The Smart Way to Scale: Why Small Businesses Choose Fractional Controllers

by Bailey McRae, Fractional Controller

A bookkeeper and a strategic financial leader – most growing businesses would name these as critical roles for their financial team. Small businesses I’ve had the privilege of working with usually understand they need a bookkeeper for day-to-day transaction entry and a financial leader to direct the business’s financial strategy. But I’ve noticed a crucial gap often overlooked: someone to review the accounting data.

A Controller bridges this gap between strategic oversight and data entry.

Here’s how I see it: the Controller’s job is to set up and verify the financial data so that the CFO already trusts it by the time it gets to their level for executive reporting. A Controller ensures the accuracy and integrity of financial data, establishes robust processes and identifies potential problem areas before they escalate. Think of a Controller as the head accountant looking primarily at the past results whereas the CFO is primarily focused on finance and future, forward thinking plans based on the financials provided and generated by the Controller (and accounting team). Not all businesses will need this type of accounting review when they first start out. However, it becomes increasingly vital as businesses scale and face challenges that require a deeper level of accounting review.

The Controller’s job is to set up and verify the financial data so that the CFO already trusts it by the time it gets to their level for executive reporting.

No Controller? Avoid accounting pitfalls with these tips.

Here are the problem areas that I’ve seen business owners need to lookout for (if your business has been experiencing growth leading to increased complexity and no one has been reviewing the accounting numbers):

• Find someone who understands bookkeeping oversight and best practices to help. Without a Controller’s oversight, owners may unknowingly trust inaccurate or incomplete bookkeeping. If the data is going straight from the accounting software into reports with no oversight, it could mean business decisions are being made on bad data. Get an experienced resource (whether internal or external) into this role as soon as possible. A fractional Controller is a more cost-effective way to do this vs. hiring the role in house.
• Change the cadence of bookkeeping review to catch problem areas faster. A Controller can catch financial discrepancies and potential issues much earlier than a CFO – who operates at a higher level, removed from the day-to-day. Maybe you’ve had the financial data reviewed 6 months ago – that’s going too long in our opinion. We recommend this review happens on a monthly basis.
• Get to the point where your CFO or head financial resource can say “I trust the data.” A Controller ensures the reliability of financial data, building trust and enabling informed decision-making to happen faster. By ensuring data accuracy and fostering trust, a Controller frees up the strategic financial leader to focus on high-level analysis and planning, rather than getting bogged down in data verification that consumes valuable (and expensive) time.

Real-World Examples: Benefits of Having a Controller

Here are a few examples of how a Controller can make a meaningful impact. One client I had the privilege of working with was recording duplicate expenses without realizing it, leading to an understatement of net income. Lucrum was able to identify the underlying cause as the need for better communication between two team members and for process improvement for recording certain payables. Fixing this improved their financial reporting and created a more accurate view of the business’s expenses.

In another example, we provided an in-depth cash flow analysis which helped to improve and get a more accurate view of cash flow in the long term. For another business – a building operations company – a fractional Controller brought an outside perspective, leading to process improvements.

The need for a fractional Controller isn’t necessarily tied to a specific revenue target but rather to complexity and volume of transactions.

When to Invest in a Fractional Controller

When does a small business need to look at bringing on a fractional Controller? The need for a fractional Controller isn’t necessarily tied to a specific revenue target but rather to complexity and volume of transactions. Key signs include:

• Multiple Locations or Departments: As businesses expand, managing finances across various segments becomes increasingly challenging.
• High Transaction Volume: A large number of monthly transactions, especially with diverse types, warrants a Controller’s oversight.
• Complex Reporting Needs: The correct setup of segmented reporting, such as class tracking, requires a Controller’s expertise.
• Need for Unbiased Perspective: An external Controller brings an objective viewpoint, identifying inefficiencies and recommending improvements.
• Time Constraints: Business owners and their teams may be overwhelmed with day-to-day operations and can benefit from a Controller’s expertise in streamlining processes.
• Specific Projects or Problems: A temporary fractional Controller can be invaluable for addressing specific financial challenges or implementing new systems.

While a bookkeeper and a fractional CFO play essential roles, the Controller (whether full time or fractional) fills a critical need for small businesses experiencing new challenges that come with growth. A Controller empowers business owners to make informed decisions and navigate financial challenges with Confidence in the Numbers.