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Vilma Poškutė. Financial manager guide: Hire or outsource the service?

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Vilma Poškutė. Financial manager guide: Hire or outsource the service?

Very often, when companies look for a head of finance, the requirements are: from initial document to financial statement preparation. It seems that not everyone understands what are the functions of a head of finance. In order to make a well-informed decision, we prepared a brief guide to what are the responsibilitties of a head of finance, and also some tips on when to hire a person and when to outsource the service.

From Accountant to CFO

In a hierarchical structure of a medium-sized company’s finance department, from the lowest rank, the positions rank as follows: accountant, accountant / financier and senior financier. Then ranks the head of the department, which depending on the size of the organization, can be called Chief Financial Officer (CFO). In large corporations, which we have a few in Lithuania, there is another step – vice president of finance.

The primary accounting records into the accounting system are entered by the accountant. He usually does not perform any financial data analysis. The accountant / financier – often not only collects data but also performs more complex functions of the financial department, i.e. fills in and provides declarations for tax authorities, like: corporation tax, income tax, Sodra, etc. The senior financier combines the work of the above mentioned people and prepares financial statements. The accountant and accountant / financier are subordinate to him. In most organizations, only an accountant / financier or accountant / financial assistant and senior financier are employed.

Meanwhile, the head of finance (or CFO) is responsible for the strategy of the financial department. He has all the information about the company’s cash flows, plans, he compiles budgets, participates in meetings of the board, interprets data, if the company is listed on the stock exchange, represents the shareholders’ meetings.

So, you have to agree, it looks really funny when companies look for a head of finance,and in the job description state that he will have to take care of everything form initial document preparation to financial statement preparation.

 The CFO functions, or – the faster, the better

Now let’s discuss the role of the cief financial officer. Suppose you need to find out how much the costs relate to certain revenues. If your accountant answers that he/she will collect the information within a week or two, then you are condemned to loose in the competitive struggle. Speed ​​is what matters most to an enterprise, to be flexible and adaptable to market changes. Without information – you can not properly manage the situation.

The process of planning any business activity is very closely related to financial accounting. It is the CFO who has the information about the company’s financial situation here and now. It’s very important to manage your company’s financial flow information in order to be able to pay bills in a timely manner or use loose funds efficiently. Companies which forecast cash flows prepare monthly reports to know how much money they will have at the end of the month. This information helps you plan your daily cash needs, for example, you can make short-term investments or plan to use an overdraft.

Having all the financial information, the CFO becomes an advisor and the right-hand of the company‘s CEO. The CFO, in co-operation with the heads of the company’s functions, prepares budgets, presents them to a supreme manager or shareholders. Without a CFO who is able to analyze data and make recommendations, you have less chance of efficient use of funds, planning revenue and expenses.

Suppose you are a company group leader, your group has a cash pool. You need to collect information about company debts, make forecasts, calculate possible revenues, inform the responsible persons about debts, and effectively use the balance for investment or other needs, taking into account the priorities and returns. All of this is a CFO’s task. He prepares forecasts, internal reports, budget comparisons. For example, compares the result of a current month with a budget or the result of a corresponding period of the previous year. The costs of divisions, projects and revenue can be compared.

The financial manager is also responsible for ensuring that the financial processes are properly managed in the company. For example, when it comes to revenue and expenditure, indicate that they are attributed to specific departments, projects, products. This assignment is called the “cost center”. It is very relevant when the company’s activities consist of several areas. Correctly managing the processes, all information about the costs and income of the particular project, i.e. profit loss report for any period will be received at in „one click“. In short, the CFO is a person who sees the financial situation of the company objectively.

Hire or buy a service?

As the company grows, the amount of financial information will increase, an accountant won‘t be enough, the services of a CFO will also be required. How to decide whether to hire a person, or is it to buy a outsourced service? There are several cases.

Suppose you are a trading company, you have an accountant who brings together basic accounting documents, you have an accountant who prepares the declarations, financial statements. However, due to lack of time or due to lack of competencies, these employees are not able to carry out more in-depth insight, process control. It would be worth the extra man, but to hire a full-time employee is too expensive. On the other hand, it would be possible to find additional work for that person, but then there is a question of employee motivation.

There may be a completely different situation. Suppose your CFO left the company, so you need a new person. Or perhaps your company is in a location where it is difficult to find a worker with such competencies. In such cases, it is worth considering outsourcing such a service in a specialized company.

 Some Advantages Of Outsourcing A CFO:

  1. A specialized company has more internal resources and competencies.
  2. You do not have to worry about the cost of creating a job: a computer, a phone, a car, no need for trainings or thinking about the employee motivaition.
  3. The company can offer a favorable service price.
  4. Possible synergies when buying more services from one company.
  5. Continuity of service is ensured. There is not one specialist, but a whole team.
  6. In the event of errors, there is a chance to claim for compensation.

Well, there is another common situation – “fire fighting” when a CFO is needed for a short term (an additional project is being implemented, an accounting system is introduced, or an employee is suddenly ill). In these types of situations, the outsourced financial management service is probably the optimal decision.