What is a corporate finance function, who’s involved, and why does it matter?
Finance and accounting teams have been around for millennia. You read that right, “bean counters” go way back. In modern bookkeeping, ever since the monk Luca Pacioli published Summa de Arithmetica, Geometria, Proportioni et Proportionalita (1494), double-entry accounting has played an important role in business transactions.
However, until the 21st century, not much had changed in how bookkeeping actually functioned. It’s merely scaled up and retained its important place in the business world. Honestly, I would argue that most people today still consider bookkeeping as the primary focus area in the finance sector. As a CEO or leader in your business, you might default to this notion as well. While the accounting services industry was valued around $144.2 billion in 2022, this is only a small sliver of what a finance function does.
At the highest level, the finance department handles billing and receivables, manages cash, keeps financial records, files taxes, and reports and interprets financial results for management. It might also be expected to manage Enterprise Resource Planning (ERP) or accounting software, virtual credit card programs, data warehouses, and sales platforms. There are also hybrid roles that fall into this bucket. I have seen increasing demand for technology specialists versed in finance and accounting that fall underneath the finance department’s jurisdiction. An example of this role is the “business analyst,” who might be a software or database engineer that maintains financial systems. While this role might not have an accounting or finance degree, they generally have enough working knowledge of financial concepts to provide data and technical support to the rest of the department.
When I help companies define the roles and responsibilities of their finance and accounting staff, I start by helping them break down the department by function:
- Leadership (CFOs and vice presidents of finance)
- Accounting (accounts payable, accounts receivable, other general accounting staff)
- Finance (financial planning and analysis (FP&A) team)
- IT, Technology and Data (database managers, systems and software engineers, business intelligence tool developers)
Financial Leadership
The first of these four areas is the financial leadership function. In this context, this includes all leaders above functional area managers and includes those who can influence hiring, firing, and overall organizational direction and structure. I am largely excluding “manager” titles and focusing on CFOs, Vice Presidents, Directors, and similar roles. These top roles work closely with the C-Suite and have the most influence over the critical mix of technology and personnel under their purview. They oversee accounting, capital and treasury management, investor relations, strategic planning, financial forecasting, reporting, internal controls, and budgeting, though this is by no means an exhaustive list. Each company might have their own style.
Regardless of title, senior financial leadership in the lower middle market is increasingly becoming the right-hand of the CEO. In the old days, CFOs traditionally were the boring accounting and money people. They were the ones who handled all things compliance, treasury, and enforced cost controls. Today, they are the ones who are responsible for creating, interpreting, and visualizing financial data, then making recommendations based on key findings and trends.
It is imperative for CEOs to assess their current CFO and determine if he or she has the analytical skills needed to diagnose and mitigate challenges in an efficient manner. If you do not have a financial leader at all, I highly encourage you to find one.
You do not need to hire a full-time CFO right away if you are not ready for one, but it is worth the investment to prioritize a team member who can analyze and understand your financial situation. There are many outsourced and part-time options available that can support you. Caveat Emptor — not all finance leaders are created equal. Potential partners must be thoroughly vetted to verify skill sets and work ethic. I have found that many of the CFOs that my group is called in to replace are old-school style leaders who do not feel responsibility for data management or financial forecasting. Your business needs and deserves a CFO with the skill set to help transition to a leaner, meaner, and more productive modern finance function.
The Accounting Team
The accounting team is comprised of the transactional side of a corporate finance department, primarily focusing on the creation of financial data. In the old days, companies hired teams of clerks or staff accountants to handle the monotony of recurring tasks.
Accounts payable (AP) clerks or accountants might check the mail for bills received from vendors and suppliers. Accounts receivable (AR) staff might sort through mail to find physical checks from customers. Once AP and AR staff finish processing bills and checks for the day, they might send over a summary of the day’s transactions to an additional general accounting staff member to enter into the accounting system.
Some companies might also have specialized tax roles in-house to manage sales tax, various state and local compliance, or income and franchise requirements. I have clients that have reporting requirements in almost all fifty states, Canada, and Europe with almost 1,000 tax filings with which they need to comply regularly.
The staff accountant position has transformed and progressed along with the development of the digital age. Accounting software and automation are becoming extremely efficient and largely standard in most companies. Individual accountants can now manage a multitude of processes, cover more ground, and handle increased responsibility. If you chuckled when I said “accountants used to sort through the mail,” you already understand the very basic level of digital transformation. Yes, I still see some clients receiving bills through the mail because that is still the way a lot of small mom-and-pop businesses operate. But in my experience, the more transactions you can funnel through digital and automated processes, the fewer physical staff you should need, and the lower your overall cost should be.
There are always exceptions, but I would argue an inverse relationship exists between automation and headcount.
The Finance Team
The finance team generally includes members who handle financial planning and analysis (FP&A) and financial reporting. This department oversees the extraction and divination of financial data after it has been created by the accounting team. Also, accounting automation is increasingly blurring lines between traditional accounting and finance roles. Companies might use a single staff member, an “accounting and finance manager,” to manage accounting systems integrated with reporting dashboards.
Other roles in this finance team bucket include investor relations, real estate analysis, treasury management, demand and supply planning, or strategy-type roles within their finance departments. Within the startup frame of reference, the primary focus of this function includes the interpretation of financial data, analysis, forecasting, and financial reporting. This function, in my experience, plays a critical role in any size organization. Finance provides insight into what went wrong last month (or perhaps what went well) and can combine past business performance trends with recent management decisions to predict possible future outcomes and “what-if” scenarios.
Perhaps “Vice President of Divination” should be included in the finance department org chart.
The IT, Technology, and Data Team
While some companies incorporate the IT, technology, and data function under their operations department or have it stand alone as a completely independent group, I tend to include it within the finance and accounting team’s sphere of influence.
Today, much of the productivity of the finance and accounting team hinges on accurate collection and storage of data, and the integrity of system integrations.
Finance needs both a direct line of communication to the technology experts and the ability to reprioritize their workflows to keep downtime to a minimum. Since many companies use digital billing and payment platforms to handle revenue and billing transactions, missing data or poor data management can make the creation of financial statements or audits a nightmare.
For the modern company to be successful, all components of the finance department need routine calibration.
In my client work, I encourage management teams to look at the percentage of their total overhead budget allocated to finance and accounting, including both technology and personnel. I want financial leadership to understand the percentage of their budgets allocated to transactional roles and compare it to the percentage allocated to analytics…
