Essential back-office functions (payroll, HR, finance and accounting) create challenges for most small to medium-sized companies. Too often business leaders end up spending more time on back-office processes than on value creation, which impacts the company’s growth and ultimate value creation.
We’ve put together these FAQs to help leaders understand and solve some common back-office pain points, including human capital challenges, lack of business visibility, process challenges, technology, and distractions from business growth.
- What are some best practices for attracting and retaining top-quality talent and avoiding employee turnover?
Attracting and retaining good employees is one of the highest costs of owning a business. So it makes sense to ensure a good experience for your workforce. No matter what size your company is, it’s up to you to become an “employer of choice” where people want to work. Offering a good environment, benefits, etc., helps you attract and retain good hires. Paying attention to the HR/payroll benefits infrastructure helps you make sure you are set up for success from the beginning.
- What are some tips for handling staffing challenges and uncertainty?
Rely on your HR professional to evaluate the situation and assess the current morale, benefits and employee experience. And just as onboarding employees positively is important, managing how they leave the job is also important. You want former employees to continue to spread the word that it's a great place to work. Leaders must also be plugged into the culture of the employee populations and dedicated to learning about their experience and what needs to be changed. HR can clean it up, but in general, leadership needs to be aware of what’s going on in the workplace to step in and change things.
- What can founders/leaders do to reduce payroll risk?
Wage and hour claims are expensive. Even if an employer feels they were diligent in complying with requirements, it’s difficult to defend against those types of claims, which often leads to penalties or other costs. To protect against this, employers need to have strong processes and policies on how they treat employees and schedule their payroll.
- Does a third-party payroll company solve all your problems?
It can be easy to process payroll through a third-party platform, but there are still manual decisions to be made. For example, a payroll company will not push back on hiring an exempt employee who should be eligible for overtime, and will not engage in the employee/contractor conversation with employers. In addition to having payroll processing technology, employers need guidance and understanding on what’s required to make informed decisions.
- Is it enough to have a bookkeeper for a small/mid-sized business?
In general, bookkeepers can get the bills paid but don’t have the depth of a CPA when it comes to monitoring a balance sheet, doing a reconciliation, building journal entries or the like. Just having a bookkeeper isn’t good enough for most companies. In fact, the most consistent impediment we see to raising debt or equity or selling a company is poor bookkeeping. It doesn’t just delay a transaction, it reduces valuations and can kill deals altogether. Beyond that, poor bookkeeping means you don’t really know your own economics and performance. It’s a classic case of saving pennies now to lose dollars later.
- Do you need to have “corporate finance”?
There is a difference between finance and accounting. Accounting looks backward; it’s record-keeping. Finance is all about the why and how of your company’s economics and understanding and planning for the future. You run a risk when you don’t have financial capabilities. Leaders are typically great at running organizations, but at a certain point, they need more strategic, data-driven capabilities, and that’s what finance provides. The CFO and finance team keep leaders on track toward their dream state – whether that’s an exit, being more cash producing/profitable or some other desired state.
Visibility Into Your Business
- What are some impacts of poor accounting that leaders don’t think about?
Without good accounting you can’t understand your cost structure or make sure your revenue and costs are properly accounted for. Having correct financial statements and accurate margins is important to your understanding of the business. You need to monitor your balance sheet, P&L and cash flow in order to understand the full interplay of your business’ economics and where you were headed.
- What is the importance of having complete financials?
It prevents surprises. You should be able to budget and know what’s going on with your business. You don’t want to make an accounting error that’s going to lead to a surprise for investors or your bank – you want to be able to explain what’s going on and truly understand it. You should also have the controls and processes in place to make sure everything makes sense, and have multiple points of review of the data to make sure it’s accurate.
- Why is it important to have controls in finance?
Having controls in place — for example, a tight spending process — will in and of itself make you spend less, spend on the right things and be more efficient. Having a process doesn’t slow you down as much as it enables more control over who you’re paying, when and why. Process speeds things up in many ways and makes each dollar spent far more effective.
- What should leaders do in terms of finance to ensure the business can both exist in the long term and scale?
Cash is essential, and you must plan effectively for when you need to add cash or are running up against a wall. To do that, you need to forecast, and that's where finance comes in. Forecasting allows you to understand where you’re heading and react accordingly, so there are no surprises and you have time to build an effective plan for any situation.
- How can you ensure you have the data that banks, investors and potential buyers need when it comes to accounting and finance?
Timeliness is an issue. Having a schedule of when the work needs to be completed and by whom is key to making sure your investors/banks get the information they need. Procedures need to be in place to ensure things run smoothly each month to keep financials consistent. Having multiple review points is also important in making sure the data is as accurate as possible. You want explanations and no surprises.
- What are some ramifications of not being prepared on the accounting/finance side when you’re in a hurry to get to a financing or M&A outcome?
Not being prepared can have dramatic effects on your conversations with investors and banks as well as acquirers. If you don’t know your core economics, you run the risk of being a price taker in these discussions. Understanding your economics allows you to have value-based negotiations and puts you in a far better negotiating position. Deals have a lifespan, and the longer a deal goes on, the less likely it is to happen. If they drag on because your investor doesn’t understand your numbers, you’re in trouble.
Process Challenges
- What can companies do around operations to reduce HR risks?
HR is highly regulated, and a company that doesn’t have processes in place risks non-compliance. Documentation is important. If there are HR issues that arise (investigations, terminations, etc.), having documentation of those events available for research or reference is crucial. Also, employee/payroll records need to be secured. They contain confidential and personal information such as Social Security and banking numbers. Leaders need to be aware of cybersecurity regulations and privacy laws that explain how to handle employee confidentiality and access to the data.
- How does lack of process controls impact accounting?
You need to use the correct technology to manage your business. It streamlines the work, allows you to deal with your clients/vendors, and helps you get the outputs/reporting you need.
- How can the lack of process controls cause slowdowns from a technology perspective?
If you lack the right process and tools to store and provide information quickly and easily, it slows down an audit or due diligence process, causes issues and ultimately makes the the entire process more costly. In addition, version control of documents allows for more effective workflow, and allows the team to be thinking and working, rather than finding documents.
Distractions From Business Growth
- What’s the impact on growth when leaders try to do their own payroll, accounting and finance?
It’s a huge waste of time for any business leader to be handling manual tasks — paying bills, reconciling bank statements, dealing with their accounting system — rather than running the business. They may feel like they have control, but there are other ways to have that control without spending time on those tasks. That’s what accountants, payroll experts, HR professionals and finance teams are for, because they understand what they’re doing and can do it a lot faster, so a leader can focus on running their company.
- How does lack of proper technology prevent leaders from growing their business?
When you don’t have accounting data organized in a structured system you lose information, and therefore, time. Business leaders who spend more time sifting through emails and different network drives to find the information they need spend less time adding value. In addition, learning multiple technologies may not be the best use of their time. Instead, they should focus on using the information provided by various tools to make bigger decisions.
- What’s the impact of lack of communication between disparate third-party providers?
You lose the efficiency that’s gained when two functions in a company are in sync with each other. For example, you need to make sure there's money in the bank before sending out checks. If payroll is connected with finance/accounting, it streamlines the process and eliminates any surprises on the finance/cash flow side. Even though they're generally overhead costs, HR and payroll can add to your bottom line by dovetailing into what’s forecasted.
Technology
- What are some pitfalls of not having a coherent business tech stack, and how can company leaders make technology really work for them?
- Scalability: What pays the bills on day one may not work six months down the road. Implementing and reimplementing different systems takes effort and time and is therefore costly. Having a scalable system allows you to save time down the road when fundraising.
- Decision-making: Many business leaders have an intuitive sense about their business. When they don’t have enough good, valid information to depend on, they must go with their gut to make decisions. Technology is a way to have your gut checked. It can provide additional insights and targeted, strategic information to further optimize your business.
- Time savings: Solutions that sync and play nicely with one another prevent double work. Ever had to type something three different times because it's in three systems? That can be frustrating.
- How does a lack of technology impact forecasting and basic data analysis?
When you have disparate systems or data being inputted from two different sources, it slows you down, creates errors and hinders forecasting. It exposes you to risk because you’re not capturing information accurately. Speed is your friend when you’re serving clients, fundraising, getting bank debt, selling your company, etc. Technology is absolutely core to that speed.
