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No one knows your business better than you. You are the CEO after all. You know what engineers do; You know what production managers do; And no one understands the sales process better than you. You know who is carrying their weight and who is not. Unless we’re talking about finance and accounting managers.
Most CEOs, especially those in small and medium-sized enterprises, come from an operational or sales background. They have often acquired some knowledge of finance and accounting through their careers, but only to the extent necessary. But as CEO, he must make decisions about the performance and potential of accountants as well as operations and sales managers.
So, how does the diligent CEO evaluate the finance and accounting functions in his company? All too often, the CEO provides qualitative value based on quantitative messaging. In other words, if the controller provides a positive, upbeat financial report, the CEO will have a positive feeling toward the controller. And if the controller gives a bleak message, the CEO will have a negative reaction to that person. Unfortunately, “shooting the messenger” is not at all uncommon.
The dangers inherent in this approach should be clear. The controller (or CFO, bookkeeper, whoever) may feel that in order to protect his career, he needs to make the numbers really better, or he needs to take the attention away from the negative matters and focus on the positive matters. is required. This increases the likelihood that important issues will not receive the attention they deserve. It also increases the likelihood that good people will be lost for the wrong reasons.
CEOs of large public companies have a huge advantage when it comes to evaluating the performance of the finance department. They have a board of directors, auditors, an audit committee of the SEC, Wall Street analysts and public shareholders giving them feedback. In smaller businesses, however, CEOs need to develop their own methods and processes for evaluating the performance of their financial managers.
Here are some tips for small business CEOs:
Timely and accurate financial reports
Chances are that at some point in your career, you’ve been advised that you must insist on “timely and accurate” financial reports from your accounting group. Unfortunately, you’re probably a pretty good judge of what’s timely, but you may not be nearly as good a judge of what’s accurate. Sure, you may not have the time to test recording transactions and verify the accuracy of reports, but there are a few things you can and should do.
- Emphasize that financial reports include comparisons of multiple periods. This will allow you to judge the consistency of recording and reporting transactions.
- Make sure all discrepancies are explained.
- Recurring expenses such as rent and utilities should be reported in the appropriate period. That one explanation – “there are two rents in April because we paid in early May” – is unacceptable. May’s rent should be reported as an expense for May.
- Occasionally, ask to be reminded about company policies for recording revenue, capitalizing costs, etc.
Beyond Monthly Financial Reports
You should expect to receive information from your accounting and finance groups on a daily basis, not just when the monthly financial reports arrive. Some good examples are:
- Daily cash balance report.
- Accounts Receivable Collection Update.
- Cash Flow Forecasting (Cash Requirements)
- Important or unusual transactions.
persistent work habits
We all know people who took it easy for weeks, then worked up all nights to meet a deadline. Such inconsistent work habits are strong indicators that the person is not attentive to processes. It also exponentially increases the potential for errors in the frantic last-minute movements.
desire to be controversial
As the CEO, you need to make it clear to the finance/accounting managers that you expect clear and honest information and that they will not fall prey to “shoot the messenger” thinking. Once that assurance is in place, your financial managers should be an integral part of your company’s management team. They should not hesitate to express their opinions and concerns to you or to other department leaders.
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