Join us as we put our heads together to provide you with the answer to this question.
We know that small businesses have some pressing challenges that can keep owners awake at night such as managing fluctuating cash flows, preparing for expansion, securing funding, or adapting to regulatory changes. To solve these challenges you need the right financial leadership.
Understanding whether your business needs the detailed oversight of a Financial Controller or the strategic insight of a Chief Financial Officer can be pivotal. Based on our experiences in different industries, we’ve provided some helpful information that will assist you in making a choice.
You can stick around and read through the whole article, it may ignite some thought about your own situation. Or you can simply find the sections that apply to the challenges you’ve already identified. You decide.
At Hall Accounting Company we aim to make life as easy as possible for our clients, and we hope that this article will really help you make the right decision for the future of your business.
What follows are 5 critical business challenges you may be facing and how each role can help you.
Cash Flow Management
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Controller | CFO |
In the finance department, a Financial Controller specializes in managing cash flow. They ensure accurate financial reporting and oversee the preparation of income statements, playing a vital role in maintaining the health of your business's cash flow. | Chief Financial Officers take a broader view of financial planning, focusing on the capital structure and long-term financial strategy. They use financial data to develop strategies that enhance cash flow, thus playing a critical role in the finance team. |
Scenario 1: Managing Day-to-Day Cash Flow
Challenge: Regular Cash Flow Monitoring and Reporting
A small retail business is experiencing fluctuations in its daily cash flow due to varying sales volumes and supplier payments. The owner needs someone to manage these daily financial movements accurately.
Financial Controller's Role:
The Financial Controller steps in to handle this challenge. They oversee the accounting team, ensuring that all transactions are recorded correctly and promptly.
They produce regular financial reports, including income statements, which provide insights into the business’s cash flow status.
The Controller implements internal controls to manage accounts receivable and payable efficiently, ensuring that the business does not experience cash shortfalls.
Why a Controller is Best for This Challenge:
The Controller’s expertise lies in accurate financial reporting and managing the nitty-gritty of day-to-day financial operations.
They are adept at keeping the financial data organized, which is crucial for a small business focusing on stability and immediate cash flow needs.
Scenario 2: Strategic Cash Flow Planning for Growth
Challenge: Long-Term Cash Flow Strategy for Expansion
The same small retail business is planning to expand by opening new locations. This requires a strategic approach to managing and projecting cash flow to ensure sustainable growth.
Chief Financial Officer's Role:
The CFO evaluates the financial feasibility of expansion plans, using financial data to forecast long-term cash flow needs.
They develop financial information that aligns with the business’s growth objectives, considering factors like capital structure, investment opportunities, and market conditions.
The CFO guides the owner on strategic decisions like securing loans or investment banking partnerships for funding the expansion.
Why a CFO is Best for This Challenge:
The CFO’s expertise in executive decision-making and planning makes them the ideal candidate for guiding a business through significant growth phases.
Their ability to analyze financial data for strategic decision-making helps in navigating complex financial landscapes, crucial for a business looking to expand.
Preparing for Business Growth
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Controller | CFO |
Financial Controllers ensure that accounting department operations adhere to Generally Accepted Accounting Principles (GAAP). Their focus on accurate financial reporting provides a stable foundation for growth. | The Chief Financial Officer shapes the financial strategies, using financial data to guide the business through expansion phases. This strategic role makes them indispensable for long-term financial planning. |
Scenario 1: Efficient Management of Growth-Related Expenses
Challenge: Managing Expenses in Scaling Operations
A small software development firm is expanding its team and operations, leading to increased operational expenses.
Financial Controller's Role:
The Controller manages the accounting department, ensuring efficient tracking of all growth-related expenses.
They ensure accurate financial reporting, which is critical for monitoring the financial impact of the expansion.
The Controller's role in budget management helps in maintaining financial control during the scaling process.
Why a Controller is Best for This Challenge:
Controllers excel in managing and reporting the financial details of day-to-day operations, crucial for a business in the process of scaling.
Scenario 2: Strategic Financial Planning for Expansion
Challenge: Long-Term Planning for Business Growth
The same software firm is considering entering new markets and needs a strategic financial plan.
Chief Financial Officer's Role:
The CFO assesses the financial implications of entering new markets and advises on the allocation of resources.
They develop a comprehensive finance strategy that aligns with the company’s long-term growth objectives.
The CFO's role in financial forecasting and strategic planning guides the business through expansion.
Why a CFO is Best for This Challenge:
CFOs bring a strategic perspective to financial accounts, crucial for a business looking to make significant growth moves and enter new markets.
Accessing Capital and Funding
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Controller | CFO |
Controllers ensure that the finance department produces reliable financial reports, vital for securing loans or investment banking interests. | Chief Financial Officers leverage their experience in investment banking to secure funding, managing relationships with investors and aligning funding with the company's goals. |
Scenario 1: Preparing for Loan Applications
Challenge: Securing a Business Loan
A small boutique is looking to secure a loan to finance a new line of products.
Financial Controller's Role:
The Controller prepares and presents accurate financial reports, including income statements and balance sheets, essential for loan applications.
They ensure that the business’s financial records are up-to-date and accurately reflect its financial health.
The Controller’s role in maintaining financial integrity is crucial for gaining the trust of lenders.
Why a Controller is Best for This Challenge:
The detailed and accurate financial reporting by Controllers is essential when applying for loans, making them ideal for this task.
Scenario 2: Strategic Funding for Expansion
Challenge: Acquiring Investment for Growth
The same boutique is exploring options to bring in investors for a significant expansion.
Chief Financial Officer's Role:
The CFO prepares a compelling financial case for potential investors, showcasing the business's growth potential.
They analyze various funding options, aligning them with the business’s strategic goals.
The CFO’s expertise in capital structure and investment banking is vital for engaging with investors and securing funding.
Why a CFO is Best for This Challenge:
CFOs are adept at strategic business relationship and managing investor relations, making them more suited for acquiring investments for business expansion.
Budget Management and Overruns
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Controller | CFO |
Controllers implement internal controls to manage and rectify budget overruns, ensuring the finance team adheres to the set budget. | CFOs analyze the root causes of overruns and adjust the financial plan accordingly. |
Scenario 1: Immediate Budget Overrun Solutions
Challenge: Addressing Immediate Budget Overruns
A small catering business is experiencing budget overruns due to unexpected increases in ingredient costs.
Financial Controller's Role:
The Controller identifies the areas where overruns are occurring and implements measures to bring expenses back in line with the budget.
They provide detailed financial reports to pinpoint specific cost overruns.
The Controller's role in internal controls helps in quickly adjusting operational spending to mitigate budget overruns.
Why a Controller is Best for This Challenge:
Controllers are skilled in detailed financial tracking and managing immediate budgetary issues, making them ideal for addressing sudden budget overruns.
Scenario 2: Strategic Budget Restructuring
Challenge: Long-Term Budget Realignment
The same catering business needs to restructure its budget to accommodate changes in its business model.
Chief Financial Officer's Role:
The CFO assesses the overall financial data of the business and realigns the budget to support new business goals.
They engage in financial forecasting to anticipate future budget needs and adjust spending accordingly.
The CFO's strategic view helps in making long-term budget decisions that facilitate growth and adaptability.
Why a CFO is Best for This Challenge:
For strategic, long-term budget realignment and planning, a CFO's expertise is more suited due to their broader financial perspective.
Regulatory Compliance and Pricing Strategy
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Controller | CFO |
The Financial Controller ensures compliance with financial regulations, a vital part of accounting department operations. | Chief Financial Officers understand the impact of regulatory changes on the business and adjust the financial strategy, showcasing the importance of their role in strategic compliance and pricing. |
Scenario 1: Adapting to Regulatory Changes
Challenge: Complying with New Financial Regulations
A small healthcare business faces new financial regulations that could significantly impact its operations.
Financial Controller's Role:
The Controller ensures that the business complies with the new financial regulations.
They adapt the company's accounting practices and reporting to meet these changes.
The Controller’s thorough understanding of Generally Accepted Accounting Principles (GAAP) is vital for maintaining compliance.
Why a Controller is Best for This Challenge:
Controllers are experts in ensuring regulatory compliance and adapting internal controls, making them ideal for navigating new financial regulations.
Scenario 2: Developing a Competitive Pricing Strategy
Challenge: Revising Pricing to Stay Competitive
The same healthcare business needs to revise its pricing strategy to stay competitive while maintaining profitability.
Chief Financial Officer's Role:
The CFO assesses the overall market conditions and the business’s position to develop a competitive pricing strategy.
They analyze the financial implications of different pricing models and advise on the best approach.
The CFO’s strategic perspective is crucial in balancing competitive pricing with the company’s financial goals.
Why a CFO is Best for This Challenge:
For strategic pricing decisions that align with broader business objectives, a CFO’s expertise in market analysis is more suitable.
Cost implications
The average salary for a Financial Controller in a small business in the United States is reported differently across sources:
ZipRecruiter (2023): Approximately $117,864 per year.
PayScale (2023): Around $90,697 per year.
Salary.com (2023): An average of $83,027 per year
The average salary for a CFO also varies:
Indeed.com (2023): An average of $126,684 per year.
Cowen Partners (2023): For a private company, the average salary ranges from $194,354 to $237,983.
CFO Search (2023): Depending on the company size, the salary ranges from $161,808 to $536,032 in private companies.
Analysis
Financial Controllers are generally more affordable than CFOs, with their salaries mainly focused on the operational aspects of financial management. CFOs command higher salaries, reflecting their strategic responsibilities and significant impact on an organization's financial performance.
An alternative to a full-time CFO is a service called Fractional CFO. A fractional CFO will provide CFO services to a number of clients, usually small businesses and start-ups.
Further reading: Fractional CFO Hourly Rate and Services for Small Businesses
Conclusion: Controller vs CFO in Small Businesses
Both Financial Controllers and Chief Financial Officers play crucial roles in the finance department. The key differences between Controllers and CFOs are operational efficiencies vs. financial strategy and long-term planning.
No one can decide for you whether you need a controller or a CFO and that's why we’ve presented the information in a way that helps you to facilitate a decision. This is the way we believe in working with our clients - we are trusted advisors but never dictate your decisions.
It may well be that you require an overlap between these two roles in which case you may wonder if a controller can also operate as a CFO. Good question. We would say it’s not impossible but might not make the best business sense, for the reasons we’ve already listed above.
If you feel you need more information and want to speak to a CPA-qualified CFO, we provide fractional CFO services for our small business clients, making expert services more affordable and accessible for our clients.