How to Evaluate Your Finance Department

No one knows your business better than you. After all, you are the CEO. You know what engineers do; You know what production managers do; and no one understands the sales process better than you. You know who carries their weight and who doesn’t. That is, unless we’re talking about finance and accounting managers.

Most CEOs, especially in small and medium-sized businesses, come from operational or sales backgrounds. They have often acquired some knowledge of finance and accounting throughout their careers, but only to the extent necessary. But as CEO, they must make judgments about the performance and competence of accountants, as well as operations and sales managers.

So how does the diligent CEO evaluate the finance and accounting functions at his company? Too often, the CEO assigns a qualitative value based on the quantitative message. In other words, if the Controller delivers a positive and upbeat financial report, the CEO will have positive feelings toward the Controller. And if the Controller delivers a gloomy message, the CEO will have a negative reaction to the person. Unfortunately, “shoot the messenger” is not common at all.

The dangers inherent in this approach should be obvious. The Controller (or CFO, accountant, whoever) may realize that to protect his career, he needs to make the numbers look better than they really are, or he needs to divert attention from the negative issues and focus on the positive ones. . 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 the audit committee of the board of directors, the auditors, the SEC, the Wall Street analyst and the public shareholders giving them feedback. However, in smaller companies, CEOs need to develop their own methods and processes for evaluating the performance of their financial managers.

Here are some suggestions for the CEO of a small business:

Timely and accurate financial reports

Chances are, at some point in your career, you’ve been advised to insist on “timely and accurate” financial reporting from your accounting group. Unfortunately, you are probably a very good judge of what is timely, but you may not be so good at judging what is accurate. You certainly don’t have time to test the transaction log and verify the accuracy of the reports, but there are a few things you can and should do.

• Insist that financial reports include comparisons between various periods. This will allow you to judge the consistency of the log and report transactions.
• Make sure all anomalies are explained.
• Recurring expenses, such as rent and utilities, must be reported in the corresponding period. An explanation that – “there are two rents in April because we paid May before” – is unacceptable. May rent should be reported as a May expense.
• Occasionally ask to be reminded of company policies for recording revenue, capitalizing costs, etc.

Beyond monthly financial reports

You should expect to get input from your accounting and finance groups on a daily basis, not just when monthly financial reports are due. Some good examples are:

• Daily cash balance reports.
• Accounts receivable collection updates.
• Cash flow forecasts (cash requirements)
• Significant or unusual transactions.

Consistent work habits

We’ve all known people who took it easy for weeks, then worked through the night to meet a deadline. Such inconsistent work habits are strong indicators that the individual is process inattentive. It also greatly increases the likelihood of errors in hectic last-minute activities.

Willingness to be controversial

As CEO, you must make it very clear to finance/accounting managers that you expect candid and honest information and that they will not fall prey to “shoot the messenger” thinking. Once that assurance is given, your financial managers should be an integral part of your company’s management team. They should not be averse to expressing their opinions and concerns to you or to other department leaders.