Hi, I’m Cal Wilder, founder and CEO of SmartBooks Corp. This video is for all you EOS implementers and users of the entrepreneurial operating system. I’m an early implementer myself. Back in 2012, we implemented at SmartBooks.
Filling the Finance Seat in The Accountability Chart
Today I want to talk about the challenges of filling one of the seats in the accountability chart, specifically the finance seat. As you know, when founders starts small businesses, they tend to be great salespeople or they might be an expert in a particular field. What they are almost never, is an expert in bookkeeping, accounting and finance.
But yet the finance seat is critical. We’ve worked with many hundreds of small businesses over the years and they tend to come to us because their books are in a mess and they can’t even get the basic bookkeeping and accounting done, let alone financial planning, analysis, budgeting and using the financials to really run the business.
The Finance Seat: A Different Kind of Seat
So it’s a critical seat, but it’s also a different kind of seat. You know, you think about the marketing and sales seat, that’s a full time seat. You hire somebody to grow your business. There’s definitely 40 hours a week for a good marketing and salesforce leader to spend.
You hire somebody to run operations. That’s definitely a 40 hour week job, even in smaller businesses. But when you think about financial management of a small business, it’s really not 40 hours a week of work. If you hire a 40 hours senior finance manager, she’s going to spend her time doing bookkeeping and accounting and office management and IT and legal and HR and any number of things to fill up 40 hours a week.
The Budget Ramifications
So the other dynamic too, is you’re a small business owner. You may be willing to spend six figures on a sales and marketing leader who’s going to really drive the growth of your business.
You may be willing to spend $100,000 a year to get out of the operations seat yourself and bring somebody else in who is capable of operating the business since it’s grown to a point, and maybe it has outgrown what the founder can do themselves.
But when it comes to finance, that’s something everybody’s reluctant to spend six figures on. It’s an important seat, but yet it’s not a senior full time seat. So how does it get done well? That’s the challenge. How do you successfully fill the seats?
Finance: What Needs to Get Done
So the first thing we do is we think about what’s the finance stack? In simple terms, what tasks need to get done to fulfill the finance seat responsibilities? There are three main roles:
- Bookkeeping, accounting, basic financial reporting
- Financial planning, analysis and budgeting
- Making major financial decisions
So in my experience, the finance seat is most successfully filled when the owner, or one of the owners, takes care of the financial decision-making and then uses other resources to get the other two roles done.
If you think about it, the owner has the most on the line financially. The business loses money, it’s coming out of the owner’s pocket. The business makes an incredibly risky decision, the downside is owned by the owner. Nobody has more on the line than the owner, and it’s really hard to effectively delegate responsibility for financial performance to others in a small business.
And so you certainly want to use other resources (think part time help or outsourcing firms like SmartBooks) to get the tactical work done. But it’s hard to give up the responsibility.
So there are some alternatives that we’ve seen clients pursue that usually don’t work as well, but I want to cover three of them.
Alternative 1: Elevating a Junior Employee
First, you can elevate a junior employee into the senior leadership team in order to fill the Finance seat. Sounds good, right? You’re getting somebody else’s name in the box. The goal is to have a different name owning each of the seats.
It sounds good, but the reality is elevating a more junior employee who’s not ready to be a senior executive yet in their career is problematic. If the rest of your senior leadership team is made up of senior executives, you’re going to change the whole dynamic of the team. Also, typically this tactic has not really produced the desired financial results for the business anyway.
Alternative 2: Hiring a Fractional CFO
The second thing we’ve seen is hiring a part time external consultant like a fractional CFO to come in and own the finance seat, be on the senior leadership team, attend the weekly level 10 meetings. I’ve been there. I’ve done that on the external consultant side as a consulting CFO and it can certainly work very well if the owner does a couple of things.
The owner has to:
- Partner with and co-own financial results with the consultant
- Utilize the skill, experience and insight of the external consultant
- Be willing to compensate and work around the part-time nature
When it does not work so well is when the owner brings in that part time CFO and then abdicates and delegates all responsibility to this individual. It’s a set-up for disappointment if the owner is expecting a full-time commitment while only paying for part-time coverage.
Unless the hours are starting to approach full time, the consultant will just not be as engaged in the business. He’s not physically able to be at the business. He doesn’t know the employees in the business. He doesn’t know the customers of the business. He’s just limited in his effectiveness.
So, if you want this model to work, you have to accept that and get the benefits of the fractional cost of this person, and work around the fact that he will be a little bit less effective than a full time person.
Alternative 3: Owner Does Everything
And the third way we’ve seen businesses fill the seat is to have the owner do everything himself. He doesn’t want to spend the money. He thinks he can do the bookkeeping and accounting. How hard can it really be? He can learn it. He can do it.
And maybe the owner will be capable of learning it and doing it, but it’s never the best use of the owner’s time. There’s always something more important to be doing. The owner’s never motivated to actually do that work. There’s always an excuse that it doesn’t get done.
If you hire a part time or full time resource or a firm to do the bookkeeping, accounting, and financial planning and analysis, that’s her job. That’s what she’s getting paid to do. That’s what she’s accountable for. There’s no excuse for it not getting done.
So those are my thoughts. If I conclude here, what we’ve really seen from our experience is the owner really cannot effectively delegate ownership of the finance seat. These three things are simply too important to delegate to others:
- The major financial decisions
- Owning the financial performance of the company
- Weighing the risks the company’s willing to take
Instead the owner should round out the other roles that are part of the finance seat to get the tactical work done by somebody else. Then, the owner can really focus on growing the business to the point where the business can afford a great full time finance manager as part of the senior leadership team.
If you’re looking for help filling the finance seat at your EOS driven company, contact us. We’re huge fans of the EOS methodology and we’d love to help.