Your bookkeeper is the person who takes the time to categorize all of the incoming and outgoing money that flows in and out of the company. Money coming in is usually either your sales receipts or some sort of refund. It needs to be categorized properly and match to invoices generated by the company, all of which can be accomplished in simple accounting software like Quickbooks. Accordingly, the bookkeeper is also well-positioned to be the person who is most familiar with all of the little details of the company’s cashflow and spending. They also usually handle generating invoices and collections when payments are due.
Your CFO is a glorified title for a financial manager. For smaller companies, this role doesn’t require much other than pulling together all of the categorized work from the bookkeeper and making sure everything is properly placed into financial statements. I don’t do a deep dive on financial statements here, but for a primer I recommend reviewing the following resources:
Quick Overview: Investopedia – Financial Statements: List of Types and How to Read Them
Deeper Dive: Book – The Portable MBA in Finance and Accounting
Understanding financial statements is a much bigger topic than can be covered here, but it’s always a red flag when the CEO or management team doesn’t have at least a basic grasp of the three financial statements for a company and how they function.
Your CFO is also responsible for helping the CEO and rest of the management team forecast the future. This is accomplished by creating a financial “model” that makes certain assumptions about the company’s anticipated performance, both in terms of money in and money out, for the next few years. The model serves as a tool for the management team to periodically revisit those assumptions and see what happens to the company’s financial performance when certain things change. The idea isn’t to create a perfect crystal ball and try to predict the future, but you need a tool to use as a roadmap and be able to analyze what’s happening, right or wrong, when things go or don’t go according to plan.
The third role on your finance team is your accountant or CPA (CPA = Certified Public Accountant). Your CPA should be a licensed person who is duly qualified (i.e. they have to take exams and pass them in order to become a CPA) and are responsible for preparing and filing your tax returns and other tax related filings. This usually includes more than just annual tax returns. Your CPA should also be analyzing your business to determine whether you owe sales or use taxes, or issues like whether you have contractors who should be reclassified as employees (or the other way around), which can trigger payroll tax obligations. Plus, various states have different types of taxes for property, excise taxes and the like. As your business grows, so will the complexity related to taxes. It’s important that your CPA understands the context of your business – what your business does, how you provide products & services to your customers, and what your future plans are – so that they can stay ahead of the game and help you anticipate how your tax situation might change. This info then gets relayed back to the CFO to make sure that tax considerations are built into the financial forecast.
A common mistake is to outsource all three functions to your CPA and their team. There are plenty of CPAs out there who employ bookkeepers in-house and offer those services. I don’t have a problem with that. But more often than not the CFO piece is missing, and it’s arguably the most important. Without someone to verify your financial statements and help you understand them better, you’re walking through the financial forest without a flashlight.
