Key Functions of a Small Business Finance Department
Before we get into the positions and roles of a finance team, I want to clearly establish exactly what your finance department needs to encompass. Once you understand what your finance department will be handling, it will be much easier for you to delegate tasks accordingly.
These are just some of the basic components that your finance team will be responsible for.
As a startup, you’ll need funding to get off the ground. Where is this money coming from?
Some of you might fully fund the business on your own. Others might raise money from an investor or need a bank loan. Most of you will probably use a combination of these options.
All the funding, where it comes from, and what is owed in terms of interest or equity will be tracked, recorded, and managed in your finance department.
Your small business finance department will track and record all transactions associated with your startup.
These are just a handful of the crucial elements that need to be kept organized.
Your finance department will generate key financial reports for your small business, like balance sheets, income statements, and cash flow statements. Your team can also leverage accounting software to streamline this process.
Setting up an accounting system like accrual-based accounting and double-entry bookkeeping will fall on the finance department as well.
Cash and Credit Management
Members of your finance team will be responsible for tracking cash flow. They monitor all the money coming in, and all the money going out.
Your finance department will also track all the credit that your startup is giving out, as well as the credit that your startup is buying on.
These are better known as accounts receivables and accounts payables. Essentially, this is money owed to you from customers and money that you owe to vendors.
Making sure that you’re getting paid on time and paying what you owe on time is part of your finance department.
Larger corporations might have separate departments for payroll and human resources. But a startup will typically manage payroll and HR in their finance department.
Paying your employees needs to be a priority. You can use services or software to set this up.
Full-time employees, part-time employees, and 1099 contractors all need to get paid. This might be done via direct deposit or live checks.
All these functions, including payroll taxes, will be managed by a member of your finance team.
Your finance department needs to do more than just generate reports. Certain positions will analyze those reports to plan for your financial future.
Based on the information shown in the reports, specific adjustments may need to be made. You might have to cut spending and find ways to improve your processes from a monetary perspective.
A finance department will generate forecasts and budgets. They will also plan for acquisitions, mergers, or company expansion.
Roles of a Startup Company Finance Department
Now that you know what your small business finance team is responsible for, it’s time to learn who handles each responsibility.
There are four common positions associated with a small business finance team.
You may not necessarily need to fill all these positions right away. But as your startup scales, you should be prepared to add more members to the department.
Your bookkeeper will handle the recordkeeping for your startup. It’s their job to record all transactions and manage your books.
A bookkeeper commonly handles daily deposits, payroll, and bank reconciliation.
They write in the general ledger and prepare your balance sheet, income statement, and cash flow statement.
If you’re using accounting software, the bookkeeper will monitor those feeds and add any manual inputs.
Although accountants play a crucial role in your financial department, they typically won’t be a full-time employee staffed by your startup.
You won’t need an accountant every day or even every week for that matter.
Your accountant will ensure that all your reporting processes are compliant with local and federal laws. It’s also their responsibility to prepare and file your taxes.
Accountants may want your bookkeeper to be their primary contact, in case they have any questions about your financial statements.
A controller will supervise the bookkeeping process. They ensure accuracy and provide quality assurance of the general ledger and financial reports.
Furthermore, the controller will also analyze and interpret the data from those reports, whereas a bookkeeper will just be preparing them.
Controllers are mid-level managers of a financial department.
It’s uncommon for a startup to need this position right away. Most of the controller roles can be handled by a CFO. But as your startup scales and finance department grows, you may want to consider adding a controller to the team.
A CFO will oversee your finance department.
It’s their job to focus on big-picture aspects of your business, as opposed to dealing with daily recordkeeping.
CFOs are problem solvers. They analyze financial statements and handle your forecasting and budgeting. It’s also their job to manage your startup’s cash flow.
Your CFO will help your startup raise money whether that be from a bank loan or VC investment. A CFO will also represent your company in the event of an audit, merger, acquisition, expansion, or IPO.
Hiring vs. Outsourcing
While a finance department has four major roles, it doesn’t necessarily mean that you need to have four full-time employees.
Hiring staff is expensive. It’s much more cost-effective to outsource the roles of your finance department. Look for outsourced bookkeeping services to handle all of the responsibilities of a bookkeeper.
You can even outsource your CFO. Since your startup won’t need a 40+ hour per week CFO, review my guide on how to hire a part-time CFO.
Your small business finance department needs to have clearly defined roles. You can’t handle all this responsibility on your own.
Hiring new employees isn’t realistic for most startups, so outsourcing tasks is an appealing alternative.
Here at Navitance, we specialize in startups. So, request a consultation with us to see how our outsourced bookkeeping services and interim CFOs can meet your needs.