Roy Duncan

7th March 2016

Creating an effective finance and accounting department

Whether you are at the early stages of funding, having just invested initial seed capital, or in the enviable position of being in the more advance stages, you will be all too aware of the need to manage and record what has been spent and what has been received. Indeed, as a company director it is your statutory responsibility to keep financial and accounting records.  Company directors’ duties – accounting records

Of course, that does not mean that you have to undertake everything by yourself.  However, you will have to make sure you have taken appropriate action, by  creating an effective finance and accounting department.

How you approach this will vary depending on which stage your business has reached and your budget.    This article provides a rough guide on what sort of resource you may need at each stage whilst being cost-effective.  It will of course vary for each business.


Seed capital and pre-trading

Good habits are best introduced at the beginning and it is a good idea to start how you mean to continue by keeping records of all financial transactions and retaining all relevant paperwork.

At a basic level all you will need are a couple of folders and an excel spreadsheet.  Once set up, all you need to do is keep it up to date.   This will let you know at a glance what yours receipts and expenditure are and you will have everything you need for your accountant to prepare your year-end accounts and tax computation once you start trading.

Don’t forget to include all relevant income and expenditure whether originating from bank, cash or credit card/s.  If you want to make life easier, get your external accountant to set it up for you.

Once set up, the most cost-effective way will be to ask your spouse or partner nicely, or off course, do it yourself!  Of course you could get a part-time bookkeeper to handle everything for you, although you may feel that money may be best spent in developing the business.


Launch and start up financing

Once you get to launch looking after the finances will be more critical, especially as the business grows and you will need to consider more closely how you to ensure that everything is being done.  You will need to move from basic record keeping and bookkeeping to salary preparation, VAT returns as well as providing management information such as management accounts and cashflow forecasts to investors.

How you achieve this, will depend on the growth rate and complexity of your business.  First of all, if you didn’t purchase it before now is the time to get accounting software. As before your external accountant should be able to support and guide you whichever route you choose.

Your options will be:

Outsource everything from bookkeeping, payroll, VAT return to management accounts to your external accountant or a bookkeeping firm. The benefits of this approach which are that that you can be confident that everything is being done correctly and you do not have to worry about deadlines and compliance. On the other hand, it is likely to be more expensive than doing it in-house.

There is also the possibility that as the accountants are not closely involved in the business, they may not have all of the information resulting in errors.  For example you forget to inform them that you had delayed payment of a large invoice which is in your drawer, or a large client invoice was not sent until a month later. Both of these omissions would affect your profit leading to inaccurate accounts.

You will also need to take into account the accountant’s fees which are likely to be much higher than doing it in-house.

Another option is to employ a part-time accounts manager   to look after all day-to-day processing and VAT return, and get your external accountant to prepare the management information and salaries.  The benefits of this approach are that you still get the benefit of the accountant without the higher cost.

You could also employ an accounts manager  (part-time or full-time) to look after everything.


Bank investment

As the business gets larger it will have an increasing need for working capital, such as an overdraft or asset based finance including factoring and invoice discounting.

To access these sources of funds, you will need to provide the lender with accurate and timely management information such as management accounts and forecasts.  Planning and forecasting cash will also be crucial if bank covenants are to be monitored and adhered to.  You will also be subject to regular external audits.

By this time your business is likely to be growing and you will have a fully functioning accounts function either in or out-house. Now is likely to be a good time to recruit a financial controller   whose responsibility will be to manage and control all of the company’s finances and ensure you are managing the bank relationship. If your accounts are outsourced, it will be a good point to bring them in-house.

A strong financial controller will add substantial value to your business and will be a major player in producing management information for current and future investors.


Further Equity Investment

As the business grows and receives further investment, managing financial strategy will be essential and you will need to recruit a finance director. Initially a part-time FD is likely to be the most practical and cost-effective way forward.

The finance director will work closely with the senior management team – especially the financial controller – and will be a major player in helping to secure future funding.


The challenge of recruitment

Identifying and recruiting finance staff, especially for senior roles, is a challenge and if you get the wrong person very costly to the business.  There are many variables such as sector experience, qualifications, personality, and culture and fit.  Remuneration is also a major consideration.

How to approach senior recruitment and mitigate your risk and find the right person will be the subject of future blog.

Roy Duncan  is the founding director of RGDuncan , an independent boutique recruitment consultancy specialising in sourcing high calibre senior finance and accounting staff for permanent and interim roles in London and the South East.


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