There is something has been bothering me for years now and, going by recent experience, it is still an issue.  I’ve seen it on far too many occasions and I’ve seen how damaging it is to small-to-medium businesses across the country.  It is crazy but it keeps happening over and over again.

What I’m talking about is the SME obsession with employing full-time finance staff.

Take an everyday new and entrepreneurial business.  The business is growing steadily – or maybe rapidly – and the owner begins to realise that the finance and accounting side needs to be managed properly.  So what does he or she do?  They decide to get an accountant.  Seems like a rational and sensible decision?

So why is it a recipe for disaster? Let me explain.

The business owner realises that the activities and responsibilities are quite wide-ranging but the volumes are relatively small.  In his or her head, the following conversation is taking place:

If I was ten times the size I would have a small team to do this.  Someone to manage the cash-book and post invoices, someone to create my management accounts, and someone else to deal with the bank and auditors.  However, I’m not there yet, so I’ll get just one person to do the lot!

So they pull together a one-size-fits-all job description that is one-third accounts assistant at £25k, one-third management accountant at £50k, and one-third finance director at £75k.  They then label it as ‘finance director’ and put it to the market at £50k per year.

What they end up with is an ambitious but inexperienced accountant who jumped at the chance to be a ‘finance director’ but spends their whole time operating in one of three modes:

  1. Spending too much time out of their comfort zone dealing with banks, investors and auditors
  2. Spending too much time buried in the detail of cashbook postings that they thought they had left behind
  3. Or most likely, both of the above!

The end result is invariably a disaster and the key signs that it is all going wrong are often the following:

  • Badly maintained ledgers
  • Over complex spreadsheets
  • Poor communication
  • Missed deadlines
  • Stakeholders getting uncomfortable
  • Bitterness, negativity
  • In some cases, fraud.

The two-stage answer is incredibly simple:

  1. Get a part-time finance director
  2. Combine his or her talents with either a scalable out-sourced finance resource, or internal right-sized talent, or a combination of the two.

It really is that simple – so why does this same old mistake keep happening?

The answer, as with so much, lies with the vested interests in maintaining the status quo:

  • The recruitment industry really wants all businesses to employ a full-time finance director.  If businesses don’t, then the recruitment companies will get a smaller fee for the same effort.
  • The finance industry really wants all businesses to employ a full-time finance director.  If businesses don’t, then all those finance directors will have to go part-time and they’d hate to lose the security.

If you – or a business acquaintance – is thinking of getting a one-size-fits-all internal finance resource then please, for the sake of your business, think again!