Frustrated by your Company’s Finances? Five discussions to have with your Controller.

The role of a Controller for a growing business is as important as ever. At a macro level, Controllers measure results against business goals, ensure processes run efficiently and provide financial support to other departments. For small to middle market Companies, the Controller has many duties ranging from financial planning and analysis all the way to treasury – there’s no end to the countless tasks a Controller will take on for the overall company benefits.

So how do you know if your Controller is working hard or smart enough for you? Here are some questions we often address with our clients, ranging from startups all the way to upper middle market:

  • What is the overall effectiveness of my Controller and accounting group?
  • Am I getting the most from them?
  • What are other companies doing differently that I could implement here?

Common accounting problem symptoms we hear frequently are:

  • Reporting is always late and/or ineffective
  • Financial performance or cash flow surprises seem to occur frequently
  • The burdensome accounting cycle never allows for time to improve

So what should a CEO, CFO and Operations expect in an effective Controller?  Below are five areas of focus you should expect your Controller to master to do their job effectively:

Understand the Balance Sheet

Profit and loss is the metric most popular to explain performance. But what about the balance sheet? How well does your Controller understand working capital? Are you maximizing value from customer or vendor terms? Are your covenants monitored regularly? Do you create value from utilizing your line of credit?  Consider these minimum processes that should be in place:

  • Weekly trending of working capital, receivable/payable days
  • Review of accounts payable/accounts receivables/inventory
  • A timely reconciliation of balance sheet accounts
  • Budgeting/monitoring of capital expenditures
  • Efficient/automated covenant/borrowing base calculations

Value is created by pulling the correct levers – e.g., customer/vendor discounts vs. cost of capital, proper recording, aged receivable review, etc. Timely reconciliation of the balance sheet reduces risk and ensures accurate and consistent recording.

Understand and Maximize Cash Flow

A proactive approach to cash flow will help you stay ahead of the game. Controllership is generally responsible for cash absent a treasury department. How well is cash monitored? Are you paying bills consistently based on due date? Is the frequency of cash projections adequate for your business? More importantly, are cash projections compared to actual cash balances? Value can be created from strong cash processes:

  • Weekly and/or 13-week cash forecasts, as dictated by the business
  • Weekly cash requirements or “payments due” review
  • Consistent check printing days
  • Minimizing manual or “surprise” checks

Weekly understanding of cash flow will detect negative balance sheet trends. A precise cash flow offers more value – e.g., customer/vendor discounts, debt/line of credit management, accounts payable/receivables.

Leadership and Soft Skills

Are the support staff managed properly? Does your Controller or Manager have a thorough understanding of roles and responsibilities of each person on the team? Do the staff? Are processes documented? Are there regular staffing errors or “surprises?” Will one staff’s departure create a business interruption? Does one person have too much access or responsibility? Value can be driven and risk can be reduced by strong processes and controls:

  • Process documentation/policies and procedures
  • Strong internal controls
  • Adequate cross-training
  • Job descriptions
  • Controller detailed review

Reduced overhead is generally preferred. Strong processes and staff monitoring creates processes that are efficient – leading to minimal finance and accounting overhead. Adequate training prevents business interruption risk because of turnover. Bottom line – a Controller should always know exactly what the staff are doing!

Financial Reporting and Internal Controls

Does your accounting/finance group have a monthly close process organized by day? Are results distributed in a consistent manner? Is there a process in place to minimize ongoing “surprises” at month end? Below are examples of the fundamental financial close processes/controls:

  • Closing checklist
  • Consistent reporting
  • Monthly reconciliations
  • No financial surprises at period-end

Business-as-usual thinking and inefficient processes slow down the entire back-office operation, grinding a financial department to a halt. A strategic Controller will put these processes under the microscope to identify and eliminate inefficiencies.

Operational Results

Do you get at least a monthly results summary? Is your Controller delivering or supporting operational metrics?

  • Daily or weekly metrics
  • Summarized and detailed financial results
  • Variance analysis
  • Executive summary commentary

Operations understands drivers of the business intuitively – a clear financial presentation ensure results are in-line with management expectations. Value, such as identifying increased expenses or decreased margins, is created when finance and operations collaboratively track operational and financial key performance indicators.

Conclusion:

No reason to panic if one or more of the items above aren’t currently happening within your Controller/accounting group. Good news – improvement can begin immediately; bad news – change is needed and the process can be tough! The key to a good small to middle market accounting department is sound processes and controls, consistent reporting and a strong understanding of cash flow.

About Lake Michigan Partners

Lake Michigan Partners is an independent management consulting firm located in Chicago, Illinois with projects managed nationally. We specialize in creating value for our clients by assisting them with complex special projects. The firm provides financial, accounting, business process and risk consulting and our team works with clients to align the company’s support activities with the organization’s overall business strategy. We work as an extension of management in order to execute special projects or specialized services.

Lake Michigan Partners is focused on improving reporting, accounting and the entire overall back office. We are consultants as well as resources – interim and part-time CFO’s and accountants.

Learn about us at lakemichiganpartners.com

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