All growing businesses look to hire employees who can help with their finances, but many end up hiring the right person for the wrong role.
Maybe you need someone to just handle transactions, or reconcile your books, or help you with mergers and acquisitions.
Hiring the wrong person, whether you hire above or below your needs, can lead to costly mistakes.
To make sense of this all, this week we speak with Jim Reilly, an independent financial consultant to businesses to help them find the right person to fill their different financial needs.
Rich Brooks: Our next guest is an independent consultant providing part time CFO and VP finance support. Organizations work with him to get financial information that gives more insight about their operations. He helps them plan and implement scalable back office operations that provide better information for decisions, and allow exec teams to focus on strategic priorities. Growth, competition, and cash flow. He was the director of the Boston chapter of Financial Executives International, and chair of the Career Services Committee. His prior roles included stints at Consero Global Solutions, New England Practice, Perk and Elmer, CambridgeSoft, Pegasystems, and GSI Lumonics. He received an MBA from the Amos Tuck School of Business at Dartmouth College, and a BSIE industrial engineering from Purdue University.
Rich Brooks: Today he’s married to a wonderful woman from Brunswick, Maine. Please welcome, Jim Reilly.
Jim Reilly: Well thank you, it’s great to be here.
Yury Nabokov: Jim, welcome to the show. You were helping businesses with their financial needs throughout your career. Could you tell us what drew you to the finances?
Jim Reilly: Well, I started off my career as an engineer. And in a couple of plants that I worked in, I understood the how we were doing things, but I was pretty confused by the why. And so I began to realize that finance drove an awful lot of the why things were done. And I wanted to understand that better, so all I can say is eventually they sucked me in.
Rich Brooks: I see, so you almost look at finances as the engineering side of … you’re figuring out the engineering side of the financial spreadsheets.
Jim Reilly: Absolutely. Both from a process perspective, like a true industrial engineer, and from a business perspective of what’s the real objective of the organization.
Rich Brooks: Jim, as a business owner, I am sometimes overwhelmed by the different types of financial positions that I could hire for my company. And I’m honestly not sure who does what jobs, or who I need to hire for certain tasks, or at certain stages of my company. Can you give me an overview of what are some of the main roles that someone like me might hire for?
Jim Reilly: Oh, absolutely, in fact, that’s a very common problem. Finance over the years has gotten more and more complex in terms of what people expect from it. I think the way I look at it, I look at it at six different layers. The most volume of activity and hours should be in the transaction processing, paying the bills, recording the cash received, taking care of the payroll, things like that. The next step up I look at, which you would expect from an experienced bookkeeper, would be the reconciliations of the various accounts. Not just the cash, but what you owe, what you’re due from customers, etc.
Jim Reilly: The next level up is preparing financial statements, and this is getting more into accounting than bookkeeping. The next level up I look at are those who are capable of doing a financial forecast and reporting on actual versus that plan in the financial statements, cash flows, etc. The next level up I look at is what I call operational controllership, which is working with the cross functional team on their functional goals and performance measurement, and being an active participant in the business. And that’s where the jobs really get interesting and extremely valuable.
Jim Reilly: And the final level I look at are the CFO level activities. Typically where you’re looking at how to structure the business for tax purposes, or what type of debt, whether to get involved with joint ventures, whether to raise equity, exit planning, etc.
Rich Brooks: So six in there, and I definitely want to talk about them, we talked about transactional, reconciliation, PNL, the forecasting operational, CFO. So obviously as a company grows, there’s going to be different roles. So if I’m just starting out, I assume I need somebody on the bookkeeper level, like just handling accounts payable and accounts receivable, correct?
Jim Reilly: Well, that’s an interesting point. It depends on the size of activity that you’ve got going on. A lot of the investors will recommend that the owner/operator maintain the transaction processing themselves, but get advice on preparing the financial statements. That is good until it starts consuming more than half a day to a day a week, and at that point the administrative work should be going to a part time bookkeeper.
Rich Brooks: All right, so if we’re just starting off, then if I’m hearing you correctly, we really need to be in charge of the books at the beginning, maybe just to get a better understanding of how money’s coming in and going out of our company. But when that stops us from being able to do why we’re in business in the first place, then it’s time to bring somebody on, whether they’re an in house person or maybe like a bookkeeper for hire that would come into our office on a semi-regular basis?
Jim Reilly: Absolutely. And I think we’re seeing a huge change in the way these jobs are staffed over the last 20 years. A lot more activity of using part time resources. And the reason for that is it’s … traditionally what used to happen is people would say, “Well, I need somebody to process the payments and the payroll. But I also need them to talk to the bank and prepare the financial statements.” And so they would go for a higher level person and hire them. And that’s great, except for they’re paying high rates for lower level work.
Jim Reilly: With the availability of good providers now, resources that provide the transaction processing and bookkeeping right on up through preparing financial statements on an outsource basis, more and more companies are actually opting to contract that activity, rather than do it in house. The area where there’s an exception is on the supportive sales operations, which very often is and should be in house.
Yury Nabokov: Jim, when we’re talking about transactional activities, are there are any particular red flags that we need to pay close attention to?
Jim Reilly: Yeah, you never give your payables person the right to sign checks.
Yury Nabokov: That is a good one.
Jim Reilly: There are, and it’s in terms of whether there’s confusion about how to handle things. And if you have … the classic problems are I’ve got an outstanding check that doesn’t seem to be, or I have a vendor that’s complaining we didn’t pay the right amount, or I’m getting a credit from a vendor, how do I handle that in the books? And that’s where having somebody that you can call on an ad hoc consulting basis to help with the accounting is valuable. Because you really don’t want to be training the bookkeeper yourself.
Yury Nabokov: Perfect. Thank you, that’s really helpful. Talking about reconciliation that you mentioned earlier, can you explain to me what it is and what it’s role?
Jim Reilly: I’m sorry, the reconciliation activity?
Yury Nabokov: Correct.
Jim Reilly: Is just to make sure that you have the balances correct. This is where you catch up on what checks are outstanding, whether you’ve correctly recorded any interest earned, or other charges, so that you don’t bounce checks.
Jim Reilly: It’s also for looking at your vendor payables so you can project your cash out and your customer receivables so you can project your cash in. Again, so you don’t run out of cash. You can’t really do a cash forecast without reconciling these accounts.
Jim Reilly: In addition, and on a longer term basis, it’s reconciling the tax accounts and things like that so we don’t end up in trouble with the government.
Rich Brooks: How much of this takes place in a cash based business versus accrual based business?
Jim Reilly: These all take place in a cash based business, and in accrual based business. Again, the main purpose here is to make sure that you have the cash available, readily available, for ongoing operations when you’re going to need it.
Rich Brooks: I guess one thing that I’ve always wondered about in running my own business is there’s a bunch of potential jobs here, when do I hire somebody to be in house, and when do I outsource those roles?
Jim Reilly: The way I advise my clients to look at it is to take the amount of time each of these types of activity are expected to take in a week or month. And when you are at the point where you can fulfill, say, 30 hours a week on a level like transaction processing, then you should consider hiring full time. If it’s less than that, it’s probably more cost effective to outsource it.
Jim Reilly: And that cost effectiveness is not obvious on the payroll versus contract cost, but it is obvious in the cost of turnover, and education.
Jim Reilly: On the higher level jobs, again, it’s looking at how much time each of those things take, how much do you expect they will take. The higher level you go, the more likely you are to benefit from having a consultant rather than a full time employee in terms of ongoing cost. That being said, if you do find an operational controller, they are usually worth their weight in gold.
Rich Brooks: So that brings up an important question, so let’s say that we think we found somebody who is worth their weight in gold at that level, how do I know if that person’s doing a good job? I’ve always had this concern, it’s like I feel so ignorant when it comes to my own financials that if somebody tells me they’re doing a good job, then I have nothing to go on to be sure if they’re actually performing at the level that I would be able to tell if they were a graphic designer, or if they were a website developer in my own business. What are some of the cues we can use to make sure that somebody’s actually performing at a high level for our business?
Jim Reilly: Well, the first thing I would do is ask. I would ask my customers, ask my vendors, bankers, the CPA tax accountants. I would ask them how do they see my business performing, and what would make it better? Every customer has a payables person who’s interacting on an administrative level with your financial support. Every vendor has a receivables person that’s dealing with your business. The CPA tax accountants get to see the worst of the worst in terms of how your records are kept. And they are usually reluctant to provide unsolicited feedback, because they don’t want to ruin a client relationship if things are bad. But if you ask, they’re more than willing to be very explicit about what could be done to be better.
Jim Reilly: Another alternative is to perhaps hire a consultant who could review the processes and make recommendations on how to improve, give you a listing of opportunities, priority scheme, expected timeframes it should take, etc.
Yury Nabokov: What are the biggest mistakes that the growing businesses make with finances?
Jim Reilly: I think they make two basic mistakes. One is that they don’t get help soon enough when they need it. The second mistake is they in effect over hire, hire too competent a person for the activity that they really need. And then third, along with that, is the whole concept of personalities.
Rich Brooks: Talk to us a little bit more about what you mean by that. I mean, I know what personality means, but what do you mean in terms of this process?
Jim Reilly: Well, if you’re looking for a partner in your business that’s going to really help you run the business, you want somebody who’s going to go well beyond just reporting actuals versus forecast. And that is a different personality, typically. Secondly, if you just can’t stand talking to the person you really shouldn’t be working with them on a day to day basis.
Rich Brooks: All right, so there definitely has to be that sort of personality compliment to whatever your plans are, and your own personality.
Jim Reilly: Yeah, and it doesn’t mean that’s somebody you want to go on vacation with or anything like that, it just means somebody that you can work with, that you respect, that has respect for you and for your organization.
Jim Reilly: And the other thing to remember is asking inside your own business how well things are going with people.
Rich Brooks: One of the first things you said in that mistakes that small businesses or growing businesses make is that they don’t get help when they need it, or as soon as they need it. And I guess this is what I struggle with. And again, it comes from a place of, I guess, ignorance, is I just never knew any of this stuff before and it took me a long time to realize it. What are some of the signs that business owners should recognize that it is time to bring in some level of financial support in their business?
Jim Reilly: I think if it gets to the point where you don’t understand what’s happening with the processes, if you have hiccups in cash availability, or cash flow. If you’re seeing a change in the relative margins of your business, or pricing, and it’s not hanging together with what you experienced in speaking with your customers, those are all very good flags.
Jim Reilly: And again, it comes back to asking your tax accountants, your bankers, your customers, and your vendors. They will tell you when you need the support.
Yury Nabokov: Before we go out and spend money hiring or outsourcing, are there any available like free resources that entrepreneurs can rely on to kind of like … to get an understanding of what’s going on?
Jim Reilly: Absolutely.
Rich Brooks: Or is it that you get what you pay for?
Jim Reilly: Well, it kind of depends how busy the community is. In the Portland area I know that the SCORE, Service Core of Retired Executives, is very active. And they do have some people that are available as resources to help support entrepreneurs. There are other entrepreneurial networking communities, I’ve heard, that do have the ability to provide guidance and share experiences. And those usually come at minimal or no cost.
Rich Brooks: If you are a business person like me who just has always feared the financial side of the business, and always just … for me, I just focused on sales and marketing and figured everything else would fall into place. And like your eyes glaze over when you look at the numbers. If you were to tell that person, “Look, here are two or three things that you just absolutely need to do yourself to get a better grasp on your business,” what would be those two or three things that they should really focus on at a bare minimum?
Jim Reilly: At a bare minimum I would look at over the last month and quarter, what was the cash in, what was the cash out? Where did it come from and where did it go to? And then look at what the projection is for the next month, and two months, and three months out. Just to get an idea of where things stand. Then on a weekly basis, update on the cash in, which is the most variable item. And whether the cash is coming as expected.
Jim Reilly: That’s probably the most important thing that every business needs to do, regardless of their size.
Yury Nabokov: How expensive should the financial support be?
Jim Reilly: Well, that’s a great question, and it’s changing. I think if we look at bookkeeping services that are available for the transaction processing up through preparing financial statements, controller level work, you can get those resources for significantly less than $100.00 an hour. But typically, in the Maine area, basic level bookkeeping, transaction processing is going to be above $25.00 an hour. So there’s a good range in there.
Jim Reilly: As you get into real controllership and CFO level work your rates go up from there, typically above $100.00 an hour, up to the range of … depending on how large the business is, it could be up to 300, $400.00 an hour.
Yury Nabokov: In your experience … no, go ahead.
Jim Reilly: Those rates sound high, but they’re relatively low compared to your CPA tax accountant’s billing rate.
Yury Nabokov: In your experience operating in Maine, what’s the most requested service that the business owners are hoping for or looking for?
Jim Reilly: I’m not sure that I could categorize that, I think they’re all over the map. I think the biggest problem that I’ve heard CEOs mention is that they don’t know where to go to find financial support. And that’s something that I think we need to work on, improving the networking in the area. How does a business find multiple candidates? I think before a business settles on somebody they’re going to partner with for multiple years, they should be talking to four or five candidates that have the qualifications. And finding those, I’ve been told, is a challenge. And that’s the kind of thing that organizations like the Southern Maine Business Advisors are looking to improve by improving the ability to network through and find multiple providers.
Rich Brooks: You know, obviously the podcast is called Fast Forward Maine, and we’re looking to grow businesses here in the state. But is there a shallow pool of talent when it comes to these positions, and is this something that can be done remotely, like are there CFOs, or operational controllership positions, or people out there who can work remotely with our businesses if we can’t find the skills or the competency locally?
Jim Reilly: There are, and there’s all sorts. I worked with a business, and I was a client of a company that operated their accounting out of Bangalore, India. And they were a very good provider, but we were a relatively large business and we had the ability to manage all of that activity in house with all the grunt work being done remote.
Jim Reilly: On the other hand, there are some things that I think you need to do on site, face to face. When sitting down with the VP of sales, or whoever’s driving most of the business development, and seeing if they’re excited about a 15 to 20% growth goal or if they’re cringing with a 15 to 20% growth goal, you really need to be there to see that. And that definitely affects how you would forecast what type of things you are risking to spend on.
Yury Nabokov: Jim, you may have already answered this question previously, but if you could change one thing to improve the Maine business ecosystem, what would it be?
Jim Reilly: It would be, again, to improve the networking. I think among the financial service providers, the networking that I’ve witnessed so far tends to be back to the organizations people started their careers with. So it’s the accounting office that they started with that they tend to continue to go to education with, etc. And the cross fertilization among those groups could improve. And so I’m trying to do what I can to help that happen.
Rich Brooks: So if somebody’s looking right now for one of these positions, to fill one of these positions internally or externally, where do they turn? Or where should they turn really?
Jim Reilly: I think places like the … so we were talking about the Southern Maine Business Advisors is good, I think that SCORE tries to keep a listing of people that are available for that type of work. Obviously you can ask your CPA firm, they’ll recommend a former colleague. You can ask your bank, they’ll recommend a former colleague. I’ve been told that you can ask your investors, but they will tend to recommend the one consultant they’re working with. Which may not be the separate communication channel you want.
Rich Brooks: No, and it sounds like what you’re recommending is that we speak to several people and find the right person who’s the best fit for us, and not just stop at the first person we happen to be recommended to.
Jim Reilly: Absolutely. Absolutely. And-
Yury Nabokov: Jim?
Jim Reilly: Yes.
Yury Nabokov: I wanted to ask you this keynote question, you were talking about different organizations and different networks that may help with accomplishing our financial goals in terms of managing our finances for businesses, but is there a place for … universities, or maybe some accounting clubs to participate in some of that? Have you seen any successes here in Maine? If there are any?
Jim Reilly: I have not participated in it, but I have been reading about some of that activity. And I think it’s primarily in supporting the entrepreneurial activity. I think that Maine’s got a very active education community that’s trying to prepare their graduates to participate in entrepreneurial activities. And towards that end, I think that some of these networking groups for entrepreneurs do have links deeper into the community that can provide financial support.
Rich Brooks: Jim, this has been very helpful, and I’m sure a lot of people listening are going to want to reach out and connect with you. Where can they find you online?
Jim Reilly: I’m online at TillForeside.com, that’s T-I-L-L, F-O-R-E-S-I-D-E.
Rich Brooks: Awesome. Jim, we certainly appreciate you stopping by today and sharing some of your expertise with us.
Jim Reilly: Thank you very much, I really enjoyed this. Yury, Rich, thank you for your time today.
Yury Nabokov: Jim, it was really great, thank you very much, have a good day.