SMB Structuring – The CPA Myth

The contrasts between large and small businesses are striking. By large, I refer to the range of companies from Fortune 500 down to middle market; by small, I mean small-to-medium-sized companies (SMBs) that typically have less than $20 million annual sales and less than 100 employees. On the surface, large and small seem readily comparable—both include basic business functions such as sales & marketing, operations, human resources, and finance.  However, the ability to staff each area with high-quality talent often varies considerably.  Large companies recognize a need for a variety of talent and they use their much larger budgets to pay for that talent. In contrast, SMB business owners with more limited budgets don’t always recognize the need to staff themselves adequately from a finance perspective.  They are too busy running their businesses.  Customers must be acquired and their needs met.  Products or services are manufactured and delivered.  Bills are paid. In most SMBs, the budget for senior management is usually spent in sales & marketing and operations functions and NOT on a highly compensated finance resource.

Under these premises, many SMBs begin making fundamental mistakes with respect to how they structure their finance departments. Mistake number one is to hire underwhelming talent. Mistake number two is to ignore one or more finance disciplines in the hiring process.  The four basic finance disciplines include strategic finance, compliance services, controllership / bookkeeping, and business process design.  Each takes years of training to master. The typical SMB retains a CPA firm to perform compliance tasks and some level of bookkeeping talent is employed to manage company records.  The strategic finance and business process design disciplines are often overlooked.

Often these finance staffs carry glorified titles like Controller or VP of Finance, but the titles don’t really reflect the nature of work being performed. The books are kept from a transactional level—customer invoices are being generated, deposits made, AP invoices received, and payments made-but no one is really thinking about what to do with that information on a strategic level. By strategic, we mean the level of information that contributes to financial decision making for the purposes of optimizing cash flow and improving profit. It is difficult to attract the right kind of finance talent into SMBs. Think about it. If you were graduating from college with an accounting degree, wouldn’t you rather choose to work for a large accounting firm with an ample training budget and promotion opportunities instead of working for a small company with a limited budget and advancement opportunities? So the status quo for SMBs is to attract underwhelming finance talent, oversee that talent with a management team that does not understand what to expect from their finance department, and plod along hoping everything will be okay.

Here is where the CPA myth comes into play. Business owners often mistakenly assume their CPA (who is fully qualified to handle compliance items) is also watching out for them from a performance perspective. The thought process goes something like this: “I don’t have time to look at my financial statements – that’s what my CPA is doing. If something ever goes wrong, he / she will tell me about it and help me resolve it.” However, that conversation rarely—if ever—happens. Most CPA firms in the SMB world are not in the business of selling consulting services outside of tax compliance and assurance (compilation / review / audit).

As a result of hiring underwhelming talent, overlooking critical competencies, and unrealistically relying on a CPA firm to stand guard, the business owner is left with a business that accumulates problems and has no effective means to address those problems.  In later blogs, we will address methods that SMBs can use to staff themselves with adequate talent while protecting their budgets.

Have you found businesses that are poorly staffed from a finance perspective? How do SMBs with limited budgets attract high-quality finance talent?  We would love to hear your ideas.


Transforming the Healthcare Landscape

While increasing economic alignment between hospitals and physicians is a reality of the marketplace, most hospitals have yet to achieve broad alignment across their physician base. With the current national emphasis on healthcare reform and significant changes in reimbursement on the horizon, there is both a compelling need and a tremendous opportunity for healthcare organizations wishing to close their remaining alignment gap as rapidly as possible.

According to a nationwide survey of healthcare senior executives, a key determinant of success for hospitals and health systems is physician alignment.  A high level of alignment between physicians and healthcare leaders implies:

  • Common understanding of mission and vision
  • A highly adaptive and transformative culture
  • Agreement of key goals and objectives
  • Consensus on critical priorities
  • Willingness to focus energy on those priorities

Alignment as defined has been difficult to achieve given the increasing time demands and financial performance pressures placed on all parties.  But, it is certainly worth the time and effort as the survey findings indicate:

  • The better the alignment, the higher the revenues and the lower the costs.
  • The most important alignment indicator leading to revenue growth is physician involvement in strategic decision making.
  • Hospitals and health networks with above-average alignment claimed 13% positive impact on annual revenue growth year over year.
  • Sixty percent of respondents felt their physicians were not sufficiently aligned with the institution regarding clinical quality.
  • The top three priorities for hospitals and health systems as focus areas for improved alignment are: clinical quality, utilization management and service line excellence.

Many factors go into aligning hospitals and physicians.  Six key areas of alignment are:

  1.   Recent trend in relations between a hospital and its physicians – Hospitals scoring well in this area already have a culture of cooperation that lends itself to higher overall performance.
  2.   Current state of alignment – A closely aligned hospital-physician team has shared goals, understands what actions must be taken to achieve those goals, and works toward them with clearly defined metrics which enable them to track progress.
  3.   Status of a formal alignment plan – Successful hospital-physician alignment does not happen by accident and requires a formal plan in place.  While the elements of an alignment plan may vary considerably from one organization to another, there are several elements important to any successful plan.
  4.   Physician involvement in strategic decision making – The need for physicians and hospital executives to work collaboratively is hardly new.  Although every market is different, there is a fast growing trend to more economic alignment among hospitals and physicians.
  5.   Physician engagement in care improvement programs that support clinical quality, patient safety, and efficiency – The demand for better coordination of patient care requires re-engineered clinical and operational processes that require a level of commitment that cannot be achieved without well-conceived strategies to address culture transformation and enhanced alignment.
  6.    Degree to which referrals stay within the hospital or system – If physicians refer or take patients outside the system, it can often be a reflection of physician frustration and should be viewed as an opportunity to focus attention on areas where improvement may be needed.

Hospitals and health systems embarking on major initiatives will benefit greatly from careful consideration of physician alignment and the cultural dimensions of transformation—both early in the planning process and throughout the life of the initiative.  I believe that those organizations that most effectively address alignment and culture are likely to be most successful in the execution of such initiatives.  What are your thoughts?