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Small Business Finance Blog

Want to gain full control over your firm’s finances but aren’t sure where to start? You’re not alone and you’ve come to the right place. Read on and reach out if we can lend a hand.

5 Questions Every Owner Should Ask Their Financial Controller

A small business owner places a great deal of faith and responsibility on their financial controller. If you don’t yet have a financial controller, read on to ensure you or other members of you team are filling this critical need. Much of your success depends on the accuracy, timeliness and usability of the reports produced by your financial controller. 

Are you asking the right questions to feel confident that your financial controller’s activities are helping to lead you toward your goals? It may be that you don’t feel qualified to manage someone responsible for your company’s finances, which is why you sought to hire a financial controller in the first place. But there are some questions you can ask yourself (and your controller) that will help you feel more confident in the job that’s being done to support your success.

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1. Can I trust our margins?

You are likely aware that accurate gross profit (defined as revenue less the cost of sales) and operating income (gross profit less SG&A) are two key measures of your firm’s profitability. Management of your margins is where your controller can and should be adding the most value. However, it’s not uncommon to encounter classification errors which can be dangerously misleading. You might find it helpful to read our article about typical margin errors to arm yourself with some follow-up questions on this topic.

Moreover, your financial controller should help you answer important questions such as what economic value will you receive from increasing revenue by each dollar, what costs and cash are required for growth and how quickly can you realize the benefits.

2. What are the key takeaways from our most recent financial close?

Your financial controller should be a close partner in helping you manage your business toward improved profitability. Challenge him or her to do more than generate reports. Ask them for real analysis of results and invite their advice and perspective on where and how performance improvements can be achieved. Their analytical experience can be a considerable asset to help you grow your business profitably. 

Their response should include observations that you find useful and actionable. In other words, they should surface real world questions like “why did this expense spike in October” or “that new customer is surprisingly profitable, we need more of those.” If you start to nod off as they drone on about this academic ratio or that obscure figure, you’ll know you’re not getting the insight you need. To see the caliber of takeaways your controller should share, check out our article on the topic.

Be sure to take note of the date of the most recent close. Closing should occur monthly to ensure issues and opportunities are caught early. If your controller has to dust off last year’s closing package and it’s mid-summer, then you know you also need to ask him or her to pick up the close frequency.
 

3. What controls do we have in place to prevent errors and fraud?

First, you’ll want your financial controller to reassure you that proper steps have been taken to protect your financial data. This should go beyond simply locking up confidential files within file cabinets or behind office doors. Ask for the password management plan for your accounting system(s) and confirm you able to generate audit trails that reveal who is accessing systems and when. Anything less could be putting your systems at risk of criminal behavior, internally and externally.

Which leads us to the topic of fraud protection. You want to ensure that your controller is appropriating key duties among employees in your organization to protect your assets and prevent nefarious activities. A simple system of checks and balances is a requirement. For example, the person responsible for collecting and depositing receipts should not be the same person who records accounts receivable. Similarly, bank statements should not be reconciled by someone who is responsible for issuing checks. If a single person can cut checks and reconcile the corresponding bank account, that person can tamper with the check register.

Delve into how your financial controller monitors financial activities to identify instances of fraud and prevent errors. For example, is your controller reviewing bank and financial statements closely for irregularities? Has he or she implemented a system to examine your accounting processes for errors or departures from expected results?

Lastly, use the element of surprise to test your controller and the controls he or she is managing. Scheduled audits allow for planning whereas a surprise inquiry provides an unvarnished view into every day activity. 
 

4. How do our financial results compare to industry benchmarks and our own history?

Just as you want your financial controller monitoring financial activities for errors and discrepancies, you want him or her to do the same using industry benchmarks as a measure of good business. Comparisons to industry benchmarks will help ensure that your company is remaining competitive in every facet of your business, including financial management. 

And these shouldn’t just be measures related to industry benchmarks. You should expect your controller to make similar comparisons based on your company’s past financial performance to ensure that you are continuously improving. For example, profit and loss (or P&L or income statement) reports should enable efficient comparison of monthly performance over the last 12 months and/or compare your most recent month or quarter with the same period in prior years. This type of presentation enables quick scanning for changes and trends (good and bad).
 

5. What key performance indicators (KPIs) should I watch?

Your financial controller should help you identify the top 2-3 KPIs he or she will measure. These may be financially oriented metrics and they may include operational metrics, but these are the figures that you watch regularly to ensure you’re tracking toward your goals.

For example, an information technology (IT) managed service provider (MSP) will want watch the percent of revenue from monthly recurring contracts as that’s the basis on which an IT MSP is valued. A law firm will measure collection timeline because collections are a common pain point for the managing partner who is tasked with managing cash flow. A medical practice should understand profitability by type of procedure to quantify the impact of changing reimbursement rates. 

The KPIs will vary by industry and stage of growth, but they should evolve to support your current objectives. Your controller should serve as your guide and chief analytical officer when it comes to KPIs so make sure they’re contributing in this area as well. 

In closing, your entire finance team, not only your controller, has specific responsibilities and must be held accountable. Systematic assessment of their performance can make their performance review as black-and-white as comparing your sales person’s revenue generated against their quota. Such accountability requires focused management and established systems, but the resulting impact is significant.

The Driven Insights Advantage

Driven Insights is experienced in leading service businesses on the journey to leveraging financial and operating metrics to accelerate growth. Our bookkeepers and financial controllers are charged with much more than simply “doing the books” – they ensure each client understands and uses the insights we share.

Interested in learning more? See for yourself how Driven Insights can provide the insight and control you need to achieve your most critical goals by contacting us at info@driveninsights.com or 888-631-1124.


Dave Robinson

Written by Dave Robinson

Driven Insights founder, author of "Competitive Advantage through Financial Management", writes about informing business decisions.

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