In my experience, there are three departments whose performance management is never happy with – Sales, Marketing and Finance. Sales people are not closing enough deals, marketers are wasting cash on unfruitful channels, and accountants can’t get a handle on the numbers. Having run several Finance departments, I would like focus on the latter and provide some advice to entrepreneurs on how to have more effective relationships with your Finance teams.
The Issues
Please realize that your frustrations are not unique, you most likely do not have the worst accounting department in the world, the same issues exist in every company. Bigger companies have learned to deal with the issues, but they have vast resources that you do not. However, all is not lost, there are many steps you can take to improve your situation. Please read on.
From your point of view you might be seeing a party bag of the following problems:
- There are too many mistakes in your financial statements. Every month when you review the Profit & Loss (P&L) and Balance Sheet (BS) statements, you find strange variances from month to month in random accounts. You inquire about these variances. Accounting realizes they booked something to the wrong account or they double booked or they completely forgot to book something. You wonder why you’re not just doing it all yourself because clearly they aren’t more qualified to handle the books than you are.
- Your financial statements are late. Again. Your team confirmed that they will deliver the financials by Friday…it’s the following Monday and there are no financials and no email with an explanation. When you finally get them… see point 1.
- Commissions errors. Head of Sales is furious because accounting is reporting revenues vastly different from his closed sales figures and calculating commissions off the wrong numbers. Your sales team is furious when they get their paychecks.
- Accounts payable delays. Production department desperately wants to know why their vendors and freelancers aren’t being paid on time. Why are accountants sitting on invoices and cash? If they’re not paying invoices… what are they doing all day?
- Employees ignored. Employees have questions about wage deductions but three emails requesting assistance later, they still don’t have a response from accounting.
- Accounts receivable blackhole. You are unexpectedly low on cash, a deeper dive shows that several large accounts have not paid for your services. Yet no one followed up with them, in fact, accounting didn’t know who was late until you asked.
- Customer satisfaction. Customer Account Managers can’t seem to get a customer reconciliation statement from Finance without getting you involved. Don’t accountants understand that without customers, there is no business?
- Forecast discrepancies. You do the forecasting yourself, you can’t trust Finance with models you use for fundraising. But your financials are not in sync with your forecasts, and it’s very difficult to explain forecast to actual variances when even the line items in the documents don’t match up.
- Understanding/communication gap. Your accountants just don’t get the issues above, can’t coherently explain why the pot is constantly boiling over, and have defensive attitudes that don’t help in finding a resolution. They come up with initiatives that don’t produce any improvements in the process. And they feel that the employees, department heads and management are badgering them with ridiculous demands that have nothing to do with accounting, which is why they can’t focus on the numbers and be effective.
You wonder why you are spending so much effort and time on accounting when this department doesn’t help grow your business. Accountants are just an expense – a necessary evil.
Solutions
The solution is a double edged sword: there are tangible ways to address the shortcomings of your team, however, I strongly believe that you must first change yourself. The hard truth is that you are as responsible for the list of issues above as the accountants. Are you willing to own your mistake and fix it? Below is a list of ideas that I recommend you ponder about your own approach, as well as specific suggestions for how to make your accounting department more effective. I believe these changes will yield solutions.
The Change in You
- Accounting is not a nuisance. This department is the core of your business and it will have a great affect on your success. This is the team that is involved in every step of the process from customer contract signing to financial statement issuance. A well functioning team will work to keep expenses down and provide analytical insight to support management decisions. If you approach this department as an admin expense that needs to be kept down at all costs, you will understaff it, deprive it of resources it needs to be successful, and encourage every other department to deprioritize the needs of your Finance team. Instead, try to understand their bottlenecks, disruptions and limitations, and attempt to alleviate them by working on tech and process fixes. Accounting is a key function and you should treat it that way.
- Respect the work. Your accounting team is not just entering invoices into software, or just paying bills, or just processing expenses, or just uploading transactions from various sources, or just trying to honor new contract terms that aren’t supported by the database, or just making exceptions for some vendor/customer, or just processing adhoc requests for customer statements, or just supporting an audit, or just creating financials, or just submitting payroll – it is doing all of these tasks in a fragmented business that is bursting at the seams and which has high turnover. That is the reality of a startup. The more transactions you have, the more departments you have, the more broken your systems are – the more work accountants have. You must have a respect for the amount and complexity of work even if you cannot fully understand it. Also, foster that same respect for what it takes to brings all of the pieces together every month in your department heads.
- Don’t be cheap. Many founders/executives believe that an accountant earning $60k can close the books, file taxes, manage human resources for 1-100 employees, figure out how to form legal entities and file appropriate licenses/taxes across states and countries, and produce audit-ready financials. Accountants are not a “get what you pay for” scheme, exactly. There are some gems priced below market (very hard to find), and many overpaid but unqualified candidates. So please don’t fall for a fast talking amateur or hope that a very junior employee will “step up several floors” to fill the role you have open. Hire a qualified Finance Manager, even if it’s part-time, and a staff (or more depending on the complexity of your business) for the role you have open. A good manager will quickly justify her cost by minimizing the number of errors and changes to historical data by implementing a month end process and checks and balances.
- Hire the right # of staff. Don’t underestimate the scope of the work, especially if you are transitioning from a third party to inhouse. My rule of thumb is that the need is at least 50% higher than what you think. Depending on the number of transactions, touchpoints in the transaction flow and fragmentation of systems, you may need several staff. Special projects like software implementations or historical corrections may require assistance of temporary staff.
- Reset your expectations. A portion of your frustration is caused by the fact that your expectations are unrealistic. Take a hard look around and accept that your business is not mature, smooth, or easy to manage. You also have limited cash and therefore cannot provide the Finance team with the software tools, integrations to enable seamless data flow, and staff that it needs to run at 100%. Please don’t expect your team to perform as if they had all of these resources. Realistic expectations founded on respect for your team’s efforts and goodwill will reduce your stress levels and the friction you currently feel.
- Prioritize your demands. It’s important to challenge your team and inspire them to deliver more, but if you set forth too many demands and short deadlines – your team will never put the effort in and their morale will deflate. Don’t set them up for failure and feed your own dissatisfaction. As per the prior bullet, understand their resource and time constraints and be very clear about what is more important to you, e.g timely financials or responsiveness to daily requests. It doesn’t have to be a choice, if the team is properly staffed and your business flows without hiccups, but that’s not your reality – is it?
- Don’t blame the messenger. This one is near and dear. You set the expense policies and the budget, but Finance is blamed for being cheap, obstructing business expansion, creating red tape, and wasting employee time on organizing receipts. That sort of disconnect is perpetuated by you. Own your fiscal policies, ensure that your company knows you stand behind them. Finance employees will never be able to work well with other departments if they are blamed for budget cuts or for not reimbursing out of policy $200 bar outings. Finance is also not in the position to grant exceptions to policies, only you are. However, when you grant exceptions, you undermine the credibility of your policies and the ability of your Finance team to enforce them. This process also generates a lot of extra emails, wastes time, and leaves all parties dissatisfied. If you find yourself granting exceptions a lot, change your policies/budgets.
- Minimize exceptions in general. A business built on exceptions cannot scale. Exceptions make customers happy but they break your operations, waste everyone’s time on tracking and reconciliations, and drive your expenses up.
- Accountants are introverts. They prefer solitary work and take comfort in organizing data. They do not enjoy disruptions to daily workflow or ongoing projects which come in the form of exceptions or “urgent” adhoc requests. And this personality type is perfect for the job – the steady, methodical workflow is necessary to avoid mistakes and reconcile large datasets. The flip side is that they dislike meetings, engaging in dialogue, explaining their work to others, unexpected brainstorming meetings, and conflict. You must accept the fact that most accountants will not be as eloquent in communicating as your Marketing Director, or as aggressive in fighting for resources as Sales. Unless you are willing to upgrade your Finance staff ($$$), you will have to do more legwork in bridging the communication gap. Harness the strengths of your employees and manage their weaknesses instead of expecting a personality change.
Without true respect, appreciation, and commitment for/to your accounting team, you will not see major progress.
Fostering Change in Your Finance Team
Notwithstanding the above section, below are concrete actions you should take with respect to your Finance team to improve its performance.
- Define the role of the Finance department. Establish for your Finance team what its duties include so that it is clear that financial statements are not its only output. Create success metrics other than delivering financial statements to evaluate how well the department is doing, e.g. measure turnaround time on customer statements. Make sure that every staff member understands how his success is evaluated.
- Assess whether you hired the right staff. Don’t hire fast talkers who speak your language (although please make sure they speak English well), hire those who fit the accounting mold and prefer to work rather than sit in meetings. However, beware of close minded and rigid accountants, startups need staff who are open to learning, quick to find creative solutions, tech savvy and proactively seeking to boost efficiency.
- Require communication. Communication does not come easily to accountants, however following protocol does: set up communication requirements for your team. For example, require that all internal/external requests are responded to before the end of the day with an ETA and are completed within 48 hrs. Smartsheets are great for tracking such requests.
- Split duties. Sometimes it’s best to identify or specifically hire a more personable and responsive person on the team and task them with being the face of the department to all external and internal stakeholders. Doing so, allows the rest of the team to have a steady, uninterrupted workflow.
- Require a month-end checklist. Month-end can be a very hectic time for accountants and management. A month-end checklist is a great tool for tracking all of the tasks involved in closing the books and it allows you to understand how close the team is to the finish line at any given moment.
- Reduce forecast to financial discrepancies. Please understand that GAAP revenues are never equal to gross receipts. Your forecast should use the same presentation methodology as the financial statements you will share with your stakeholders so that everyone may evaluate your performance with respect to the forecast. Therefore, the forecast should show GAAP revenues and the accrual method for presenting expenses (not cash). You can always show non-GAAP metrics to investors in addition to the financial statements, along with other KPIs. To avoid inexplicable variances between forecast and actuals, sit down with your Finance team and make sure that your forecast P&L and BS match up to the financial statements in your accounting software. Specifically discuss which line items include discounts, marketing promotions, what is COGS vs general expenses, is web hosting booked to software or professional services or IT/Network, etc? Take the time to get on the same page. Most likely, both the forecast and the bookkeeping procedures will need to be adjusted.
- Create a coding cheatsheet for revenues/expenses. Once you establish where revenues and expenses should be booked to, ask Finance to create a cheatsheet listing out the vendors/customers/transaction types and the corresponding account in the chart of accounts for each. Request that every accountant place the cheatsheet on his desk for easy reference when booking accounting entries. This small tweak will do wonders for ensuring consistency month-to-month.
- Teach them the business. Invite your accountants to join strategy and operational meetings so that they learn about upcoming changes in sales and expenses. Provide them with the opportunity to help structure data/transaction flow for new revenue streams or projects in a way that minimizes manual labor for them.
- Include Finance in all contract reviews. Often Finance is not privy to customer, vendor, partner, or employee commission negotiations, and is not aware of new terms or services until it’s too late. Make sure to set up a process that includes the head of accounting in review of such terms to make sure Finance can honor them and is aware of the upcoming exceptions or expenses. A review of employee commission plans would help avoid confusion with respect to whether GAAP revenues should be used for calculating commissions.
- Route vendor bills through Finance. Direct vendors to send all bills to Accounting instead of their department contacts. Managers should also forward new vendor contracts upon sign-off. Bills cannot be paid in a timely manner if Accounting is not aware of them and if cash was not allocated to cover them.
- Set company policies for AR and AP. You should instruct accounting on the correct process for dealing with delinquent customer payments and if there are any VIP exceptions. The process should be part of the month-end checklist. You should also determine whether the company wishes to pay all vendor bills before their due date, establish how often vendors get paid (e.g. once a week) and set up cutoff dates for submitting vendor bills for payment (e.g. 2 days before payment date). Ensure that department heads do not sign contracts with immediate payment terms, you need to give yourself room to approve and schedule them for payment.
- Provide perspective. Include accounting in product roadmap discussions when tech fixes affecting their work are being scheduled, make them feel heard and help them understand what is being prioritized over their needs and why.
Good luck and, as always, happy to help if you have specific questions.