3 Signs Your Business Has Outgrown Your Bookkeeper

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Your business has grown. But have your financial systems kept up?

When you first started your business, keeping accurate financial records was probably enough. You likely hired a bookkeeper or accountant to manage transactions, reconcile accounts, and prepare financial statements. Or maybe you even did it yourself.

But running a $2 million business is different from running a $200,000 business. You have more employees to pay, more expenses to manage, and more demands on your time. A delayed customer payment or an unexpected increase in payroll can have consequences that affect the long-term financial health and profitability of your business.

While having accurate books is a great start, at some point you'll need someone who can go a level deeper. Someone who can recognize financial problems as they're developing, pay attention to the details, and help you understand what's happening financially before those problems become more difficult to address.

This doesn't mean we think you should fire your bookkeeper or that they're doing anything wrong. They may be doing an excellent job. But bookkeeping and financial control serve different purposes, and a growing business eventually needs both a solid bookkeeper and the oversight of a financial controller.

Here are three signs that your business may have reached that point.

1. Your Revenue Is Growing, but You're Still Struggling With Cash Flow

One of the most common questions we hear from business owners is, "We're making money, so why don't we have any cash?"

It's a reasonable question, especially when your profit and loss statement shows a healthy business but your bank account tells a different story.

The answer often lies in transactions that don't appear on the profit and loss statement the way owners expect. Loan principal payments, owner distributions, and money owed by customers can all affect your cash position without reducing reported profit in the same way.

We worked with a business whose cash balance was declining. As we investigated the financials, we discovered that accounts receivable had increased by approximately $400,000.

A significant part of the problem came down to billing. The company had delayed sending invoices, pushing a large amount of billing into the following month. The work had been done, but the process for collecting payment hadn't kept pace.

A business can generate revenue and still struggle to meet its obligations if customers aren't being billed and payments aren't being collected on time.

When we investigate cash flow, we look beyond the bank balance to understand how money moves through the company. That includes understanding which financial numbers deserve the most attention and why. Sometimes the issue is spending. Sometimes it's debt. And sometimes it's an operational process that needs attention.

Until you know what's causing the problem, it's difficult to make a meaningful change.

2. You Receive Financial Reports but Still Don't Understand What's Happening in Your Business

Every month, you receive your financial statements. You look at revenue, check expenses, and see whether the business made a profit. But what happens when something looks wrong?

Maybe payroll increased by 15%, even though revenue only grew by 5%. Perhaps one department is consistently running over budget, or your profit margin has declined for three consecutive months. Do you know why?

We've seen businesses where expenses weren't consistently recorded in the months they belonged to. One month looked unusually profitable, while another appeared to have a significant increase in costs. The numbers reflected the timing of the accounting entries rather than what was actually happening in the business.

That makes it difficult to compare performance from month to month, much less create a useful budget or forecast.

A financial controller pays attention to the quality of the underlying accounting and investigates changes that deserve a closer look. That includes making sure the reports reflect what's actually happening in the business and identifying the reasons behind unexpected changes.

The value is in being able to answer the questions that come up when you open your financial statements, so those reports are actually useful to the person running the business.

3. You're Making Decisions Based on What's in the Bank Account

Say you've been thinking about hiring another employee. Business is strong, and having another person on the team would take some pressure off your existing staff. You check your bank account. There's $85,000 available. Can you afford to hire?

The answer depends on much more than today's balance. How much of that money is already spoken for?

There may be payroll, taxes, debt payments, vendor bills, or seasonal expenses coming due. The bank balance tells you how much money you have today. It doesn't tell you how much will be available three months from now.

We’ve worked with seasonal businesses that earned most of their revenue during part of the year. During the stronger months, the company paid substantial bonuses. But when we looked at its historical cash flow, we could see that the business regularly went several months with little or no revenue. By years ebd, cash was tight enough that the company risked needing its line of credit to cover expenses.

The issue wasn't necessarily whether the business could afford those bonuses. It was whether the timing and amount made sense given the months ahead. Looking at several years of cash flow patterns helped us understand how much the company needed to set aside during its profitable season.

The same principle applies to that $85,000 sitting in your bank account. Before deciding whether you can afford another employee, you need to understand how much of that money you'll need to cover existing obligations and whether the business can support the additional payroll expense in the months ahead.

So, Have You Outgrown Your Bookkeeper?

Many growing businesses have good bookkeepers who are doing exactly what they've been hired to do. The gap is that no one has taken responsibility for the next level of financial oversight.

Someone needs to make sure the accounting is accurate, investigate unusual changes, understand what's affecting cash flow, and help the owner see how financial performance connects to the way the business operates.

That's the work of a financial controller.

If you're receiving financial statements every month but still struggling to understand where your money is going, what you can afford, or why your expenses are increasing, it may be time to look at the level of financial oversight your business has.

There are other signs that your business may need more financial oversight, including outdated accounting processes and financial problems that aren't identified early enough. We explore those in 3 More Signs Your Business Has Outgrown Your Bookkeeper.

At Oracle Profitability, our Financial Controller Review helps business owners understand where their accounting and financial processes are working, where problems may be developing, and what needs attention.