The CFO'S Perspective

The Difference Between Financial Teams for Small vs. Mid-Sized Businesses


Top business owners and CEOs know that having a well-run finance department is vital to their company's success. Being able to process and analyze payments coming in and going out is paramount. Likewise, your company's financial team should keep you in compliance with regulations, such as tax laws, and help drive some of the strategic decisions for your business.

But, what is the right size and make-up of a financial team relative to the scale of your business operations? If you are a start-up or small business, should you have a CFO? If you don't, who will handle these essential financial functions? At what point should you start scaling up your financial team. The answers to the questions could have an impact on the success or failure of your business.

What is the Difference Between a Small to Mid-Sized Business?

You might read and hear a lot about "small businesses" and "big businesses" in the U.S., but what do these terms mean? As far as the federal government is concerned, you are either a small business, or you're not. This is the only type of business that the government categorizes.

This distinction matters because the government offers a myriad of programs that benefit small businesses. The federal Small Business Administration creates these standards, which vary depending on your industry. According to the agency's Table of Small Business Size Standards, a logging company is classified as a small business if it has under 500 employees. A construction company must have under $36.5 million in revenue, and a technology manufacturer can have up to 1,250 employees to receive this classification.

Some of those can be fairly large operations, and the ones that sit towards the upper limits are better categorized as medium-sized businesses. A leading researcher on issues related to mid-sized businesses is Ohio State University's National Center on the Middle Market. According to them, a mid-sized business is one with revenue (not profit) of between $10 million and $1 billion.

The Different Financial Requirements of These Businesses

Depending on the business, its industry, and its size, the financial requirements may not be dissimilar between a small vs. mid-sized business. It may only be a matter of scale. Yet, scaling up the processing of financial data comes with its own set of complexities, such as the potential for increased errors.

On the other hand, there may be some financial matters that are more unique to a mid-sized business. These might include dealing with equipment financing and other bank loans. Other considerations are expansion through M&A and strategic control of cash flow.

Choosing the Right Size and Make-up of Your Financial Team

A typical financial department consists of a CFO, Controller, Accounting Manager, Accountants, and staff or departments for AR, AP, and Payroll. This is a simplified explanation, and the reality is that the requirements of your particular business are going to vary based on a variety of factors. Some of the those are the number of general ledger accounts you have as well as how much your company is leveraging technology for some financial functions.

It has become increasingly common for businesses to attempt to do more with less, looking to create the leanest financial team possible. Technological innovation allows this to happen on some levels, but there must still be human oversight. Most general ledger accounts are still reconciled manually, and your company will need the expertise of financial managers to keep it compliant and help drive sound business decisions.

The size of your company's financial team might hinge on the number of transactions it posts each day, as well as how much credit it extends. If your company has a lender involved, there are additional reporting requirements. You may also need staff to handle audits if these are common.

Let's assume you own a small business with $5 million in annual revenue. Your financial team might consist of 4 or more staff: a full-time Controller, and AR AP, and Payroll departments with one or more people each. Your company may also contract with a CPA and work with a part-time CFO for oversight, reviews, and strategic planning purposes.

A mid-sized business will have a larger financial team to deal with its broader customer base, higher invoice count, and additional employees. Assuming your company has annual revenue of $50 million, you might have a financial team that has 10 or more staff. You'd likely have a full-time CFO, Controller, Accounting Manager, and fully-staffed AR, AP, and Payroll departments.

With either sized business, you would generally staff your AR, AP, and Payroll departments with skilled clerical employees, as well as trained, experienced supervisors. The rest of your requirements will depend on what type of reporting stream your company requires. Some of the questions you should ask and answer include:

  • Are you issuing financial reports weekly, monthly, quarterly, or annually?
  • Do you prepare and file tax returns or do you contract out this role?
  • If you contract out tax filing, how much prep work is required by your staff?
  • What are your company's monthly closing cycle deadline requirements?
  • How often do you get audited (internal, external, regulatory)?
  • How many legal entities does your business support?

Is Your Finance Team Too Siloed?

No matter the size of your financial team, it is now considered almost unthinkable to shut this department off from the rest of the company. The most effective team will have an integrated role, where they actively communicate and collaborate with other managers and departments. This will allow financial managers to anticipate future company investments as well as spot anomalies before they become problems.

Overcoming organizational silos can be a major hurdle for some companies. But, keeping silos in place can complicate the decision-making process, this is particularly dangerous in the financial realm. Some of the ways to bust these silos or prevent them from forming in the first place are to expose workers to different departments, encourage communication, and have the right people on your team.

Hiring the Right People for Your Financial Team

Getting the right people on your financial team can be tricky. While hiring for a particular set of skills seems simple enough, the people you hire should also have qualities that support the evolution of your business. It's no longer acceptable to hire someone based on a degree, proficiency with a 10-key, or even an impressive background.

Today's top financial candidates should have business knowledge, leadership potential, technical ability, and superior communication skills. Customer service skills aren't something that business owners or CEOs think to look for in their financial team, but they are vital. If you think about it, everyone in the company is a "customer" of your financial team's staff.

How Can You Tell if Your Financial Team is Overbuilt or Underbuilt?

One of the most significant concerns of CEOs and business owners is having a team that is inefficient, which could be a disaster for the company's bottom line. Whether your financial team is overbuilt or underbuilt, neither is a good situation.

Having too many cooks in the kitchen is not going to drive business success. Unfortunately, some companies have boosted their valuations based on their size while they continue struggling to post a profit. But unless these companies have unlimited funds, they won't be able to sustain their growth or their operations.

When it comes to financial teams, being overbuilt has risks. Your company may have a surplus of staff on hand but lack the controls to accurately process transactions. If someone is unhappy with your department, will they know who to call or will a buck get passed? When mistakes are commonplace, and you hear internal and external grumbling, it may be time to review the structure of your finance team.

There is also the possibility that your team is stretched too thin, or is underbuilt. A survivalist will tell you that waiting to drink water until you are thirsty means that you are already dehydrated. When it comes to your company's financial health, adding staff earlier rather than later is the best plan.

If you find that you have overdue financial reports on your desk and upset vendors, it's probably time to look at expanding your company's financial team. The last thing you want is for vendors to wonder if you are a viable company and the IRS to send you notices about late filings. Being thrifty as a business owner is admirable, but errors can be costly.

Temporary Financial Managers Help Fill the Gap

Whether your company is small or mid-sized, it is likely going to experience some growing pains. As revenue expands, your financial team will also need to grow to handle the inevitable processing and reporting that will follow. If you had a part-time Controller or Accounting Manager at one time, it may be time to think about bringing someone on in a full-time capacity. The same holds true for your CFO position. Many small businesses take advantage of a part-time CFO to augment their staff and get the information they need to grow.

Filling the role of a financial leader takes time. Fortunately, you can bring in interim financial managers to help your company bridge the gap while it locates the right person for a permanent position. You can also have someone fill this role in a part-time capacity so that you can be sure that it suits the needs of your organization.

If you'd like to explore the ways that adding staff to your financial team, either part-time or permanent, can help your business achieve its goals, please contact us. We can help you evaluate the needs of your organization and will thoroughly outline your options for adding (or reducing) staff.

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