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What Does a Controller Do?
Controllers are usually — but not always — executive-level accountants who maintain company books and financial records. Compared to the CFO position, the controller takes a more hands-on approach to their day-to-day responsibilities, which can include:
- Tracking cash inflows and outflows
- Reconciling accounting transactions
- Monitoring internal controls
- Maintaining compliance with tax filings or legal covenants
- Preparing periodic financials
- Managing other members of the internal accounting and finance team
- Corresponding with third-party vendors, debtors, suppliers, advisors, etc.
Depending on the size and complexity of the business, controllers may supervise an accounting staff or be directly responsible for handling the above responsibilities. Typically, the controller reports to the CFO; however, smaller companies and emerging growth ventures may only staff a controller who assumes many of the CFO’s duties while the business tries to scale.
What Does a CFO Do?
Whereas the controller is usually in the weeds managing technical aspects of daily operations, the CFO role is far more strategic and forward-looking. Like a cartographer plotting a ship’s course, the CFO assesses operations holistically and determines the most viable route ahead. Unlike controllers, CFOs can have varied work experience and educational backgrounds, including economics, finance, and business administration.
The CFO’s general responsibilities include:
- Working with the rest of the executive management team and stakeholders to set and progress toward financially viable goals
- Allocating capital resources to maximize efficiency and growth potential
- Identifying and mitigating risks
- Devising backup plans if specific initiatives or projects fall through
- Develop internal controls and processes that maximize accuracy
- Raising debt and working with lenders
- Evaluating potential merger and acquisition opportunities, as well as equity issuances and possible liquidity events
- Assisting with incentivizing talent through equity compensation plans
- Overseeing the company’s finance and accounting team
In short, the CFO is a financial expert that helps the company navigate financial hurdles and reports directly to the company’s CEO.
How to Choose Between a Controller and CFO
Choosing between a controller and a CFO can be a difficult decision. Every business is unique with different goals, risks, people, markets, products, services, risks, opportunities, and so on. Regardless, as young companies progress through the stages of growth, the need for an established corporate finance and accounting functions expands too.
That’s why we’ve outlined a six-step process to help you determine which position is best for your business at this point.
#1: Identify your business’s critical financial challenges and opportunities
The first step is to list your company’s challenges and opportunities — both now and in the near term. Once you create a list, you can designate which role would be better suited for handling the situation.
For example, a controller would be a more cost-effective solution for any of the following scenarios:
- You want to compile an annual budget.
- You need more robust financial reporting.
- You need someone to supervise your lower-level finance and accounting staff (e.g., bookkeepers and analysts).
- You need help reconciling historical results to enable a switch from cash accounting to accrual accounting.
- You need help leveraging tech/systems for ever-increasing data and information.
On the other hand, a CFO would be more relevant and qualified for the following:
- You need help setting company goals, implementing viable operational strategies, and driving accountability in the organization.
- You need to identify and mitigate potential risks such as supplier concentration.
- You need to determine the optimal capital structure for your business.
- You want to identify potential acquisition targets to accelerate growth.
- You want to explore the viability and potential profitability of another product or market.
- You need to fix profitability leaks and cash cycle issues.
#2: Prioritize your challenges and opportunities
Once you’ve compiled your list of challenges and opportunities, prioritize them based on their time horizons: (a) less than one year, (b) 1-3 years, and (c) 3+ years. Assigning time values to your business’s impending needs enables you to determine best if and when you may need a controller and/or CFO.
For instance, if most of your list contains controller-level duties for the next 1-3 years, you aren’t necessarily as pressed to hire a CFO right away.
#3: Quantify the amount of work
Collectively, do your needs require a full-time staff member, or could a part-time contractor satisfy your business’s needs?
Filling your accounting and finance functions is not a binary process. You aren’t stuck with a full-time staff member if you don’t need someone that often — you can outsource finance and accounting functions through fractional services to avoid hefty payroll hits.
#4: List the necessary skillsets required to fill the role
Controllers have technical backgrounds that enable them to handle complicated accounting and finance issues. They should have experience with general accounting practices — or even industry-specific standards — as well as familiarity with accounting software.
CFOs can (and often do) have many of the same skillsets as a controller. However, the typical CFO also has experience in leadership, forecasting, strategic planning, and risk management. They may also have direct experience in capital raising, acquisitions, and selling companies.
#5: Run a cost-benefit analysis
As we’ve alluded to, just because you can afford a full-time position doesn’t mean it’s a worthwhile investment. We recently had a client that paid their full-time CFO roughly $200,000 a year to do an $80,000 job approximately 85% of the time, which offset the benefit of having a financial expert on staff.
Conversely, we’ve also seen companies grow into bankruptcy because they operated without experienced financial oversight. One client had a bookkeeper, but they weren’t experienced enough to notice profitability leaks and cash cycle issues. In this case, the cost of a CFO – even if it was a fractional position – would’ve prevented the company from digging itself into a financial hole.
#6: Assess your ability to attract talent
A fledgling startup that’s barely off the ground is far less likely to attract an experienced CFO than an early-stage venture with a viable and tested business model. In other words, if you want a CFO that’s run a $30 million company, but you’re only a $500,000 company, you may have to temper your expectations.
On the other hand, if you can pitch certain near-term milestones, such as a liquidity event, you may have an easier time attracting — and incentivizing — talent.
Who Should Be Responsible for Financial Decisions in My Company?
As growth-oriented companies expand, operations become more complex. Unexpected risks and opportunities surface. Businesses face pivotal decisions regarding the allocation of capital. Ultimately, the CEO and the board of directors are responsible for making these decisions — but the CFO and controller work to ensure they are financially sound. Companies that operate without either position risk making strategic errors and misusing precious capital.
Unfortunately, money companies sidestep filling these roles because they think they can’t afford them. That’s where fractional accounting and financial services enter the equation.