key goals for larger businesses depend on company objectives, but they can include the following:
- Centralizing key operational tools: If your business isn’t leveraging the power of an ERP, the subject will inevitably come up. Having the input of an expert finance team will go a long way in helping with ERP implementation and setting up the company for success and growth.
- Mergers and acquisitions: As part of corporate strategy, merging with or acquiring entities could be a major focus for growth and expansion. In these cases, your finance leaders will be critical in all stages, from planning to integration. This includes conducting due diligence and financial modeling.
Delving Deeper Into the Senior Accounting Team
Below we answer some of the most burning questions operators have regarding accounting department structure.
When Does It Make Sense to Hire a CFO?
If you feel like your grasp of finance isn't strong enough to take on the CFO title for yourself, that's okay. It's better to admit your weaknesses and build a team around you than try to fit a square peg in a round hole. When it comes to choosing when to hire a CFO, sooner is usually better.
All companies have one thing in common — they need to make money to stay in business. Strategic financial planning and data-driven reporting lie at the heart of every successful business, and hiring a CFO is a surefire way to make sure your startup hits the ground running.
CFO vs. Controller: What’s the Difference?
The CFO is at the top of the finance department's structural hierarchy. While the former needs to be zoomed out to see the bigger picture to understand how to refine and improve, the latter is concerned with optimizing the company's day-to-day operations.
Controller vs. Accounting Manager: What’s the Difference?
In smaller organizations, financial controllers tend to wear two hats and might manage a small team of accountants and clerks. However, it's prudent for larger operations to hire accounting managers to manage staff and leave controllers to focus on budgets, forecasts, and other critical reports.
Sculpting a Turbo-Charged Finance Department
Whether you’re running the finance department of a small business or a rapidly growing tech company, the number of ways you can structure your finance department will always have nuance depending on your specific needs.
The first question to ask yourself is whether you're the right CFO for the job or if hiring for the role would put you in a better position for growth. From there, you can develop a strategy that ensures each accounting duty is performed by the right person, with the perfect accounting department hierarchy in place.