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S2E4 – How to Set Up Your Finance Department

By April 17, 2018January 6th, 2021Season 2, Episode 4, Bootstrap

Mr. Matthew Ley:  Welcome back to Boot Strap: Insights for the Self-Funded Entrepreneur with Frank Cianciulli.  My name is Matthew Ley, and I will be your host.  As we discussed last time, we’re going to go back to one of your questions, and we’re going to talk about setting up your financial organization.  Just like no company can really get going without any source of funding, how you manage that money can make or break your company.  And Frank has got a lot of experience, a lot of different sizes of companies in your history.  So let’s talk about it.  There’s a couple options when you’re starting.  You can do it yourself.  You can get a little bit of help.  Or you can bring in an accountant to be full-time on your staff.  What do you think is the best move for a bootstrap startup?Mr. Frank Cianciulli:  Well, as a bootstrap startup, by definition, I’d say it’s do-it-yourself.

Mr. Matthew Ley:  Okay.

Mr. Frank Cianciulli:  And obviously from a financial perspective it’s important, but I mean let’s face it; I mean if you’re just getting started there probably isn’t a lot of revenue just yet.  There probably isn’t a lot of accounting to be done, and it’s actually, you know, from just a controls perspective or really understanding your business, at least I did it myself with, you know, a couple of our guys, our sales guys for the first year or two.  You know, entering your own receivables and payables and bills and invoices into our, you know, there’s great accounting packages that are really easy to use.  QuickBooks comes to mind.  It’s so user-friendly.  You don’t have to be an accountant to use it.  The reports are amazing.  You press a button.  So I’m more of an advocate that you should try and do it yourself and save the overhead.

Mr. Matthew Ley:  Well, you know, people go to school for many years to be an accountant.  You can’t walk into being a CA.  What is the benefit of you doing it yourself in those early days?

Mr. Frank Cianciulli:  I think it just gives you a lot of visibility into your business.

Mr. Matthew Ley: Right.

Mr. Frank Cianciulli:  You know, sometimes if you rely too much on accounting and you don’t understand the numbers, you know, we rely on accountants to — or you know, our accounting department to give us best practices and forecasts and help us make business decisions.  But sometimes that doesn’t translate.  You know, oftentimes accountants are black and white, but there is a lot of nuance to business that you as the operator, the owner, know more than they do.

Mr. Matthew Ley:  Yeah, and I mean the last time I saw a balance sheet before I started looking at them in the business was probably my grade 11 business class back at StJean de Brébeuf in Hamilton — a little bit of a shout out there.  So I mean I remember the principles of it, but getting a completed financials was, I had to learn again when I got into business for myself.

Mr. Frank Cianciulli:  Well, let me just give you one example that I faced early in my business career.  When, you know, because we kind of took our eyes off let’s say receivables.  So [unintelligible] our cash, and then when I ran a report from QuickBooks, you know, I said oh my gosh, we’ve got customers that haven’t paid us in 120 or 180 days, and that really forced us to get on top of receivables and roll out a process.  If I didn’t have the visibility I mean I assume at some point, you know, a financial professional would have said hey, someone’s got to get on top of this.

Mr. Matthew Ley:  Your DSO is out of control.

Mr. Frank Cianciulli:  Exactly.  But that being said, you know, if you have the wherewithal there is wonderful services out there.  I think CFO For Hire, or there’s a few different companies that basically provide you outsourced at I think fairly reasonable prices.  Freelance bookkeepers is probably all you need, as well, and effectively — so I’m not saying, you know, there’s not ways to hire kind of part-time help that will be very cost-effective.  If that’s an option, yeah, I would recommend that within the first 3 to 6 months, especially if you have no financial wherewithal.  And you want to be focused on growing the business, so I think that is a valuable investment.  I’m just telling you what we did.  We definitely did it ourselves for the first year.

Mr. Matthew Ley:  So you did it yourself, and then you went to one of these outsourced organizations, or did you bring in somebody?

Mr. Frank Cianciulli:  No, we brought in — we brought in someone after about your one, year two.  You know, it was a little bit longer.  It was probably a year and a half in, and we were experiencing a lot of growth, so we managed a lot of revenue.  When I say we it was kind of me and one of my operations guys.

Mr. Matthew Ley:  Okay.  So after a certain point in time — and you would have experienced this in your first business because you guys did grow really quickly.  You were in $5 million in a couple years into the business.  You’ve got to bring in the big guns at some point, right?

Mr. Frank Cianciulli:  Correct.

Mr. Matthew Ley:  So you’ve got to bring in like the BDOs or the PWCs to do what’s referred to as review or an audit.  So at what point do you need to bring them in, or why would you?  And at what point is the review versus audit make sense?

Mr. Frank Cianciulli:  Yeah, those are great questions.  So yeah, first and foremost, like we talk about as far as hiring, you know, seasoned talent and when you bring them in, it’s the same thing with your accountants, or lawyers or any of that thing.  You know, when you’re a startup you don’t need the big four.  It’s overkill.  You know, people say well it looks good that you’re with KPMG.  I get that.  You know, at some point when you’re large enough that makes sense, but there are so many amazing small accounting firms that are more than able to handle your needs, and they’re more geared toward small businesses.  Their prices are a lot more reasonable and fair, and you can get access to them very well.  And it’s easier for them to understand your business.  So I would recommend until, you know, depending on your business, but I would say up until $5 million or even $10 million in revenue, a small, a smaller accounting shop or legal firm is what you need.  At that point then I would look into potentially the majors.

And the same thing review, Notice to Reader or an audit, you know, audit usually if you’re preparing your business for a sale is when you would want an audit.  So as a startup I don’t think you’re thinking that yet.  You shouldn’t be.  Even a review engagement is really only necessary if you actually bring in some kind of financing, like bank financing.  Otherwise a Notice to Reader, very cost-effective even with a big six accounting firm is probably only a couple thousand bucks.

Mr. Matthew Ley:  Okay, so a Notice to Reader, you know, when do I need that, or why do I need that?

Mr. Frank Cianciulli:  Well, you’ve got to file your taxes even if you’re not making money.  So they’ll do a tax prep.  And a Notice to Reader basically is showing you that yes, we’ve confirmed the numbers are accurate, but they haven’t — the difference between a Notice to Reader, review and an audit is just different levels of essentially checks and balances or confirmation of every single expense.  So really it’s not really until you’re a public company that you even do an audit.  Even very, very large private companies, especially if they don’t even have any kind of debt, are even doing Notice to Readers or reviews.

Mr. Matthew Ley:  Okay, so when you started the business it was, you know, what we remember from when we were kids.  You’re a little bit older than me.  Everyone paid by a check.  The check went into the bank.  You know, there was a person that you gave it to, and then you sent your checks out and you signed them.  But we’re in a different world now, and risk that some guys starting their business — or gals — starting their businesses right now have that you didn’t is this cyber threat, the fraud that is going on there.

Mr. Frank Cianciulli:  Very concerned, yep.

Mr. Matthew Ley:  You were telling me that you even got hit by this, and your organization is quite large and a lot of controls in it now.  Does that mean that maybe we need more financial, like call a larger financial organization sooner now to protect ourselves?

Mr. Frank Cianciulli:  No, I mean I think you just need best practices as far as, you know, things like signing authority, things like how to authorize a wire, you know?  I mean if you let someone in your accounting department, you know, be the sole person to sign a check or to wire funds, I’m not saying they would intentionally fraud you from an internal perspective, but things can happen.  People are hacking emails now, and you know one of the big prevalent scams, so to speak, is, you know, an email from the CEO to the finance department saying hey I need you to wire funds to this supplier.  And you know, they’re in your email, so it looks like it’s coming from you.  Next thing you know your financial person just wires a bunch of money that you can’t afford to some fraudster.  And so the key is to just eliminate, try and eliminate human error.  And that’s where processes and controls come in.

Mr. Matthew Ley:  It’s interesting you bring that one up because, you know, we’ve looked into it, and that is actually targeted at folks like yourself, an entrepreneur, because in a larger organization the CEO is not going to ever make that request, but when you’re in the business like you are or [unintelligible] —

Mr. Frank Cianciulli:  You’ve got to play [unintelligible].

Mr. Matthew Ley:  Yeah, you’re doing all of that.

Mr. Frank Cianciulli:  You know, you’re flying by the seat of your pants.

Mr. Matthew Ley:  Exactly.  Or sometimes your credit card is being used for whatever it might be.  The money is not as clean as it is in a large publicly-traded company, so they target people, people like yourself.

Mr. Frank Cianciulli:  That have less infrastructure processes.

Mr. Matthew Ley:  Yeah, exactly.  They’re counting on you to —

Mr. Frank Cianciulli:  To make an error.

Mr. Matthew Ley:  To make an error, and in some cases they are right, but it’s not just that.  It’s everywhere.  So it is definitely something to look at.

Mr. Frank Cianciulli:  So those [unintelligible].

Mr. Matthew Ley:  Yeah, definitely.  Okay, so with that we will be moving on to another review or an update from season one.  And just like the world has changed since Frank started his business and cyber threats are a bigger deal, so has the buyer changed in the sales organization.  And last year we talked about always be selling, and now we’re going to talk about always be selling in the modern world.  Until that point in time, stay lean, guys.  Like, share, invite your friends, loved ones and coworkers to watch the show, and we’ll see you next time.

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