Chief Accountant differs from Financial Director. Why, and what to do about it?
We explain each of the specialists’ functionality and answer the question whether it is appropriate to outsource the Financial Director's tasks
January 10, 2024
Julia Smagina, financial director JUST Advisors
It is logical, correct and convenient when the positions of a Chief Accountant and a Financial Director are separated. It guarantees consistent and effective business development. But what if a full-time Financial Director is not yet included in the organization’s plans, but the tasks for him are constantly multiplying? A freelance specialist may be the solution.
Recently the needs of the JUST Finance practice’s clients have begun to grow and go beyond accounting and filing tax reports in Georgia. Increasingly, the task of systematizing accounting data (as well as information from other databases and sources) for the purposes of management accounting, budgeting and financial planning arises.
Requests for business analysis and preparation of individual recommendations appear and mean covering this scope of requests:
Requests for business analysis and preparation of individual recommendations appear and mean covering this scope of requests:
- What activities, goods and services are considered priorities, how to effectively manage their value and costs?
- How to identify the key parameters for regular monitoring?
- How to evaluate the marginality of ongoing and promising projects, the effectiveness of employees and teams?
- How to properly manage the share capital?
- When is it appropriate to attract the third-party funding?
These are just some of the questions that a company may face. And often, especially in the early stages of business development, the Chief Accountant is about to solve them. Over time, at best, he will transfer them to a new staff member — the Financial Director, and at worst, he will continue to deal with them on a regular basis, acquiring non-core functionality and inevitably reducing the speed and quality of performing his immediate job responsibilities.
This approach is not always correct. Now we will explain why.
This approach is not always correct. Now we will explain why.
Chief Accountant’s Tasks
To begin with, let’s outline the classic functionality of the Chief Accountant. The most important thing in his work is to submit correctly compiled mandatory reports to local regulatory authorities on time and ensure that they do not have any questions or complaints against the company itself and its management.
The Chief Accountant within the time limits established by law:
The Chief Accountant within the time limits established by law:
- Processes the primary documents.
- Pays the bills.
- Documents all completed transactions.
- Generates the financial statements.
- Generates and submits the tax returns.
That is, the Chief Accountant is not required to be engaged in financial and business planning, analyze income and expenses, prepare management reporting and oversee its automation, give any recommendations on optimizing the company’s activities, placement and use of funds, capital and debt management, etc. All this is precisely the area of responsibility of the Financial Director.
Financial Director’s Tasks
The functionality of this specialist can be generally divided into three blocks:
1. Liquidity management and ensuring adequacy of business financing
A company definitely needs a Financial Director if, due to organic growth of the business, changes in its structure or ineffective management of funds, there is a threat of cash gaps (or they have already become a reality).
If a business needs financial resources to expand and implement new projects, which implies close contacts with banks and investors, it also cannot do without a Financial Director.
If a business needs financial resources to expand and implement new projects, which implies close contacts with banks and investors, it also cannot do without a Financial Director.
The functions of the Financial Director within the first block of tasks include:
- 1Financial planning and budgeting, maintaining payment calendar, early identification of the need to attract additional funding.
- 2Coordinating the terms of income and expense agreements with counterparties to ensure they comply with the budget, conducting negotiations to discuss financial terms and payment schedules.
- 3Working with banks and investors on issues of attracting additional financing, maintaining the loan portfolio, monitoring limits and covenants.
- 4All communications with financial institutions (banks, brokerage and insurance companies): building relationships and positive company’s profile, maintaining the most favorable terms of service.
It may seem strange, but the main aim of the financier is not saving. What if we calculate how much the company did not earn last year due to the lack of working capital? What losses did it suffer due to underutilization of capacity, equipment downtime and payment of wages, rent and other constant payments while operating at low speeds? How many projects cannot be implemented simply due to the lack of financial resources?
Professional Financial Director has to be able to save the company’s money, but the main thing is different: he has to ensure the consistent and effective development of the company, and saving is a side function.
Professional Financial Director has to be able to save the company’s money, but the main thing is different: he has to ensure the consistent and effective development of the company, and saving is a side function.
2. Ensuring efficient use of corporate resources
Business urgently needs a Financial Director if its costs are growing faster than revenue, unprofitable transactions are being identified late and unsystematically, illiquid inventories and problematic accounts receivable are growing. Such factors are the most relevant to medium and large businesses and can lead them to the bottom.
When a company enters the phase of active growth and becomes more complex and cumbersome, collecting and systematizing information for management reporting becomes a separate task that should be delegated to the Financial Director. In turn, he has to work closely with the General Manager and adjust management accounting to the needs of the business, constantly supporting it and suggesting improvements.
Within the second block, the main task of the Financial Director is to manage profitability, margins of the business and its individual areas, as well as asset turnover. This function is implemented mainly through a clear and transparent management accounting system, creating regular reports, analyzing them and communicating the results to the General Manager or owner of the company.
Within the second block, the main task of the Financial Director is to manage profitability, margins of the business and its individual areas, as well as asset turnover. This function is implemented mainly through a clear and transparent management accounting system, creating regular reports, analyzing them and communicating the results to the General Manager or owner of the company.
3. Business planning, feasibility analysis and investment control
This function is separate from the previous ones. Its essence is that the Financial Director participates in the strategic planning of the company’s development and decision-making regarding entering new markets, capital investments or opening new businesses: at least at the level of drawing up a business plan, financial model and budget, calculating possible development scenarios and identifying financial risks.
Advantages of a Freelance Financial Director
So, now it is clear that the Chief Accountant and the Financial Director are two separate, but, of course, closely interrelated units in the company. We have determined what functionality each of them implements. The next step is to find out how appropriate it is to turn to the services of an outsourcing company instead of a full-time Financial Director?
There is no single correct answer to this question. Having a full-time staff is more common for some business owners. The specialist is always available, even physically, and pays full attention to all tasks.
At the same time, an outside Financial Director can be more effective:
There is no single correct answer to this question. Having a full-time staff is more common for some business owners. The specialist is always available, even physically, and pays full attention to all tasks.
At the same time, an outside Financial Director can be more effective:
- He works for results in accordance with the technical specifications, with a minimum of wasted time and labor costs.
- There is no need to pay a salary, provide a social package and benefits.
- Really problematic issues can be resolved point-by-point, and, if necessary, also personally.
In addition, a freelance Financial Director is slightly less biased and more autonomous, he is able to provide more independent control over the work of the Chief Accountant (in terms of maintaining accounting records and providing necessary data for management purposes), makes fewer mistakes, since he works for results — not for salary.
Each company makes the decision of hiring a full-time or freelance Financial Director individually. The strategy depends on many factors, such as the lifecycle and size of the company, industry specifics, the number and scale of accumulated problems, as well as the personal qualities, preferences, vision and plans of the business owner. First of all, it is necessary to find out exactly which functions and tasks in terms of finance are performed poorly or not performed at all, what information the company’s management needs, in what format and with what frequency.
If diagnosing your business on your own is difficult, you can turn to specialists: the JUST Finance team will be happy to help you, draw all the necessary conclusions and offer specific steps to ensure the financial stability of your company. Contact us to discuss the details.
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MARIA GUSEINOVA
Leading Manager of Commercial Department
Leading Manager of Commercial Department