If you don't know what CFO means, you definitely don't know what "Controller" means, right?

The accounting department is a bit of a black box.

Today, we attempt to demystify this a bit.

What are each of the roles and what do they do?

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Demystifying Accounting: What do all these people actually do?

 ​Last week​ we discussed the types of work in accounting as well as who your first hires should be.

To recap the hiring order:

• Bookkeeper (external then internal)
• Accountant, AP, AR, and other transaction work (could be multiple hires)
• Sr. Accountant, Accounting Manager, or Controller
• Fractional CFO (earlier if complexity introduced)

But this still leaves a little to the imagination… what do these people do?

When you don’t understand accounting principles, it can be easy to not see all that’s needed, or done, within this department.

But I don’t think this is uncommon. A lot of people couldn’t tell you the difference between marketing and sales. And even for those that could, they couldn’t tell you all the different types of marketing that go on.

For a non-golfer, the game looks pretty simple. Hit the little white ball in the hole.

But once you get into the game, you realize all the different clubs and strategies that come with it. These tiny differences can result in big outcome changes.

That the wrong lie on a club can mean the ball comes off the club more right or more left. That the bounce of the wedge can determine how the club moves/slides when it contacts the ground.

That the ball itself could have more or less spin, directly impacting the outcome of the shot.

Then there are the actual course conditions. A soft course is receptive to shots and thus more forgiving. A hard, or dry course, means your shots will hit the ground and keep moving.

The number of variables is almost infinite and sometimes unfathomable. This is hardly even scratching the surface, but I’m going to spare you from more.

The same goes for the Accounting Department.

It seems simple… enter transactions into the system and run financial reports.

But under the surface, a lot is going on.

Some golfers golf by “feel,” and others get obsessed with the technical side. The technical ones can come up with an infinite number of variations of things to try or do.

The same goes with Accounting. The person obsessed with accounting can create almost infinite amounts of work to this otherwise “simple” profession.

This is why having the right people in the right seats is so important.

An accounting-obsessed CFO is not great, because they won’t spend the time necessary on strategy. But if your internal auditor isn’t accounting-obsessed? You have a problem.

So, as we talk about the different roles, keep that in mind. There is a right person, or profile, for each of these. We’ll speak in broad strokes below, but hopefully, it acts as a good primer.

I’ve broken it down into 4 groups:

1. Leadership
2. Management & Oversight
3. Operational Staff
4. Specialized Staff

Let’s dig in.

Leadership

It’s easy to look at accounting and think they’re all numbers nerds who’d rather be in a spreadsheet.

And while that can be the case, it doesn’t have to be.

Some really good accounting leaders have not been in spreadsheets in years.

We’re going to focus on these two roles for leadership of the accounting department:

1. Chief Financial Officer
2. Controller

Other roles include VP of Finance, Treasurer, Chief Accounting Officer, Director of FP&A, Investment-focused roles, and so on and so forth.

Since we’re focused on SMBs here, I’m focused on the broader roles that I’ve mentioned below.

Chief Financial Officer (CFO)

The term CFO has a lot of baggage associated with it these days. Part of that baggage is a lack of understanding from the outside world. Another part is over-usage and title inflation. But the biggest reason, in my opinion, is that this role can look massively different depending on the business and person filling this role.

In big businesses, you’re the chief financial storyteller. In smaller ones, you could still be supervising accounting staff, meaning you’re still deep in accounting duties.

Some CFOs come up through accounting. Others come up through banking or investing, where the accounting knowledge is limited.

These factors make it hard to have a true “definition” of what a CFO is. ​Investopedia says​ a CFO is “a senior executive responsible for managing the financial actions of a company.” Deep, huh?

But in a weird way, it’s true. The CFO takes the ultimate responsibility of the financial functions of the business so that the CEO and other leadership can focus on other areas. So in some sense, it can be a “fill the gaps” role.

Despite the difference in the specifics, the “main” duties are almost always the same:

1. Participate in the company’s strategic planning process
2. Provide financial direction and leadership, overseeing all financial activities and departments
3. Manage the relationships with financial partners, like investors, board of directors, CPA firms, banks, and other financial institutions
4. Be the chief risk management agent within the business

For some businesses leading the financial direction means leading capital allocation decisions, M&A efforts, and broader portfolio decisions.

For other businesses you’re the main financial storyteller, telling the business's story to internal and external partners.

The role of CFO requires you to be a:

• financial whiz
• strategic thinker
• good communicator
• analytical thinker
• leader

It’s a role that requires versatility but is also the least financially related of the roles we talk about today. I view this role as strategy and direction first, and finance second.

Controller

I’ve been asked before the difference between a Controller and Comptroller, so let’s come right out with it: they’re the same. Comptroller is “old school” and still used in government. The private sector has almost fully switched to using Controller. When push comes to shove, they’re the same thing.

A controller’s job in an accounting department is focused management of the accounting function of the business.

Where the CFO is worried about the broader picture, a controller’s vision is very much limited to the accounting department's operations.

A controller is focused on:

1. Supervising accounting staff
2. Setting policies & procedures and ensuring compliance
3. Preparing financial reports

Depending on the size of the business, Controllers can be involved in forward-looking elements of accounting (forecasting and budgeting) and will often be brought into project work outside the accounting department (such as M&A and internal projects).

 ​Secret CFO wrote a great piece​ breaking down what a CFO can do that a Controller can’t, which should help you differentiate these a bit more.

Management & Oversight

These are the people who have accounting backgrounds and have likely taken steps up the ladder to these more advanced roles.

They’re still “doing the work,” but now also have management or oversight responsibilities.

For example, on a month-end close, they’ll be the ones validating checklists but doing less of the actual work on the checklist.

They play a key role in maintaining checks and balances within the accounting department, as they’re often the second set of eyes needed to ensure controls are maintained.

Accounting Manager

An Accounting Manager is someone with less experience than the Controller and often the Controller’s “boots on the ground” in the accounting department.

Where the Controller is directly responsible for Financial Reporting, the Accounting Manager is directly responsible for the transaction work and transactional staff.

They’ve likely come up in the accounting department and previously worked as a Senior Accountant, meaning they can work closely with Senior staff on more complex accounting issues as they arise.

Their job is a mix of all levels of work.

They’ll enter some transactions.

They’ll supervise the transaction work.

They’ll do moderate and advanced accounting work.

Then they’ll need to translate to leadership, meaning they’re doing periodic work outside accounting.

Their goal should be to make sure all procedures are followed and thing are running smoothly.

Senior Accountant

The Senior Accountant role often says more about how long you’ve been doing it than what you actually do.

This role could be someone who’s not experienced enough to be the Accounting Manager or it could be someone who has just taken on more duties than the traditional Staff Accounting in the organization.

They’ll typically have more of a leadership or supervisory role, but that doesn’t necessarily have to be the case.

Because of that, the duties are often a merger of Accounting Manager and Staff Accountant.

They’ll do more advanced work when it’s there, but are often doing much the same work as a Staff Accountant.

Because of that, we’ll not spend time breaking that down here and instead let you read that in the Staff Accountant section.

In the cases where they are taking on leadership roles, they’re typically guiding the work of the Staff Accountants and clerks. They’re doing that because they’ve been there, done that. That allows them to say “I’ve seen the cycle, here is what’s best.”

In some sense, this is a similar role to “middle management,” except that in accounting all roles (minus the CFO typically) are still “doing the work.”

Operational Staff

These staff members are what make the wheels turn. When you have great leadership but poor staff, leadership ends up doing more operational tasks than they should be. That means you’re paying someone a pretty sum to only partially utilize them.

The problem is, people want to underpay these operational staff, which is what results in leadership doing the operational work.

 ​Low starting pay in Accounting​ is making it less and less appealing to new grads, which creates a hollowing out effect. The good people who were starting in Accounting before are starting elsewhere, meaning the best grads today aren’t the same quality as the best of years past.

This means accuracy in data and reporting is more likely to be suspect.

This isn’t a slight at those workers, as I have much respect for those coming out today. But it’s something to consider as a business owner. Be willing to pay and you’ll still get good employees. If you’re not, your results may vary.

Staff Accountant

Staff Accounting positions cover a wide range of experiences and backgrounds.

These are likely the people with accounting degrees who chose not to go into public accounting. When coming out of public accounting, they’ll typically jump into leadership positions versus come into the entry-level roles.

As someone who didn’t go the public accounting route, I have a soft spot for this group.

By working in a small business, you get a lot broader experience than strict accounting and I think it serves you well. Many things learned in public accounting aren’t applicable to small businesses and can require some “unlearning” when people come from public.

Don’t get me wrong: public experience is great experience. It often highlights the analytical chops of the person and gives you assurance that they can handle what you throw at them.

But it doesn’t necessarily mean their public experience is applicable to your position.

Staff Accountants do the day-to-day accounting, general ledger maintenance, and account reconciliations. Their focus will be on the work that requires an accounting degree. Specific accounting rules will be followed and they’re often working with management on accounting treatments for the business.

The size of the business will determine the complexity of this work, but in big businesses, these jobs can get pretty specialized.

Their work will sometimes crossover to management or down to clerk-level work, but this depends on the specifics of the business and role.

Accounting Clerks

Accounting clerks are the engine behind the accounting department. Without them, the work wouldn’t actually get “done.”

Clerks will do a variety of transactional and administrative tasks, with their primary focus being on recording and maintaining accurate transactional records within the business.

Some of my favorite employees within the accounting department were always the passionate clerks. The ones that took personally the accuracy of the records. You need these people who have a zest for life and take their job seriously.

Within transaction processing, the job will be different depending on which category they fall under:

1. Accounts Payable Clerks
2. Accounts Receivable Clerks
3. Payroll Clerks

With the talk of AI, there are many predicting “the end of the clerk.” And yes, some of the data entry portions of the clerk job will be automated. But that’s a good thing.

That means clerks can focus on the other aspects of the job:

1. reviewing data for accuracy
2. maintaining organized and accessible financial records
3. facilitating outreach and communication between vendors, customers, and internal departments

The scope of a clerk’s job is typically pretty narrow and defined, which means it’s repetitive and routine work… it requires a special sort of person to do the job. To be able to maintain a passion for accuracy, while enjoying the repetition.

Clerk positions don’t generally have any specific educational requirements and can be done by people with associate degrees, or no degrees at all.

Within bigger businesses, Clerks can get promotions by supervising other clerks, becoming a special assistant to people inside and outside accounting, or even more general office manager positions.

Bookkeepers

In the same way that CFO is a little bit of a black box, the same could be said for bookkeepers.

All bookkeepers are recording transactions and preparing basic reports.

Some bookkeepers will do more specialized work, but some can’t.

The position of bookkeeper is not something you’ll see in a business big enough to have more than one accounting employee. When using this term, it signals that you have one person (typically external) doing the accounting work.

For smaller businesses, bookkeepers serve the purpose of bringing someone in more knowledgeable than the business owner and staff to be the steward of the numbers. This is a really valuable and essential function.

I’ve seen many businesses this size have a bookkeeper then hire a Fractional CFO over the top to provide some financial leadership. This is a great in-between step, especially if you’re fearful of hiring someone in financial leadership and putting the whole cycle in their hands.

Specialized Staff

As a business grows, so does the need for specialties. I won’t spend much time here, as it’s impossible to give true “definitions” of all the positions that could be created in an accounting department.

Instead, here is a sampling of some more “generic” specialized positions:

1. Tax Accountant: Preparing the vast array of tax returns need across states/countries and ensuring tax compliance in new and ongoing locations.
2. Cost Accountant: Analyzing production and operation costs within businesses with more complex cost structures.
3. Financial Analyst: Providing more advanced financial insights, inside and outside accounting, including analysis, budget and forecast prep and maintenance, and providing supporting data for leadership.
4. Internal Auditor: Evaluating internal controls, conducting financial and operational audits, and ensuring policy compliance.

What is a CPA?

Simply put, a CPA is someone with a license to do public accounting (Certified Public Accountant). It means they met the experience and educational requirements of the local Accountancy Board and passed the “Uniform Certified Public Accountant Examination.”

The CPA license allows them to “certify” financials or audits, as well as represent a client before the IRS.

The test taken to become a CPA tests you on accounting/reporting, audit, and taxation.

Public accounting is the act of helping a range of clients, which is why it’s “public.”

What that means is that your private business does not need a CPA. To do your taxes? To help with your audits? Yes, absolutely.

But to be your CFO, Controller, or Accounting Manager? Absolutely not.

The CPA certification definitely shows they have the “chops” to do those things, but it by itself is not qualifying. You should also, and probably more importantly, be looking at their professional experience to determine if they’re the right fit.

Much of what’s tested on the exam is not applicable to your business and situation, which could mean overpaying for things you do not need.

Even businesses who have CPA’s on staff still have to hire outside CPA’s to do some of the “CPA work” like audits and tax. This is necessary because of arms length rules and many internal CPA’s will refuse that work.

The CPA is a great thing, but since I was always in small business roles, I never got it myself (despite having the experience and education).

It’s a personal choice and something that is not disqualifying for a private business role.

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Next week we’ll discuss the Accounting Cycle.

If you have any questions about this week or next, don’t hesitate to reply to this email.

I love hearing from you and answering your questions!