The absence of an effective finance function is the number two reason why small businesses stay small for longer (the number one reason is a lack of vision). An ineffective finance function not only limits your business’s ability to thrive but also increases the risk of financial instability and failure.

In this article, small business owners will learn:

  • The implications of an incompetent finance function to your business.
  • How and why your business finance function becomes ineffective.
  • The solution for a powerful and valuable finance function.

What happens when your business has an ineffective finance function?

An ineffective finance function results in lack of timely, accurate information, hindering decision-making, analysis, interpretation, leadership, and partnership crucial for shaping the future and ensuring business success. Let’s dive into each on those aspects.

  • No information. If you don’t even get a P&L each week, you’ve sadly got your head buried deep in the sand. You’d better hope that all that activity is turning into something that looks like a profit but how will you know?
  • Late information. Unreconciled transactions are the enemy of good, quick decisions. If you have ever heard “it’s going to take me two weeks to bring that up to date” or “I’ll do it when I get back”, this is you.
  • Wrong information. Wrong information leads to poor decisions. If your aged receivables report doesn’t agree to the balance sheet, a burgeoning shareholders’ loan account or items in suspense, this is probably you.
  • No analysis. If all you get is a P&L and a balance sheet dumped on your desk (hey, you’re doing better than some) then you’re getting robbed of context. How are you performing against your peers, your budget, your personal best? What’s working and what needs work?
  • No interpretation. Why are you getting these results? Is it good, is it bad, are there issues and opportunities, who knows?
  • No leadership. Historical accounting information is mostly interesting to accountants and err, the Tax Office. You want to shape the future so you need to know how to deal with the issues and take advantage of the opportunities.
  • No partnership. You need a business partner that can get stuff done, like financial modelling, managing risk and getting funding from the bank. Not just funding, the right funding, the right rates, covenants and the right repayment profile.

How does your business end up with an ineffective finance function?

  • Wrong people. Anything from making toast to landing an A380 is better done by someone with the relevant skills and experience. It’s the same when it comes to your finance function. The well-meaning spouse, neighbour or office manager may be willing but not able. Putting the right people in the right positions is vital.
  • Missing pieces. As you will see from the diagram below, there are several antecedents to you making good decisions. If any one of those is missing, the chain is broken. You’ve got to have those functions in your business (and calling someone a CFO doesn’t make it so)!
  • The blind leading the blind. Everyone trusts that the other person knows what they know. And that’s why they are there because you don’t know what they know. You don’t know what you don’t know, you don’t even know what they don’t know, and you certainly can’t teach them what they don’t know!

Why does your finance function become ineffective?

  • Not a priority. You’re already busy doing what you do. Growing the business, dealing with clients and customers, hiring staff, firing staff, paying staff, the bank, the lawyer, the accountant, phone calls, emails – you name it. So, it’s all hands to the pump and the finance function gets neglected. Understandable but not ideal.
  • Ignorance. You’ve got a bookkeeper, you’ve got an external accountant, what else is there, we’re fine and we don’t need anything else. That’s like going to a restaurant and having bread, water and an entrée. It’s like turning your back on that round wheel.
  • Keeping it simple. Better to keep it simple. Well, yes, except where a little complexity makes things better. Much better, in fact.
  • Counting pennies. It’s a lot of money to spend on a cost centre. Ouch! Well, it’s only a cost if it’s not delivering value. Or, put another way, cost is only one part of the value equation. Saving money here is probably costing you a multiple of that in profit, cash, clarity, sleep and valuation.

Outsourced finance service – your way out.

Yes! Outsourcing your finance function is the pathway for your business to thrive. Get access to exactly what you need when you need it. Have the right people performing the right roles and really elevate your extraction of value. Here’s an example of how it works out, from a cost perspective:

In the example:

COMPANY 1 is a small hospitality business turning over $1m. It has a bookkeeper that works 3 days a week. No internal accountant. External accountant relatively more costly because they have to deal with bookkeeping questions, mistakes and puzzling entries. No CFO.

COMPANY 2 is a small but growing engineering consultancy turning over $3m. It has taken the decision to hire an internal accountant, so figures it doesn’t need a bookkeeper anymore. The internal accountant is good (but spends 80% of their time doing bookkeeping tasks anyway) and helps to keep down the cost of the external accountant. No CFO.

COMPANY 3 is the same as Company 2, only it outsources the entire finance function to BridgePoint Group where the well-trained, well-supervised bookkeeper produces work to a very high standard, on time, every time. They hand it off to your accountant, who produces information and analysis. Your virtual CFO (vCFO) interprets that, adds knowledge and wisdom and is able provide you with the financial leadership and partnership that makes a world of difference.

Learn how to get the most of your virtual CFO.

Consider the continuum below. The handshake from your bookkeeper to the accountant to the vCFO and ultimately on to you is like a relay. If anyone drops the baton, if any one of those things breaks, doesn’t exist, doesn’t happen or screws up, your decision-making is delayed and/or flawed (or just plain lucky).

So, get lucky more often. Outsource your entire finance function to BridgePoint Group. Click here to learn more about out Finance Function services. If you’re interested in discussing the benefits of a virtual CFO, click here.

Talk To
Neil Parker
Subscribe to our newsletter

Get informed about our business all the time, whatever you are. Read whenever you want.