At some point in their existence, a small business may face the decision about whether to hire a Controller. The timing of this will vary widely among businesses depending on their size, projected future growth, current staffing, and organization of the firm’s accounting function. It will also depend on what the business owner or management expects a Controller to do and what they can afford to pay for that position.

What Is a Controller?

A Controller is typically an employee in a management position responsible for some or all its financial, accounting, and human resource functions. 

Accounting

The primary function of a Controller will be the organization and management of the accounting function. At its most basic level, this involves ensuring the design and function of the accounting cycle:

  1. Identifying financial transactions (including supporting documents such as receipts and invoices)
  2. Recording financial transactions in the original books of record, also known as journals
  3. Posting summary information from the journals to the general ledger
  4. Using totals in the general ledger to prepare a summary of financial accounts known as a trial balance
  5. Preparing a worksheet to begin analyzing the transactions for accuracy
  6. Making any necessary adjustments 
  7. Preparing financial statements for internal or external use
  8. Closing the books for the period (usually monthly) so that the process can start over

Items 1-6 ensure the numbers are right and can normally refer to bookkeeping. Most small businesses have someone doing the bookkeeping, such as family member or outside person or firm using a computer program or spreadsheet. A Controller is not normally required for this function in and of itself.

The person(s) doing the bookkeeping referred to above or by a Controller perfoms Item 7. Financial statements can take on different forms depending on who will use them. Typically, this will be external and internal users.

External users include banks, investors, and government agencies such as the Internal Revenue Service or a state licensing board. Financial statements for external users have accepted, specific formats to rely consistently on them. 

What’s the Difference Between an Accountant and a Controller?

A Certified Public Accountant (CPA) often, except for tax returns, will compile, review or audit these statements independent of the company. However, the firm’s management, typically the Controller, will oversee the initial preparation of the statements. It is uncommon to see a small business need these financial statements, as they are more pertinent to large companies.

Internal users are, of course, the company’s management. In the smallest of companies, this would be the owner. As a business grows, there may be increasing layers of management responsible for specific operations of the firm and who may need timely financial information to help them manage those functions. 

It is the responsibility of the Controller to communicate with management as to what types of information they need and in what time frame and to then establish reports generated from the accounting function described above and explicitly tailored to meet those needs. 

The types of reports can include but aren’t limited to cost reports, inventory reports, budget versus actual numbers, and so on. Obviously, these types of reports are not for external users.

This depends, again, on the size and nature of the business. The Controller may involve themselves in other typical accounting functions such as:

  • Performing or managing accounts payable and receivables duties
  • Performing or managing payroll duties
  • Implementing a set of internal controls to protect the assets of the firm
  • Inventory management
  • Keeping track of fixed assets and their depreciation
  • Sales tax
  • Payroll and/or income tax preparation if not contracted to an outside service

Note that all these accounting functions flow directly from the accounting system described above. Moreover, it is normally the Controller who designs and manages that system.

Financial

Various financial functions of the company can involve a Controller. For example:

  • Planning and budgeting, including comparing and analyzing budgets versus actual results
  • Forecasting for future cash needs relating to operations
  • Forecasting for future asset acquisitions and the cash or financing required
  • Strategic planning
  • Technology planning
  • Financial analysis
  • Coordination with outside auditors and/or tax preparers

Depending on the company’s size, the Controller may perform these duties themselves or under the supervision of a Chief Financial Officer (CFO). Most small businesses rarely have a CFO, so these duties fall to the owner of the company if even required, or the Controller. This is a key decision point in determining the need for a Controller – are these duties necessary to the future growth and success of the business and how much of it does the owner or management want to take on themselves.

Human Resources

Some firms include managing human resources in the duties of a Controller. Again, this will depend on the size and structure of the firm. In a small firm, the owner or perhaps a spouse or family member will take on these responsibilities. In a large company, it will typically be the responsibility of a Human Resources manager or director.

The duties of a Controller as it relates to human resources is beyond the scope of this article.

What Does a Controller Cost?

The above discussion should give some indication of whether hiring a controller is necessary. A full-time Controller can expect to command close to or in excess of a six-figure income, not including benefits and payroll taxes. Furthermore, the more duties expected of the Controller, the more a firm will have to pay. Chief Financial Officers are even more expensive.

Cost-Effective Controllers

Many businesses find themselves in a situation where they can certainly benefit from the services of a Controller but find the cost-prohibitive. Fortunately, firms, typically CPAs, can provide many of the duties of a Controller at a fraction of the cost of hiring one.

The typical outside Controller will perform the following duties, tailored to the company’s particular needs, for a flat monthly fee:

  • Setup or evaluate the books and accounting procedures of the company
  • Make recommendations regarding and implement accordingly, with the approval of company management, any improvements to the accounting system
  • Provide a tailored list of bookkeeping functions ranging from a day to day transaction processing to monthly financial reporting
  • Identification and design of management reports that will help in management’s decision making
  • Budgeting and variance analysis
  • Cash flow management
  • Strategic planning
  • Asset acquisition planning
  • Inventory management
  • Financial analysis
  • Technology planning
  • Income tax planning (legally minimizing taxes)
  • Income tax preparation
  • Representation before state and federal tax agencies
  • Coordination with outside auditors

Hiring a Financial Controller

When your firm reaches the point where the services referred to above would provide significant benefits and contribute to increased profitability and improved financial management, you should consider hiring a Controller. 

Take the time to evaluate CPA firms that provide Controller services in addition to evaluating the cost and benefits of hiring a full-time employee. You may find that a CPA firm can bridge the gap, at a reasonable cost, between determining the need for and investing in a full-time Controller.