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So, how does the diligent CEO evaluate his company’s finance and accounting functions? All too often, the CEO assigns a qualitative value based on the quantitative message. In other words, if the Controller delivers a positive, upbeat financial report, the CEO will have positive feelings toward the Controller. And if the Controller provides a bleak message, the CEO will negatively react to the person. Unfortunately, “shooting the messenger” is not at all uncommon.

The dangers inherent in this approach should be obvious. The Controller (or CFO, bookkeeper, whoever) may realize that to protect their career, they need to make the numbers look better than they are. They must draw attention away from negative matters and focus on positive values. This raises the probability that important issues won’t get the attention they deserve. It also increases the possibility that good people will be lost for the wrong reasons.

The CEOs of large public companies have a big advantage in evaluating the finance department’s performance. They have the audit committee of the board of directors, the auditors, the SEC, Wall Street analysts, and public shareholders giving them feedback. In smaller businesses, however, CEOs must develop their methods and processes to evaluate their financial managers’ performance.

Here are a few suggestions for the small business CEO:

Timely and Accurate Financial Reports

The chances are that you have been advised to insist on “timely and accurate” financial reports from your accounting group at some point in your career. Unfortunately, you are probably an excellent judge of what is timely, but you may not be nearly as good as what is accurate. Certainly, you don’t have the time to test the recording of transactions and verify the accuracy of reports, but there are some things that you can and should do.

• Insist that Regulator financial reports include comparisons of Market Finance over several periods. This will allow you to judge the consistency of recording and reporting transactions.
• Make sure that all anomalies are explained.
• Recurring expenses such as rent and utilities should be reported in the appropriate period. An explanation that – “there are two rents in April because we paid May early” – is unacceptable. The May rent should be reported as a May expense.
• Occasionally, ask to be reminded about the company’s policies for recording revenues, capitalizing costs, etc.

Beyond Monthly Financial Reports

You should expect to get information from your accounting and finance groups daily, not just when monthly financial reports are due. Some good examples are:

• Daily cash balance reports.
• Accounts receivable collection updates.
• Cash flow forecasts (cash requirements)
• Significant or unusual transactions.

Consistent Work Habits

We’ve all known people who took it easy for weeks, then pulled an all-nighter to meet a deadline. Such inconsistent work habits indicate that the individual is not attentive to processes. It also sharply raises the probability of errors in frantic last-minute activities.

Willingness to Be Controversial

As the CEO, you must make it very clear to the finance/accounting managers that you expect frank information and that they will not be victims of “shoot the messenger” thinking. Once that assurance is given, your financial managers should be an integral part of your company’s management team. They should not be reluctant to express their opinions and concerns to you or other department leaders.

We created Finance For Business Owners to help business owners, CEOs, and other non-financial managers gain a better perspective and understanding of the financial side of the business. With our affiliate, The Fidelis Consulting Group, we created a series of 10 – 15-minute presentations and short articles to help business leaders better understand financial issues and incorporate that understanding into their daily operations and strategic planning.