The financial pyramid - where does your company sit?

03rd August 2022

In my last blog, I explained that...

You can’t build an outstanding finance department or hire outstanding people, if you have no idea what ‘outstanding’ looks like.”

Because most business owners have never run their own finance department, they can find these roles difficult to recruit for successfully. It’s not just that it’s hard to judge who will excel. It’s that the criteria they’re looking for aren’t always right in the first place - so they’re set up for failure.

Anyway, after I posted that blog, I got an excellent question from one of my readers:

“Garry, what does ‘outstanding’ look like?”

Answering that question in full detail would take a book, not an email (and of course I wrote one, distilling all the best financial advice I give our clients! Check it out here).

But here’s the very first thing every business owner needs to know. An outstanding finance department isn’t just a random collection of capable accountants. A well-run finance function has a particular structure, which helps achieve the best financial outcomes for your company.

Think of it as a pyramid:

Insight Associates Financial PyramidInsight Associates Financial Pyramid
Right at the bottom you have your bookkeepers. They are the foundation of all financial management - the foot soldiers who keep the whole place running! They keep your books up-to-date by recording transactions, producing invoices and doing the payroll.

When your business is quite small that might be all you need. At that stage you’ll still have your finger on the pulse of your business and have a good sense of your financial situation.

But as you grow larger and busier and your own role evolves, that will become harder. That’s when it’s time to recruit the middle layer of our pyramid...

The accountants are your officers. They take the raw data provided by the bookkeepers and analyse it, for example telling you which are the most profitable parts of your business or tracking your cash flow to evaluate how it’s fluctuating.

They give you some context to what’s happening financially in the business, so you can use your numbers to plan ahead.

Again, if you’re turning over under £1 million, that’s usually all you need.

But once you grow much larger - and certainly if you are ambitious to hit £5 million or more - your financial operations become much more sophisticated.

It’s time to bring in a general to actively help you manage your finances, institute financial control and optimise the running of the department.

Your finance director will take the analysis provided by the accountants and use it to create your budgets, maximise your profitability, advise you on the best places to invest, create processes to control your cash, explore the most sensible pricing strategies and so on.

Their role is forward-looking and strategic, to help guarantee that you’re always making the best possible financial decisions for the business’s future.

This is the structure which every corporate takes for granted. And it’s the structure we implement with our Outsourced Finance Department, ensuring that our clients have the very best people, technology and processes at all three levels.

The clients we work with tend to fall into two categories. They’re either turning over £2 million or more, and are in the process of professionalising their entire operations - transitioning to a much bigger, more “grown up” company. Bringing their finance department to world-class standards is part of this process.

Or, they’re a little smaller - turning over £1-2 million - but even though it’s a little early for the full pyramid, they’re extremely ambitious. They know that if they ever want to reach £5 million, £10 million or more they need to start thinking like a larger company. And they’re eager to put in place the structures to make this happen faster and more smoothly.

If you feel that either of these describe you, please do get in touch with me today - either by calling 01279 647 447 or hitting ‘reply’ to this email.

We can discuss in more detail what an outstanding finance department looks like - and how we can ensure that your company has one.

Warmly,

Garry

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