Who Are the People in Your (Finance) Neighborhood

So, those of you who grew up with Sesame Street might remember the classic sketch “Who are the People in Your Neighborhood”, in which friendly Sesame Street adults took us on a musical tour of the neighborhood, and introduced us to local professions. We met teachers, librarians, nurses and the like.

We never met accountants.

Total. Educational. Fail.

To correct this, today I present to you “Who are the People in Your Neighborhood—Finance Edition”.  Please note that my focus here is on small companies and/ or startups, and the specific functions and services they tend to need.  For example, a multinational company may have accountants that provide internal audit function, SOX compliance work and other roles which are less likely to be relevant to a company just starting out.

Who they are and what they do

Role What they do
Bookkeeper You know that massive, messy pile of bank statements, credit card statements, sale invoices and receipts, supplier invoices, check copies, travel reports, purchase receipts and myriad other financial and admin stuff that is growing like a monstrous, deranged fungus on your desk? Of course you do—you have nightmares about it in which it chases you around the office with a binder and dares you to organize it. 🙁 A good bookkeeper will take that puppy, smack it down and enter it into various accounting software programs where it will be magically transformed into information that can be used for your balance sheets and profit and loss.  All of a sudden, you will be able to look at a single piece of paper and know:

  • exactly how much money you have (or had at any given moment in time);
  • exactly how much you owe (or owed) to any given supplier and just what they allegedly did to earn that money;
  • how much each customer owes (or owed) to you;
  • how much you have in fixed assets and depreciation on each item;
  • how much you have earned, when you earned it, and from what;
  • how much you have spent, when you spent it, and on what;
  • …and much, much more!

In short, bookkeepers create and maintain your ongoing financial records. And yes, they will also organize the pile into lovely, organized binders for future reference.

Bookkeepers will generally also take care of tracking your VAT balances and withholding tax obligations, preparing your VAT submissions, calculating the tax you need to withhold at source from suppliers and other similar items. You may also use them for other tasks, such as compiling lists of suppliers to be paid when you are setting up your payment run, or creating invoices to be issued to customers. Alternatively, you may choose to manage either or both of these tasks in-house (more on that below).

Many technical aspects of bookkeeping in Israel are subject to regulations set by the Israel Tax Authority. As such, it’s expected that a bookkeeper receive formal training to learn how to keep books properly and pass certification exams.  There are three basic certification levels, with an additional higher level of “miduplam”, or “Qualified”. Think of the latter as the rough finance equivalent of a nurse practitioner.

Payroll controller These are the folks who make sure that you are paying your employees the right amount, on time.  They are responsible for calculating payroll and related costs (e.g. National Insurance, pension obligations, etc.) and benefits (e.g. vacation days or recreation pay). Their role will generally also include preparation of employee payslips, reports for pension funds, relevant management and accounting reports (e.g. vacation) and preparation and submission of related reports to local authorities (e.g. tax, National Insurance, etc.).  A good payroll controller will also be familiar with relevant employment laws and employee tax, National Insurance (or the local equivalent), pension and employee benefit matters and will be able to provide guidance to the company in those areas.

In certain countries, including Israel, this role is one requiring certification (or, at least, it’s much easier to find a position with certification than without it).

To learn how to work effectively with your payroll controller, see here.

Accountant Not that I’m the slightest bit biased, but, honestly, accountants rock.  We accountants do so many things!

On the most basic level your accountant is responsible for taking all of the financial records and reports created by the bookkeeper and payroll controller, transforming them into financial statements and then reviewing the statements (and the underlying records and reports) to make sure they are accurate, compliant with accounting standards and with relevant tax regulations and other laws, and so on. They also prepare and issue required periodic tax submissions and your annual tax return, and will deal with the tax authority on your behalf so you (thank G-d) do not have to.

But there is a lot more than basic.  Most importantly for you, accountants also provide management services.  Some particularly relevant examples….

  • Budget creation and management.
  • Analysis of your financial statements (e.g. ratio review or comparison to the budget or to prior periods) and providing you with management suggestions based on their findings.
  • Helping you to set up processes to manage the financial and administrative areas of your business.  For example, this article was written based on advice I gave to a startup that wanted to maintain control over the finance and administrative ends of their business as they grew.
  • Foreign currency management.
  • Tax planning and tax exposure management (which includes questions like “should I open up a subsidiary in Country X or should I just use a distributor to sell there”).
Auditor Performs the annual audit of the company and creates audited financial statements. For more on these, see here.

Additional roles

Even if you outsource all of the finance tasks I listed above, certain tasks are often better managed internally.  Someone sitting in a far-off accountant’s office won’t have the inside, up-to-date knowledge to manage these tasks in a timely and efficient basis.

Role What they do
Customer accounts manager Manages the financial end of your customer relationships.  This includes tasks such as: setting up new customers and orders in your system; arranging to have your company set up as a vendor in the customer system; collecting information on how invoices are to be issued to each customer (which can vary massively); tracking sales and issuing invoices in accordance with the sale terms; and collections of amounts due.

Why in-house?  An in-house person is going to be familiar with the company’s product line and process.  They’ll also get to know your customers, and can develop ongoing relationships with customer finance teams and learn each customer’s organizational quirks.  All of this together creates a more efficient invoicing and collection process.  Bottom line: you get your money faster!

Vendor accounts manager Manages the financial end of your supplier relationships.  This includes tasks such as: setting up new vendors in your system; ensuring that all invoices received are correct and following up with vendors if they are not, tracking open invoices and selecting invoices to be paid in that month’s payment run.

Why in-house? Here as well, that familiarity with a company’s product line and processes can come in handy.  They know which member of your team is able to review and approve what invoice and can chase down that approval.  Ongoing review of invoices will also give them some ability to sniff out if something is wrong, such as a charge that makes no sense given what your company does and how it operates, an invoice for the wrong amount or a duplicate invoice.

It’s worth noting that, in particular if your Company is small and the volume isn’t huge, you probably don’t have to go to the trouble of hiring someone full-time just to do the in-house tasks.  If you have a team member who has great organizational skills, a feel for numbers, a healthy dose of common sense and isn’t afraid of calling people up and demanding payment :), you can probably assign these roles to them. They may need a bit of handholding from your accountant or bookkeeper at the start, to walk them through VAT or sales tax issues. Alternatively, you could bring in someone experienced, but on a part-time basis.

Where do I get all this?

Each of the above roles, save for auditors, can be in-house or outsourced, and can be hired as a standalone consultant or via an accounting firm. For example, in my company, at one time our Israeli bookkeeping and payroll preparation was outsourced to a consultant that came in once a week. Today these are fully in-house.  Our UK bookkeeping is in-house, but the payroll preparation and VAT reports are outsourced to a UK accounting firm.  In another company I work for, everything is outsourced. I provide CFO services (aka accounting stuff) as an outsource consultant and the payroll, bookkeeping, additional accounting and tax services and annual audit are provided by local accounting firms.

Your auditors can only be outsourced.  If you are already outsourcing your accounting work, they will generally do the audit as well.    Startups receiving investor funding, however, are often required to receive audit services from a firm of the investors’ choosing, frequently one the “Big Four” accounting firms or another similarly large firm.  These generally do not provide day-to-day accounting services.  In this case, your accountant will do the day-to-day stuff, will prepare the financial statements and will then send these over to the auditors for the audit and tax return preparation.

Another point of note is that it’s quite common to find that an individual will wear more than one hat.  Your bookkeeper may also be qualified as a payroll controller.  An accountant may do both your financial statements and corporate tax return or might specialize in one or the other. You might find a sole practitioner who does pretty much everything themselves, from A to Z.

You don’t ask, you don’t get!

Once you know the roles you want to fill, the next stage is to find the folks to fill them. Here, you want to bear in mind that specific services and skill sets are going to vary from person to person and practice to practice. Accounting Practice A might offer budget development services and assistance in preparing investment decks while Practice B might stick to payroll, bookkeeping, tax and financial reporting. One practice might specialize in earlier stage companies requiring more hand-holding; another might avoid those types of companies as too high-maintenance.

As such, it’s simply critical that (1) you identify what you need and (2) that you do so before you meet with any potential service provides. What I’m talking about here is far beyond “I need bookkeeping” or “I need accounting”. Maybe you prefer to conduct financial discussions in English, or your company operates internationally and most of your purchase and sale documents are in English.  So you might need a bookkeeper who is fully proficient in English.  Maybe you export a lot of products to the EU and prefer a firm that has experience with import/export companies. Maybe you are tired of not understanding your financial statements or tax returns and want someone who takes time to explain what each number is.  Maybe your company is made up of an Israeli parent and US subsidiary and you want a firm that can handle both sets of books.  No matter what services or skill sets you need, the key to getting what you want, how you want it, is to first identify what those needs are. Really—sit down and make up a list.  As you interview firms or service providers ask them “we need A, B & C—can you meet our needs?”  If they can, great! If not, it’s not a good match.  It’s also a good idea to touch base with other companies with similar needs and ask them with whom they work (and with whom they don’t) and why.