Restructuring the Finance/Accounting Function for Peak Performance – Moving from Bookkeeping to Accounting & Beyond

By: John A. DelRaso / Streamline Solution

     tremendous challenges to an organization’s In any well-run organization, the key functional ability to meet its goals and succeed as an on-areas of operations, marketing/sales, and going concern. Moreover, efforts directed at finance/accounting must work together in a restructuring areas of the finance/accounting contiguous fashion in order to be effective on the function subsequent to its optimal point, whole. For example, “marketing/sales”, which is particularly during periods of rapid growth, can vital to the development, promotion and sale of be extremely difficult and present enormous products and services, must work in conjunction distractions to the core business. with “operations”, which produces the products that create the organization's revenues, and One method of helping to ensure that the “finance/accounting”, which is concerned with finance/accounting function remains adequately providing the proper combination of revenues, equipped to meet the changing needs of the cash flows, investments, and costs in order to organization, as it transforms itself, is to generate profitability, stimulate growth, and implement restructuring initiatives in a manner justify investor interest. that closely matches the organization’s sales position. Juxtaposing the finance/accounting However for most organizations, especially function to that of the organization’s sales those experiencing growth change, typically less growth and decline positions offers a practical attention gets paid to the finance/accounting way in which to determine the anticipated needs function than is deserved, with interests instead requirements and proper restructuring points of being focused on other areas of the business the organization. perceived to be of greater importance. For reasons of heightened awareness, conscious To ensure adequate alignment of the efforts to assess the proper point in time in organization’s finance/accounting function which to restructure the functional areas of to that of its sales position, measurements can marketing/sales and operations, as a means of be made by calculating the organization’s adequately supporting the organization’s salaries percent of sales (SPOS) ratio, as it evolving needs, tend to take precedent over the pertains to the structure of the restructuring requirements of the finance/accounting function. The SPOS ratio is finance/accounting function. simply defined as an organization's total annual sales relative to its total annual salary expenses Unfortunately, for a majority of organizations, the for combined bookkeeping, accounting, and prompt for reform is usually derived from finance support personnel. The SPOS formula is evidence of fluctuating cash flows and persistent expressed as follows... A/R and A/P problems, which over time can undermine efforts to sufficiently fund business Total Annual Sales operations and growth. Even proactive Total Annual Finance/Accounting Salaries organizations, attempting to stem pending problems of a regressive business system, can Based on prevailing salaries and wages, the fall victim to the effects of a disproportioned optimum value for the SPOS ratio is finance/accounting function, in which approximated at 35, with ratios of 20 and 50 restructuring decisions tend to be solely based representing the lower and upper thresholds on concerns of affordability. respectively. Whereas, a ratio of 35 implies that the functional area is optimally staffed, a ratio of Lacking the appropriate form and measure of 20 suggests that sales are not sufficient to justify accounting and finance resources, particularly high salary costs, and a ratio of 50 indicates a during peak demand times, can pose lack of required resources to adequately support the overall functional area needs of the

    organization. When an organization’s SPOS controller to focus on finance function ratio approaches the lower or upper thresholds, responsibilities such as inventory management, this serves as a warning that the cost accounting, and financial reporting.

    ; $7M to $10.0M – CFO to supervise the accounting/finance function should be

    reexamined and considered for possible controller and perform duties that include, but restructuring. not limited to, financial forecasting, investment

     analysis, capital expenditures, and financial ratio Take for example a company with projected total analysis.

    ; $10.0M + - Financial analyst and other sales of $1,000,000 and an accounting salary

    expense of $25,000 for a part time bookkeeper. specialized finance staff needs, such as taxation, Using the SPOS ratio formula the organization may be decided upon the future perceived shows a resultant value of 40, implying that that needs of the organization as it approaches and the accounting/finance function is adequately surpasses the $10.0M sales mark.

    structured. If the organization’s SPOS ratio were

    to begin to exceed 45 and approach 50, or Although the SPOS ratio analysis provides a recede to 25 and approach 20, these are usually reasonable starting point in the process of indicators that it's time to start revisiting the understanding and decision-making for

    restructuring the finance/accounting function, it’s finance/accounting area for improvement

    change recommendations. important to understand that some factors may

     come into play that can distort the analysis. For Based on an optimum SPOS value of 35 the example, salary levels for staff or specialized graph below reveals proposed salary structures skills, which can change over time due to labor for contrasting sales figures. shortages or cost of living adjustments, will alter

     the SPOS ratios. For example, a 10% on

    average increase in salary would cause a 9% Proposed Salary Structures vs Total Sales decrease in the SPOS ratio, altering it from 35 to

    31.85. This is not so much a problem as it is

    $12,000,000.00something to simply be aware of, since the

    benchmark ratio values can always be modified $10,000,000.00in order to normalize results.

     $8,000,000.00Additionally, every organization is unique in

    terms of its business structure, goals, and $6,000,000.00objectives. Consequently, based on these Total Salesdistinctions and others, final decisions on $4,000,000.00restructuring any area of the organization should

    also take into account factors such as business $2,000,000.00

    processes, constraints, budgets, projections, $-and technologies, to name a few.

     $28,571 Streamline Solutions focuses on enterprise- $42,857 Proposed Salarieswide business systems to provide next $57,143 $71,429 generation cost reduction and quality $85,714 improvements, which can Designations: $100,000 significantly enhance organizations' cost, quality, $114,286 $128,571 and profitability positions. ; $1.0M to $1.5M – Part-time bookkeeper with $142,857 adjusted hourly requirements on an as needed $157,143 $171,429 No matter how big or small the organization, our basis. $185,714 solutions are designed specifically to target cost ; $2.0M to $2.5M – Full-time controller to handle $200,000 $214,286 and quality improvements throughout the entire a combination of accounting and finance $228,571 value chain, from multiple workflows to function responsibilities. $242,857 identifiable processes of the total business $257,143 ; $3.0M to $6.5M – Full-time controller plus $271,429 system, providing maximum and sustainable additional accounting staff as needed, which $285,714 returns on the sale of quality goods and services. may include a combination of both part-time and

    full-time personnel, to handle A/P, A/R, invoice,

    payroll, checking, and receipt work, allowing the