What I Expect From Accounting Managers

I do not especially like writing about accounting on this platform. However, I have to because the accounting department has historically been a partial trainwreck or non-existent for 99% of the businesses I have worked for, where the company revenues are less than $50 million.

I used to say that the marketing functions in any business are the most difficult for a founder and his business to master. Instead, it’s accounting. That’s because bookkeeping and accounting practices start on day one of a business and are based on poor habits and practices. When the founder realizes it’s time to professionalize the back office accounting function, those habits, practices, and behaviors are difficult to break.

Accounting does not drive business success. Put another way, poor accounting does not spell business failure. However, a lack of solid accounting practices, procedures, and processes will thwart the growth of an organization trying to scale its revenues and profits. Accounting is a necessary evil in a thriving business, but it’s easy to execute with the right team members with the right skills and behaviors.

Regarding team members, the accounting manager is one of the most critical roles in any business back office. They generally play the most crucial role in this function an owner will ever hire, even more so than the controller.

I am providing my recommended requirements for every accounting manager. My list is incomplete, but it’s close, and it hits the most crucial requirements for this all-important role that needs to be elevated in small businesses.

Account Structure

I’m going to go fast in this and the sections that follow. This brief essay is about starting a conversation that allows business owners to flesh out skills gaps they see with their current accounting managers. It’s a conversation starter for accounting managers seeking to improve, and these broad topics will serve as a checklist for continuous upgrading.

Before I address the necessary skills for an accounting manager, I don’t expect this role to be able to create a chart of accounts (COA), but they need to understand its nomenclature.

I have 30+ years of experience examining COA structures, and in the 100+ businesses I’ve served, we’ve had to remodel or blow up their current COA structure while maintaining history. In some cases, accounting managers existed in these businesses. They worked around the poor COA structure.

I teach the four accounting roles, and you can review that post here. In brief, most accounting managers are not architects. But I still expect them to understand a COA layout’s ‘what and why.’ Oddly, understanding a COA augments basic accounting foundations.

Month-End Close

One of the first questions I ask every accounting manager is, “May I see your month-end closing checklist?” About ten percent show me a workbook with their checklists. Half of that 10 percent has nailed the process.

The other 90 percent have no idea what I’m talking about. Their work involves entering customer and vendor invoices, collecting cash, paying bills, helping with payroll, and doing bank reconciliations. It’s clerk work, yet necessary. But clerk work is not accounting. Accounting is the prerequisite to timely, accurate, and meaningful financial statements that can be modeled in a driver-based financial modeling system. Accounting also ensures complete and accurate compliance reporting.

Accounting managers should easily be able to create a month-end closing checklist for every business they serve. The checklist should only take about one hour to create for a business without about 300 account numbers.

On a side note, great accounting managers have mastered the perpetual close, where financials are released weekly. In this case, we call it the 1DC™, short for the one-day weekly financial close.

Accrual Accounting Acumen

I do not recall hiring an accounting manager who does not have a four-year degree with a B.S. in accounting. I recommend that academic accomplishment to every business owner I work with. The degree may not prove mastery exists in all aspects of accounting, but at least I know they have been exposed to the fundamentals of accounting, which include GAAP-based reporting, which is backed by accrual-based bookkeeping.

Not only do I expect accounting managers to know accrual-based accounting, I expect the following at a minimum:

• The ability to clean up a company that has been using cash-basis accounting for years – this accounting manager understands the concept of cutoff and when to start the accrual process through a handful of adjustments to a new RE account.
• The ability to communicate the differences between accrual-basis and cash-basis accounting to anyone – shows they know this topic very well.
• The ability to create a year-end set of tax workpapers on the cash basis of tax reporting even though they are accrual-based for internal reporting. Some accounting managers get tripped up on this requirement (that should not be the case).

A high accrual-based accounting acumen separates a great accounting manager from a weak one. If your skills are weak in this area, don’t despair. Many resources can help you to address this skills gap.

Cash Management

I prefer the term daily treasury management because this description holistically encompasses the tasks that must be performed each day of every work week. Mastery in this area includes:

• OTC or timely, accurate, and consistent order to cash entries—I prefer this task to be automated. If not, accounting managers should have completed the OTC within minutes each morning.
• Daily LOC movement. Whoever set up your LOC should have pushed hard to LOC automation. If not, this must be done each morning after completing the OTC transaction above.
• AP and vendor credit card processing should be automated using tools like Bill.com, Concur, and Expensify. If not, the manual processes should be consistently applied with speed, accuracy, and completeness.
• Updating the weekly cash flow forecast is a natural next step when the four items above are completed daily.

Administrative Activities

Unfortunately, accountants have to perform administrative activities. Many business owners confuse administration with accounting. Both activities are different, but some administrative activities fall under the purview of the accounting team. A perfect example is payroll.

Here is my short but incomplete list of where administrative mastery is needed:

• AR collections
• Payroll processing for the external payroll processor
• 1099s (and processed by each January 2nd)
• Contracts (an accounting manager should read all contracts and understand the essentials of critical clauses in these documents)
• Insurance (how to determine the need and how to re-market packages every 2-3 years)
• LOCs (how to manage the daily activity and know the most critical loan clauses in the LOC agreement)

Special Topics in Accounting

This section probably deserves to be included with accrual accounting. However, some of these mastery items are sometimes a bit nuanced.

For instance, every accounting manager should know when and how to apply reserves for AR and inventory.

Accounting managers must be skilled at keeping the general ledger pristine for inventory accuracy and performing backflush month-end entries if the business tracks inventory manually.

Accounting managers should be experts in WIP reporting and know how to create month-end entries for the completed contract method and the percentage of completion method.

Deferred revenue is not unusual in many service-based businesses, and accounting managers should easily be able to track and manage these monthly changes in the general ledger.

Regarding accruals, the most frequent monthly entries will be for payroll and the inventory backflush entry I mentioned earlier. Mastery is critical for these fundamental entries.

Financial Reporting for Accounting Managers

Most accounting managers are weak in reporting. PRA™ stands for Planning, Reporting, and Analysis. Nine in ten accounting managers view PRA™ as a Greek language. That’s good because that means we have the right person running the accounting function.

However, this skill limitation can be problematic. Accounting managers are very template-driven when it comes to reporting. They view the templates in Zero, Sage, or QBooks as the gospel regarding income statements and balance sheets. Unfortunately, these generated reports are clunky, messy, and lack meaning.

I never expect an accounting manager to become an internal reporting expert, but at minimum, they should ask an FP&A or PRA™ expert what financials should look like. Why? Because the end game of good accounting is reporting, planning, and analysis. Accounting is never the end game. It’s the starting point for something far more critical in the business.

Income Taxes

I expect no accounting manager to be an expert in income taxes, but they should be able to do the following:

• complete the tax to internal reporting reconciliation each March after the return is completed
• the ability to create a clean set of tax workpapers for the external CPA firm by each January 20th
• working knowledge of the most basic tax issues for small businesses and the ability to articulate those questions to a tax manager at any point of the calendar year

Year-end Audits

I have this section near the end because many small businesses are not required to undergo a year-end audit or review unless a loan agreement requires this type of compliance reporting.

If an accounting manager’s business undergoes an audit each year, I want my accounting managers to quarterback the process. My favorite way of doing this is taking the CPA firm’s PBC listing and documenting it on SmartSuite or some other project management system. This schedule should be set up each December 1 (assuming a December 31 year-end). PBCs should be completed by the 20th of January.

Also, as a bonus, I prefer that the accounting manager not only read the report draft but also tie out the numbers in the report to the general ledger.

Accounting Manager Essentials

Below is my very short list of what I look for in an accounting manager when I’m trying to hire one:

1. Accounting managers should love being accounting managers.
2. They worked for at least 2, preferably 3 controllers, over ten years before embarking on an accounting manager role without a controller.
3. Ideally, the accounting manager has spent 2-3 years in public accounting.
4. Year-end audit and/or tax adjustments are rare.
5. They have mastered at least one ERP solution and are rock-solid in Excel.
6. They consume 80-120 hours of CPE.
7. They are fun to be around.

Advice for Achieving Mastery

If you are a business owner, use the requirements above to set the bar for your accounting management role. If you need an accounting architect to help create new systems, add technology, or address current weaknesses, hire them for this purpose—that’s what they are good at.

If you are an accounting manager and sense your skills gap is concerning, create a simple checklist of where to build your acumen and capabilities. Get help if you need it.

The video below shows a straightforward technique for incorporating a mastery checklist into your accounting playbook.