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How to Evaluate Your Finance Department
No one knows your business better than you. After all, you are the CEO. You know what engineers do; You know what product managers do; And no one understands the sales process better than you. You know who is pulling their weight and who isn’t. That is, unless we’re talking about finance and accounting managers.
Most CEOs, especially in small and medium-sized enterprises, come from an operational or sales background. They have often acquired some knowledge of finance and accounting through their careers, but only to the extent necessary. But as CEO, he must make judgments about the efficiency and competence of accountants as well as operations and sales managers.
So, how does a diligent CEO evaluate the finance and accounting functions in his company? Too often, CEOs assign qualitative value based on a quantitative message. In other words, if the controller issues positive, upbeat financial reports, the CEO will have positive feelings toward the controller. And if the controller gives an ambiguous message, the CEO will react negatively to the individual. Unfortunately, “shooting the messenger” is not uncommon at all.
The dangers inherent in this approach should be obvious. A controller (or CFO, bookkeeper, whoever) may realize that to protect their career, they need to make the numbers look better than they are, or they need to focus on the positives instead of the negatives. This increases the likelihood that important issues will be overlooked. It also increases the chances of good people being lost for the wrong reasons.
CEOs of large public companies have a huge advantage when it comes to evaluating the performance of the finance department. They have feedback from the audit committee of the board of directors, auditors, the SEC, Wall Street analysts and public shareholders. In small businesses, however, CEOs need to develop their own methods and processes for evaluating the performance of their financial managers.
Here are some suggestions for small business CEOs:
Timely and accurate financial reporting
At some point in your career, you’ve been advised by your accounting group to insist on “timely and accurate” financial reports. Unfortunately, you are probably a very good judge of what is timely, but you may not be nearly as good a judge of what is accurate. Of course, you don’t have time to test the recording of transactions and verify the accuracy of reports, but there are things you can and should do.
- Insist that financial reports include comparisons across multiple periods. This will allow you to judge the consistency of recording and reporting transactions.
- Make sure all inconsistencies are explained.
- Recurring expenses such as rent and utilities should be reported at appropriate intervals. One explanation – “April has two rentals because we filled May early” – is unacceptable. May rent should be recorded as May expense.
- Occasionally, ask to be reminded of the company’s policies for recording revenue, capitalizing costs, etc.
Beyond monthly financial reports
You should expect to receive information from your accounting and finance groups on a daily basis, not just when monthly financial reports are due. Some good examples are:
- Daily Cash Balance Report.
- Accounts Receivable Collection Updates.
- Cash Flow Forecast (Cash Requirements)
- Significant or unusual transactions.
Consistent work habits
We’ve all known people who took it easy these weeks, then pulled all-nighters to meet deadlines. Such inconsistent work habits indicate that the individual is not paying attention to processes. It also drastically increases the potential for errors in frantic last-minute activities.
Desire to be controversial
As the CEO, you need to make it clear to finance/accounting managers that you expect clear and honest information and that they will not fall prey to “shoot the messenger” thinking. Once that assurance is in place, your financial manager should be an integral part of your company’s management team. They should not hesitate to express their opinions and concerns to you or other department leaders.
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