I enjoy working with business owners who want to grow their revenues 2x, 3x, 5x, and even more over a short period of time. If the business has a strong product or service with happy and pleased fans, anything is possible. But there’s one shortcoming that can get in the way. I hate to say it because most high-dopamine CEOs do not see the value in the upgrade I’m about to suggest.
In The Beginning, God Created Office Managers for CEOs
What’s the most critical role in a startup organization other than the founder who is generally the CEO or general manager (GM is the better term)? Or put another way, who is the first of the most important hires? A great sales rep? Someone in operations? No, please don’t say an accountant.
It’s an office manager. The best ones are like a Swiss Army knife who do it all. The trait I admire the most is their loyalty to the owner and the company. Weekends and holidays are sometimes sacrificed to take care of owner requirements, an ailing customer, or a serious vendor issue.
Many times, they become the sounding board for all internal staff issues, good and bad. Most can tell you about the kids, marriages, graduations, and other upcoming events of fellow employees. They are usually the first to volunteer with any arrangements if there is a death in the family.
Count me as someone who likes to have the back of these valued staff members. I also do everything I can to ease their workload by bringing on support for the position because the work can be daunting at times.
However, there’s one area that can be concerning at times.
When the Office Manager Becomes KPMG
As I stated earlier, I like scaleups that grow fast. APR stands for Accounting, Planning, and Reporting. APR mastery is critical for any high-growth company.
In short, every scaleup needs strong accounting management, strong short- and long-term planning processes, and over-the-top reporting for daily, weekly, and monthly snapshots that are accurate, timely, and meaningful.
Unfortunately, many office managers are in charge of APR by default which evolves over time. That means most office managers wear the hat of bookkeeper in the organization. But in reality, they are a clerk doing data entry of vendor bills, customer invoicing, applying cash, and other basic tasks requiring only minimal financial education.
In the 30-something years, I’ve been working in finance, there are two types of office managers who have bookkeeping responsibilities. I haven’t met one of my peers who disagree with the following.
The first type knows they are a clerk. They look forward to handing over their clerk chores to someone who understands the requirements in accounting and finance as the company grows. They are still eager to help, but they know their shortcomings. These types also have great attitudes. While willing to listen and learn, they know they are not the right solution over the long haul.
The second type thinks they are a KPMG accountant with an elite controller’s mindset. They may never convey this sentiment, but they will ignore the critical practices of accounting management. I’ve even seen this with bookkeepers with a few hours of college accounting under their belts.
These types of office managers will never follow daily, weekly, or monthly accounting checklists as required by the APR process mentioned earlier. They don’t ask questions and they rarely pursue a rigorous program of continuing education.
When I take on a new client, the signs are clear that a second-type office manager is in charge when I look at their trial balance for the first time. For instance:
- either the chart of accounts is a mess, or there are stray accounts that appear to have never been reconciled
- excess inventory accounts self-generated by the accounting system exist are are payroll-related accounts
- accounts are not numbered consistently and others appear haphazardly
- negative notes payable balances exist
- improper accounting in owner distributions and paid-in-capital
- R&M that ranges $10k to $100k in excess of the monthly norms
- no accruals for large insurance premiums
- peculiar entries in other income and expense
I could go on, but my fingers are getting tired. Here’s the sad thing about the issues above–I have taught everyone in my client base how to handle their accounting with best practices. But some just do not want to change. They prefer their methods instead.
Why is that? There are several reasons.
- They are possibly overworked. But this reason is weak, because my best clients keep saying how much they love the checklists, cheatsheets, and frameworks. These tools make the work faster and better. Becuase of their other duties, accounting excellence is not a priority.
- Fear of growth is another reason. Accounting is not easy. It’s an abstraction. Many office managers get frustrated because internal financials do not match tax or GAAP reporting. For certified bookkeepers and business-centic accountants, they understand these differences. Explaining that to certain office managers takes multiple tries and then some. Learning new skills is hard. It’s even harder if the office manager has a natural ceiling of expertise–additional learnering may never work.
- Lack of humility is an underlying reason too. My favorite and best clients have accounting team members that continually ping me with questions via email and phone calls. They love learning. They know I find accouting boring, but they like the way I simplyfy complexity. The opposite of people like this are the office managers who know everything and don’t want to grow professionally. Harsh? Yes, but true.
What is the solution? My answer is an easy one. I do not work with scale-ups without a business-centric accountant on staff. That person has to have a deep desire to grow and learn to love all aspects of the business. Continuous improvement activities run deep and long in their veins.
But why do business owners allow the office manager to keep making accounting gaffes when such a simple solution as bringing on a business-minded accountant would address these problems?
The CEO’s Biggest Problem
Ready for the answer? How is it that brilliant CEOs who will run through walls to accelerate growth while enhancing customer loyalty accept anything other than excellence in the back office?
Great accounting, planning, and reporting will not lead to success, not even close. However, APR mastery will allow a CEO to grow his or her firm while knowing the score at all times and understanding that the score is being tracked accurately and completely. How does one even plan without a solid foundation of the numbers processed in the back office? It’s impossible.
The answer is that CEOs are loyal people. Staff members are like their own children. I can’t explain it. It just happens. At least for the good guys.
Why is an accounting trainwreck acceptable? Loyalty.
My record is far from perfect. About 80 percent of the businesses I work with that are scaling ultimately hire accountants and/or controllers. They get it. It’s a priority. The others are just slow to make the change or believe it’s a waste of money.
But that’s also a sign of faulty leadership. Is it okay to slide on sales team expectations? Is it okay to ease up on customer support? We expect the best in other areas of the business, but why do great CEOs tolerate less than excellence in finance and accounting?
If you are a CEO, ask yourself the ‘why’ question five times on why you allow the office manager to remain in charge of bad accounting practices. Doing so will get to the heart of the problem. You’ll find loyalty after about the second or third why. Keep peeling the skin.
The Origins of the Office Manager Conundrum
I’ve addressed what the office manager conundrum is and the causes, but what about the origins?
Understanding the origin narrative can help you to keep this from happening if you are a fast-scaleup. If you are a Silicon Valley startup, you don’t need to read this as your backers will not let you get away with an office manager running the finances and accounting of the business.
Let’s start with a simple grid to help me explain the origins of this perplexing conundrum.
At the beginning of a new business, there is a need to pay the bills and manage the cash register. The owner is only happy to abdicate this responsibility to Tim or Sarah, the office manager. Either of them says, “Oh, I also know QuickBooks too.”
Accordingly, the office manager conundrum begins with a need. Even I get this. Plus, the handy tax accountant who does year-end work is happy to pitch in with clean-up work (I’ve had several of these accountants call this job security).
In the early years, I’m okay with this. Especially if the office manager can follow some simple checklists and proper safeguards are implemented to protect cash and other precious assets that can walk away.
The next phase is the process of watching Missouri bluegrass grow in the summer months. It’s happening, but you don’t notice it. As the business grows and as the owner starts paying down debt and building wealth, he or she has been doing so without the help of a seasoned business-centric accountant.
The office manager continues doing his or her thing. Bills are getting paid. Cash is mostly reconciled. Everyone is happy. Even the small tax firm can bill more because of the messiness of the general ledger.
As the business begins to scale, in some cases (and certainly not all), a comfort level sets in. The business has grown to the point where onboarding a business-centric accountant is not even on the table. Comfort and complacency set in. The office manager views themselves as the controller. They’ve gone from clerk to controller in a few short years.
By the way, there’s nothing wrong with the evolutionary process above. If it works, then why change? But is this optimal?
I won’t say their names, but I have a client who did not have a degreed accountant when I started working with them as a consultant. I wanted a business-centric accountant immediately. Even the office manager agreed. She’s a type one office manager that loves to learn and she asks great questions. I got pushback from the owner at first. “Mark, that’s more money,” he said.
I kept pushing back. Ten months later, we hired our first business-centric accountant. They love it. Scaling to $100,000,000 just became easier. Obviously, we’ll have our first controller in a few years.
Change is hard. Overcoming complacency when something has worked in the past is hard too. When you and I watch a great play or musical, we see the front stage before our eyes. But the backstage makes the front stage possible. Both stages are necessary for business.
On Hiring That First Accoutant
When should you hire that first accountant? Let me start with a story first.
About ten years ago, I hired a young accounting student fresh out of school. He was green. We replaced our office manager because she made far too many mistakes. She did not want to learn, and she never asked for help. That was not good because her accounting work was weak. So we hired Josh in a small business in Hallsville, Missouri. He’s still there.
Ask the former and current owners if they made the right decision, and they will say it was their own idea. However, it took us about nine months to make this change because of loyalty issues. Loyalty runs deep in the hearts and minds of owners. Making a change like this is like cutting off a limb.
The office manager conundrum occurs when the business has outgrown the clerical skills of the person doing clerk work in the accounting system. The conundrum continues when the status quo continues as the business continues to scale. And that can be a dangerous thing. Be careful should you stand pat.
Do you have an office manager in charge of accounting work? Should they be in charge?
Do you have an office manager conundrum? If so, why aren’t you doing something about it? I know they are loyal to you, and you are loyal to them. If your job is to constantly coach, mentor, and develop your team members, what’s holding you back?
I’m not asking you to fire the person. Just put them in a place where they can succeed and thrive in your company. Just keep the second type of office manager away from your accounting system.
The ABC Roles of the Financial Back Office
Let’s wrap this up with a simple table defining the back office roles in the accounting and finance department. Think of this section as the appendix for your accounting playbook.
Early, you’ve heard me use the terms clerk, bookkeeper, and accountant. Let’s put these three roles in context.
I call this the ABCs of the accounting and finance department. Most startups employ their office manager to be a clerk. Clerks are great at data entry.
In my first controllership position, I had 40 people working for me. About half were clerks. They were good, No, they were great. They loved learning, they were engaged, and they cared. There is nothing demeaning about being a clerk. A clerk is not a person, it’s a role, a necessary one where automation does not exist.
The B-role is bookkeeping. If a company cannot afford a degreed and seasoned business-centric accountant, my recommendation is a degreed bookkeeper. These guys get and understand accrual accounting. Ask any great accountant about certified bookkeepers, and many will say, “I wish I had an army of them.”
Clients of G3CFO have access to ad copy for finding these people along with a bookkeeping test and about 10 questions to ask during the interview phase. The process works, but it also requires patience.
Finally, the A-role is the business-centric accountant. In short, this person is seasoned and has worked 5-7 years of experience under an elite controller. They have the growth potential of becoming elite controllers themselves.
Don’t get caught up in good, better, best regarding these positions. These are three distinctive roles. If you want to scale with a strong backstage supporting the front stage, you have to understand how to add these pieces and when during the growth of your business.
Postscript: Meet Penny
While I find accounting painfully boring, my controllership skills are solid. I’ve been told I’m understating my skills.
Early in my consulting practice, I had a controllership client in the cattle industry where we published about 20 financial statements a month. That’s just the GAAP numbers. I created tax-based financials too (long story, ask me later). All that work was done by a clerk.
But our clerk was like the type two officer manager mentioned above. Humility was lacking. This person had her own way of doing work.
But my client got it. He liked my systems and processes. Ultimately, we hired Penny, someone I hand-picked.
Penny was okay at first. She was a perfectionist. She was dedicated and committed to excellence. But she made mistakes.
Yet, when I explained her errors, she welcomed my input. She was a student at heart.
Remember when I stated earlier that accounting is a big abstraction? Penny kept making errors that most junior accountants would never make. Penny was missing the accounting building blocks that would erase some of these mistakes.
I hinted to Penny that she should take the AIPB bookkeeping certification course and take the test. Several months later, she emailed her certificate. She did that in her own time, and she was so proud of it. I was too.
A couple of years later, my client’s business was doing an orderly shutdown. Penny would still have work to do for several years, but not on a full-time basis. I found her a great AP and AR manager’s position with another local business. She’s thriving there.
Why is she thriving? Because she’s willing to learn. She follows checklists. She knows it’s normal for accounting and tax trial balances not to be equal (rather, reconcile). She understands many of the crazy nuances of payroll liabilities, inventory, R&M, and other confusing aspects of accounting.
While Penny does not have a college education in accounting, she’s taken her training far beyond where she started. She continues to ping me with questions.
There was never a conundrum associated with Penny.
By the way, Penny is her real name.