Does your company need a financial controller?

Does your company need a financial controller?
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It’s natural for you or an outsourced bookkeeper to handle all the company’s finances when you launch your startup. But as the business expands, this convenient arrangement may cause poor record-keeping, leading to slow and inaccurate financial reporting. 

With as many as 20% of small businesses going under due to lack of funding, you need to know exactly how much you can afford to spend.  

The absence of effective controls could also clip the wings of your growing business. With small businesses suffering from a median loss of $150,000 due to fraud, having no spend policies and internal controls could endanger the survival of your business. 

Your financial stability requires accurate reporting, and having a captain to steer that ship can ward off unexpected mishaps. Problems due to error-ridden reports, unauthorized expenses, penalties from missed deadlines, and incorrect tax filings are red flags for any business. When similar issues crop up, it may be time to hire a financial controller. 

What is a financial controller?

The Financial Controller (FC) takes charge of accounting, auditing, and budgeting functions. Sometimes referred to as the “comptroller,” financial controllers are senior-level executives who ensure accurate reporting within the organization.

Controllers deal with a wide range of tasks, including report preparation, compliance audits, monitoring control, financial planning, and optimizing the best technology for the finance department.  To perform this role well, controllers should understand how financial and non-financial data could impact the quality of decision-making. 

Given the demand for accounting expertise, a Certified Public Accountants (CPA) or at least a Certified Management Accountant (CMA) typically acts as controller. The controller’s primary role is to deliver timely, accurate, and GAAP-compliant financial statements to decision-makers and maintain internal control. Financial controllers report to the CFO if there is one. 

Some CFO and controller responsibilities may overlap, but CFOs focus more on investor relations, finance strategies, and fundraising. On the other hand, controllers take over number crunching and risk management. 

What are the responsibilities of a financial controller?

Seventy percent of the time, financial controllers perform traditional tasks like ensuring compliance with accounting standards and closing the books. Controllers serve as the accounting lead and take over cash flow management, budget preparation, and forecasting. The position may also include documenting accounting policies and business processes, streamlining operations and accounting systems, handling audits, and recommending strategies to upper management.

Today, controllers do more than just prepare financial and audit reports, due to the changing demands on CFOs and the evolving technology. Financial controllers wear different hats, from the chief number cruncher to the tech leader for accounting processes. 

As CFOs increasingly act as the right hand of the CEO, controllers who are second-in-command to CFOs must fill the void. With these changes, about 90% of financial controllers spend more time on strategic planning

Modern controllers also head optimization efforts of financial reporting and the accounting process. Technology puts greater pressure on controllers to expedite the process of preparing financial reports at month-end. And in many companies, controllers do not work alone but as part of a team. 

With the expected increase by 25 to 30% of professionals working from home, the finance team needs to coordinate well and optimize processes and tools. 

Creating and implementing policies on company spending is also a large part of a controller’s responsibilities. Controllers are in charge of internal controls and hold members of the organization accountable for any policy violation when an internal audit department does not exist.  

For around 69% of financial controllers who identify themselves as the company’s risk manager, the remote environment poses challenges in maintaining controls within the organization.

What is a financial controller's salary?

Financial controller salaries depend on experience, location, and the industry. Given the demand for accounting expertise, most controllers are CPAs. But the qualification to be a financial controller is not limited to CPAs.  Certified Management Accountants and professionals with related expertise may take over this position. 

According to Indeed, the average base salary for a controller is $96,204. Payscale.com estimates a lower average base salary for the position at $85,352, with base salaries ranging from $58,000 to $125,000. Skills required include analytical problem solving, strong communication skills, and the ability to work under pressure.

Controllers in cities like San Francisco, Los Angeles, New York, Houston, Dallas, and San Diego earn more than those in the Midwest.

Should you hire a financial controller or a CFO?

If the business is in the early stages, the controller and CFO may have somewhat interchangeable roles. In a small business with limited funds, the need for a controller would usually arise first. 

The duties and responsibilities of each role become more defined when the organization expands. However, it pays to know the difference between the two. 

What is the difference between financial controller and CFO?

Finance controllers lead the accounting department. Meanwhile, CFOs have two critical functions –ensuring that finance teams are efficient and making strategic financial decisions to aid the CEO. 

The key difference between the financial controller and the CFO would be accounting expertise. 

A CFO may have a consulting or entrepreneurial background but not necessarily be an accounting expert. But an effective financial controller should be able to spot issues with your books or tax filings at a glance. 

Financial controllers ensure your accounts comply with accounting standards, pass audits without major hiccups, implement internal control and provide decision-makers with timely and accurate reports.

Hiring a controller is ideal in the following situations:

  • No one takes control of the accounting function
  • Financial reports are incorrect, and the bookkeeper cannot identify where the errors lie and what the actual numbers should be
  • Management lacks the most up-to-date information for decision-making because of reconciliation delays
  • Without checks and balances, your business is losing money from fraud and other security issues
  • Your CPA demands better support, especially during audits and tax filing season

Bringing in a controller often happens first before the business requires a CFO.

For small businesses, hiring a CFO may be necessary only when funding needs arise and when you already have an accounting lead in place.

How CFOs and financial controllers help businesses at different stages 

While there are no hard and fast rules to determine it’s time to hire a controller, experts provide some guidance to determine that you need one. 

AirCFO’s Justin McLoughlin proposes using the 2/3rds rule:

If the annual cost of hiring a controller costs $90,000 or $7,500 per month and you’re spending at least 2/3rds of this amount ($5,000) on a contractor, and the workload continues to increase, it’s time to find a full-time controller. 

Your business industry is another consideration. If you are in a highly regulated industry, you could benefit from hiring a controller sooner than later. You don’t want to get stuck without enough resources during an audit.

Another simple rule of thumb may be the size of the business. Many businesses benefit from having at least a part-time controller when annual revenues hit $500,000 to $1 million

After crossing the $1 million annual revenue mark, the financial controller performs high-level tasks beyond the expertise of a bookkeeper. Businesses may also hire a part-time or fractional CFO at this point, but the controller could still provide a high level of assistance to the CEO. 

Financial controllers often focus more on internal control management and financial reporting when annual business revenues reach $10 million. Public companies would have filing requirements with the Securities and Exchange Commission to handle, for example. If the business wants to optimize financing, CFOs may also become necessary. 

CFOs also act as experts in investor relations. The ability to package the business well makes it attractive to potential investors and lenders. In many cases, CFOs bring their connections to provide better sources of additional funding — a role that is often beyond the ability of the financial controller.

Conclusion

Controllers play an integral role in optimizing technology for accounting processes, managing teams, and providing accurate, timely, and reliable information about the business to make reliable decisions. While controllers may even fill some traditional CFO responsibilities, FCs focus more on accounting processes and risk management.

When your business is at the point where decentralized accounting makes it hard to determine where you are in your finances, it may be time to hire a financial controller. Even with modern technology and accounting software, having a comptroller frees you up to make strategic moves and grow your business. 

Lola.com is the spend management solution that keeps you on budget.


About the Author: Anna Yen
Anna Yen, CFA, has nearly 2 decades of experience spanning financial markets, cryptocurrencies, and digital marketing. Currently she manages digital assets at FamilyFI, working to empower families with financial literacy.