The Finance Stack (An Excerpt from The Financial Operating System)

Understanding the Finance Stack in your business.

The following is an excerpt from The Financial Operating System by Calvin Wilder.

At large businesses, the Finance Stack is typically fully implemented with dedicated employees in each component and various software systems supporting each component. Large businesses must have a complete Stack in order to function, stay in business over time, and keep their investors happy.

Small businesses almost never have a complete Stack. In small businesses, many or all of these functions are not full-time, 40 hour-per-week roles. Small businesses utilize a combination of multi-tasked individuals, part-time employees, and outsourced service providers to fill as much of the Finance Stack as ownership thinks they need or can afford.

Roles and Responsibilities

It is important to clarify a few basic roles and responsibilities. In small businesses, titles are cheap. Thus, you can often find employees with titles very different from their actual roles and abilities. A glorified Bookkeeper might have a Controller title. As a 24-year-old co-founder of my own business I had the Chief Financial Officer title. A few years and significantly more experience and professional development later, I actually merited the title. My point is not to belittle anyone but rather to point out that in small businesses there is often a disconnect between job responsibilities and title. Here I will lay out primary responsibilities and abilities aligned with titles.


Bookkeepers post transactions such as customer invoices and payments, vendor bills and payments, and credit card charges. They should understand revenue and expense accounts to be able to book transactions accurately. They reconcile bank and credit card accounts. The good ones also keep an eye on the AR and AP aging schedules and keep them in order. Most bookkeepers in small businesses are focused on data-entry.

Bookkeepers are not accountants and usually are not skilled in accrual accounting and debits and credits. They might click buttons in accounting software to generate financial reports, but they don’t really analyze and advise business owners on what those reports mean. Metrics are not something a bookkeeper will set up nor be able to calculate without
instruction. Good bookkeepers are very detail-oriented and keep accurate books, as long as the accounting requirements are basic.

The exception to these limitations would be what is called a “full-charge” bookkeeper. A full-charge bookkeeper is responsible not only for data entry but also for the full accounting and financial reporting of the business. As such, a full-charge bookkeeper is capable of performing accrual accounting with occasional assistance from outside experts.

When you are growing a small business, often your first accounting hire will be a bookkeeper in order to functionally delegate work that the owner would otherwise have to do.


Accountants are proficient with accrual accounting. They can set up and manage revenue and expense recognition policies. They know debits and credits accounting. Many have a college degree in accounting. They can run a true monthly closing of the books with a good level of accuracy.

The more senior the accountant, the more familiar she is with technical GAAP standards and how to apply them. More senior accountants will have earned through classroom study and work experience the CPA designation as a Certified Public Accountant or the CMA designation as a Certified Management Accountant.

An accountant will have limited ability to set up and calculate metrics, though with the help of more senior experts can maintain a set of metrics reports.

In the U.S., many small business owners equate “accountant” with “CPA” or “tax preparer.” This may result from the fact that most small businesses’ exposure to CPAs is only around their tax filings. Unless the small business has grown to be closer to a midsize business with GAAP and audit requirements, the small business owner has never been exposed to the audit side of the CPA profession. At larger CPA firms, the accountants tend to work either in the audit practice or in the tax practice. For our purposes, let’s separate the terms “accountant”, “CPA”, and “tax preparer.” These are three distinct roles.


Controllers are senior accountants who have management responsibility for the accounting operations of a business, including the application of proper accounting policies and procedures, internal controls, and financial reporting. They are highly skilled in accounting principles and have some management ability.

Controllers at midsize businesses are usually CPAs, though that is not a requirement as long as the individual is skilled enough with GAAP as it relates to the company he is working for. While bookkeepers and accountants are responsible for doing good bookkeeping and accounting to the extent of their skills and experience, and some level of outside expertise is expected for them to do their jobs, the Controller is judged based more on the absolute quality of their output:

  • Do financial statements accurately reflect the performance of the business?
  • Do financial statements reflect an appropriate level of GAAP based on the objectives of the business?
  • Is there a reporting package that provides more complete insight into company performance beyond just the financial statements? This often includes actual vs budget analysis and forward-looking forecasts.
  • Do systems and processes run efficiently, consistently, and accurately?
  • Are there internal controls to prevent mistakes and fraud?

Some small business owners have told me they need to hire a CFO. After a quick chat, I determined what they really needed was a Controller to get their books and reporting in order and to keep them there. A Controller is often the first full-time senior accounting hire.

Chief Financial Officers (CFOs)

CFOs are C-level executives focused on strategy, analysis, planning, and helping the CEO and senior executives increase the value of the business. Business value is typically driven by profitable growth, good returns on invested capital, and risk management.

Of all the Finance Stack roles, the CFO is most different. The mind of a good CFO thinks in terms of finance and return on investment, not in terms of accounting and GAAP. The vast majority of accountants rising through the accounting ranks will never be a CFO. It requires too much of a different way of thinking.

Some CFOs are CPAs, having begun their careers in public accounting, and others are not. CFOs need to understand GAAP but do not need to be experts in it. That’s what a Controller and outside auditor is for. In larger companies, there is a finance department separate from the accounting department. CFOs often rise through the finance ranks.

The CFO is often the driver of metrics in a business. She defines a set of metrics for the company and its various internal groups and functions and ensures those metrics align with business objectives.

If you have a CFO, she will be your business partner in Step 4 of The Financial Operating System®, when you are managing your business. A CFO should be driving some of these processes, as you would expect of a C-level executive.

In small businesses with a CFO, the CFO is typically part-time or “fractional” in nature. In the decade prior to writing this book, the fractional CFO industry has grown extensively. Being a fractional CFO is a career path now, not just something a CFO did while unemployed between full-time jobs.

It can be amazing what value a good CFO can provide in as little as 4-to-8 hours per month. The hourly rates can look expensive. Yet they are comparable to, and usually lower than, the rates charged by attorneys or tax preparers, and those other roles provide more of a compliance function. The CFO on the other hand provides strategic value and makes your business more valuable.

Beware of the accounting manager who positions himself as a CFO. In small businesses, the CFO must be more hands-on due to the limited resources available. However, I would caution against a CFO posting entries into your accounting software on a regular basis. A good CFO has no interest in doing accounting entries. That is what bookkeepers and accountants and controllers are for. Your CFO must be focused on helping you increase shareholder value, not doing the books. If your person is doing a good job managing your accounting and you are not paying him too much, then what you really have is a controller. That might be OK, just know you have a gap in the Finance Stack to fill through either your own work or that of an outside CFO resource.

A Note on CPAs

As I mentioned, in the U.S. most small businesses without the need for an audit refer to their CPA as their “accountant” who files their tax returns and may help out with other services from time to time. Many small business owners assume their accountant is also a skilled businessperson or that part of their job is to keep their clients’ accounting books in good shape.

The fact is that most small business CPA firms are in the business of doing tax returns. In fact, when I looked to acquire small CPA firms, most derived over 85% of their revenue from preparing individual and company tax returns.

If a CPA were a great businessperson, she would be managing and growing a very successful operating business of her own—not doing tax returns for a living. If a CPA were a great accounting manager, he is likely to be working as a Controller or CFO at a midsize or large business—not doing tax returns for a living. If you are looking for your tax preparer to provide you with CFO services or to keep your books and financial reporting in great shape, you are probably looking in the wrong place.

My point is not at all to denigrate CPAs. They provide valuable services. There are very thoughtful CPAs out there who make very meaningful contributions to the financial success of their clients’ businesses. However, one must understand there is a huge difference between preparing tax returns and advising on tax matters on one hand and managing the accounting and financial performance of a business on the other hand. It is not reasonable to expect your CPA to be both a great tax advisor and a great CFO. Part of my purpose in writing this book is to better equip those CPAs who wish to expand their financial advisory services to be better able to advise their clients on financial management.

How Much of the Finance Stack You Should Have?

This can be a hard question for small business owners to answer if they have never worked in a company with exposure to a more complete Finance Stack to understand what that looks like and how it benefits the company.

First think back to your business objectives, your Why from Step 1. Then consider the results of Step 2: how well your current financial condition and performance align with your business objectives. If you are receiving regular, accurate monthly financial reports that you are confident show the business pacing on track to achieve your business objectives, then you may not need to make a change to your Finance Stack. You still might benefit from beefing up your Stack to improve performance, but you would be making that investment from a position of strength.

If unfortunately, like too many business owners, you are not receiving regular, accurate, insightful financial reporting, and the reporting you do receive shows performance that is not aligned with your business objectives, then you need to make a change to your Finance Stack. There are two kinds of changes:

  1. Keep the current components of your Stack but replace the people in those functions with people who can better perform those functions. For example, if you employ a controller and are trying to close the books on a monthly basis and failing to do so, then you may need a new controller.
  2. Add more higher-level components to your Stack. For example, if you have a bookkeeper or accountant doing a good job with accounting and basic financial reporting, but you want budgeting, forecasting, and metrics, then you may need a Controller or CFO.

You could ask yourself these questions:

  • Do financial statements accurately reflect the performance of the business?
  • Do the financial statements reflect an appropriate level of GAAP based on the objectives of the business?
  • Is there a reporting package that provides more complete insight into performance beyond just the financial statements?
  • This often includes actual vs budget analysis, forecasts, and metrics.
  • Do systems and processes run efficiently, consistently, and accurately?
  • Are there internal control to prevent mistakes and fraud?

If you can’t answer these questions yourself with a high degree of confidence, then it may be worth bringing in an interim or project-based CFO to assess your Finance Stack against your
business objectives.

You may not think you need every component of the Finance Stack. I would love for you to have them, don’t get me wrong. But I accept the reality that for some small business owners, their business objectives do not require a full, robust Finance Stack, or at least not now.

Upgrading your Finance Stack may seem to be a very expensive proposition. I challenge you, however, to consider all benefits and expenses. A skilled solution will:

  • Be on top of customer billing and collection to accelerate cash flow and minimize bad debt.
  • Be largely self-managed so you can focus your valuable time on growing your business and not micromanaging your bookkeeper or accountant.
  • Provide timely and accurate financial reporting and metrics so you have actionable information to run your business.
  • Keep your books in order for prompt annual tax returns, with the opportunity to do tax planning during the year. Good books also eliminate the cost of your CPA firm billing you thousands of dollars to clean up messy books at tax time.
  • Enforce internal controls to avoid fraud

At one of my prior companies, we had a CPA with an MBA from Harvard Business School as our Controller plus me as CFO while we were doing around $5 million in annual revenue. That was an expensive finance department. Yet, we were driving financial performance to optimize pricing and client profitability, empower department-level P&L management,
minimize credit risk, forecast accurately, align hiring with capacity needs, set proper budget targets, etc. All of this enabled the company to operate at the high end of the range of its historic profit margins.

We more than paid for ourselves. After we were acquired by a big public company, the natural tendency to “minimize overhead costs” and “realize centralized economies of scale” from the parent company took hold. Soon my Controller and I lost power, were transitioned out, financial optimization came to an end, and profitability dropped in half. Yes, the company spent fewer dollars on accounting and financial management and the G&A as a percentage of revenue metric looked better. However, G&A as a percentage of profit looked a lot worse. The takeaway is unless the CEO or COO are skilled P&L managers, a small business needs a strong Finance Stack if it intends to have strong financial performance.

Learn more about the Finance Stack and how your business can implement its own version by downloading our free infographic.