For the small and emerging business owner, the greatest barrier to developing a sound finance function may be the traditional perception of finance and accounting. The erroneous perception of the finance function as the meticulously slow and detailed process that yields soberingly bad news of past performance must be addressed. The reality is that the finance function must be up to the task of steward
of the most valuable data the enterprise will encounter. The responsibility of this stewardship requires that the finance function excel in its role as communicator, educator, and visionary. Success in developing a sound finance function will hinge on the ability to deal with these (mis)perceptions:

■ Accounting and finance people should be effective, detail-oriented number crunchers.

■ When it comes to finance structure, one-size fits all.

■ Finance should trail operations.

■ Finance is separate from the rest of the organization.

■ Rules of accounting are cut and dried.

■ Accounting is for taxes last.

Accounting and Finance People Should Be Effective, Detail-Oriented Number Crunchers

Accounting and finance people must step up to their role as communicators who are accessible for all aspects of decision making in the organization. Whether decisions are related to acquisitions, product expansion, or market penetration, the finance organization has an obligation to interpret historical data as well as forecast and budget data and to articulate the practical aspect of any proposed business initiative. The number-crunching and detail-oriented aspects of the accounting world are being addressed more and more by technology and third-party vendors. This has enabled the finance and accounting person’s role to become more big picture oriented and business focused. As an educator, the accounting/finance person has an obligation to interpret complex and changing rules and laws that impact the business, especially if the company is publicly traded. As a visionary, the accounting/ finance person has the capacity to determine the capability of technology and processes that harness information in the business environment, to create meaningful analyses that will suit the company’s business needs. The accounting/ finance person must put a premium on networking with peers to understand best practices and alternative solutions to challenges. This potential can be realized only if expectations from management and business owners are consistent with this shifting focus.

When It Comes to Finance Structure, One Size Fits All

What works for one company will not necessarily work for others. While benchmarking and employing best practices are crucial to getting the finance function on track, integrating all tasks smoothly and efficiently with operations is the key to long-term success. Such integration means focusing on the relevance of all components of the finance function, whether they are best practices or not, and determining if they are consistent with the vision of the company. Although they may have success initially, organizations that get caught up in best practices in spite of strategy will achieve mediocrity at best with their finance function in the mid and long term.

Finance Should Trail Operations

When strolling through the hallways of larger organizations, it is not uncommon to see the coveted corner offices occupied by operations people, while the finance people dwell on the fringe. This occupancy scheme is indicative of the relative perceived value of the finance organization. The prevailing opinion of finance is that it is not a value-added function but rather a necessary evil that all organizations must endure to stay in compliance with reporting requirements. In reality, major strategic operational decisions should be made with strong influence from the finance organization. Whether the decisions relate to acquisitions, market expansions, product divestitures, or customer retention, the finance organization must be poised to provide input on all relevant facts, particularly those related to synergies and cash flow advantages/disadvantages of decisions.

The small and emerging business owner should understand that every decision must have a positive, long-term financial impact on the organization, whether it is increasing revenue, decreasing expenses, or altering the capital structure. Entering into decisions without input from the finance organization could lead to actions that hurt the organization from a fiscal standpoint. Calling on the finance organization to be a part of overall decision making is a formidable challenge for the business owner/manager. This expanded, operational role of finance includes (where possible) leading the organization by anticipating information needs and providing access to crucial metrics and models that allow for nonfinance people to make well-informed decisions.

Finance Is Separate from the Rest of the Organization

The finance function should be considered a platform or common denominator to all parts of the organization. Whether it is marketing, sales, manufacturing, or Human Resources (HR), all aspects of the organization need to make a reasonable contribution to its financial health. To this end, the finance function must provide access and practical guidance to all aspects of business operations. Making nonfinance aspects of the business a regular part of the budgeting process or a part of the normal data dissemination chain will foster acceptance of the finance organization into the mainstream operational areas of the business. Only through acceptance of the finance organization as a relevant, valuable tool can the nonfinance part of the business organization be optimized. The traditional perception of finance as a detached non-value-added function will degrade the value of financial analysis and breed a culture of recklessness when it comes to making decisions throughout the organization. Finance initiatives should be considered a shared value and be a critical aspect of all decisions throughout the organization.

Rules of Accounting Are Cut and Dried

According to conventional thought, the rules for interpreting transactions and environmental factors in the businessplace are codified in a comprehensive, complete form. The body of guidance, however, used by the accounting profession is a conceptual framework better described as generally accepted accounting principles, not accounting laws. For many transactions, GAAP is straightforward, leaving lit
tle room for interpretation. Much of the guidance, however, in this conceptual framework is not so straightforward. Because many events and transactions come with their own specific set of facts and circumstances, the business world has the latitude to interpret GAAP in different ways for certain transactions. This fact qualifies the practice of accounting as more an art than a science.

The small and emerging business owner’s focus is on growth and stability for the fledgling organization, so why would matters of interpreting accounting guidance be an issue? A new slate of stakeholders (debt holders or outside shareholders) may be introduced to the organization as the company grows and looks to financing alternatives. Requirements to maintain financial ratios and certain levels of earnings can become a distraction to the operations of the business. Additionally, management in mature companies may seek creative accounting alternatives in reaction to unreasonable shareholder demand to create value. Viewing the conceptual framework of accounting as a buffet table of solutions is never appropriate, however, especially when it comes to strategizing the finance function. Regardless, business owners and management need to be aware that putting the company’s best foot forward in financial statements may mean investigating the continuum of aggressive and conservative accounting, especially when it comes to business combinations (acquisitions), the path of choice for executives seeking value for shareholders.

Accounting Is for Taxes Last

Dealing with the tax needs of the company often gets lost in the shuffle when it comes to prioritizing the needs of the finance function. The prevailing opinion of business owners/managers is that it does not make sense to let the tax tail wag the corporate dog. This tax tail consists of managing the company’s effective tax rate, maximizing cash flow, tax deferral, tax compliance, and audit defense. Unlike other aspects of the finance function, ignoring these areas can seriously damage the business. Paralyzing tax levies, liens, and audits may demand more resources than the organization can spare and in some cases can shut down the business.

Record keeping and documentation for tax needs must be an integral part of the finance function from the start. Having the ability to respond to taxing authorities quickly and accurately allows the organization to do business without distractions. The practice of paying tax levies promptly as opposed to pulling accurate data together and responding thoughtfully yields millions in overpaid taxes each year. Working a tax strategy into the finance function inoculates the organization from unreasonable and unnecessary tax demands.