When Does Your Business Need a CFO?

Bookkeeping is one of the first services that businesses outsource or hire for. Time running the business is too valuable to spend it recording transactions and running reports. A bookkeeper records your transactions, provides you with regular financial reports, etc., etc. All important tasks for running your day-to-day. Planning for growth or other long term business decisions requires analytical and management skills that focus on the broader view, not the day-to-day.

A Chief Financial Officer, or CFO, provides the analysis and financial direction that businesses need to get to the next level. Most small businesses can’t afford a fulltime CFO, but can afford to engage a CPA firm or financial consultant to perform the CFO role for a few hours a month. A part time CFO is a business investment in sustaining and growing your business.

Businesses need a CFO when:

  • Cash Flow Projections Aren’t Reliable

Knowing how much cash is available to run and invest in your business is crucial to keeping your doors open. Dire and expensive surprises happen to businesses that aren’t confident about their bank balances, revenues coming in, and payments going out. If monthly cash flow looks nothing like your cash projections, a CFO can establish a cash flow process that provides useful results based on reliable information.

  •  Budgeting is Ad Hoc or Doesn’t Happen

A budget articulates the financial resources needed to deliver your services or product, maintain your infrastructure, and invest in growth or improvements. It should be zero-based, or “built from scratch” to identify the cost of the resources needed for each budget category. For example, determine how many staff is needed to meet operational objectives and the “fully loaded” cost of each staff member. A CFO can help you build a budget that effectively addresses all applicable costs and revenues.

  • Prices Aren’t Covering Costs

Charging the same price as the competition might work for the other guy, but if it doesn’t cover your costs you won’t be in business for long. Pricing your service or product requires knowing your costs and understanding the value that distinguishes your business from that “other guy”. A CFO can examine your costs, identify the fixed, variable, direct and indirect cost components, and advise you on pricing and profit margins.

A CFO’s skill set and experience focus on the analysis, planning and management required to make higher-level financial decisions needed to get to the next level. Whether it’s growth, innovation, or sustainability, a CFO can provide insights and perspective to help achieve your financial and operational objectives. Getting a CFO is a business investment that pays you back over and over again, as your business launches to the next level.

Is Your Best Performer a Risk?

It’s happened again. Another news headline where you shake your head, wondering how the Board of a large organization could ignore reports that the CEO was sexually harassing and retaliating against female employees? The CBS debacle may be extreme, but it’s a clear example of leaders ignoring bad news about their best performer.

Les Moonvas was responsible for catapulting CBS from third to first in the network ratings and making a lot of money for shareholders. The argument against looking into allegations of his inappropriate, or even illegal, behavior seems compelling with so much money at stake. Could something similar be happening in your organization?

Ignoring that rules are being bent or broken, even by your best performer, costs your organization money and reputation. At the very least, it communicates to all your workers that inappropriate, or even illegal, behavior is tolerated and will not be stopped by leadership. That’s a very dangerous message to send. Some of your workers will take advantage of the situation. Others who cannot tolerate a lax ethical environment will leave.

Organizations have three weapons to avoid financial or reputational risk from unethical, inappropriate behavior:

  1. Codes of Ethics, Policies, and Procedures

People don’t do the right thing just because you have expectations written down in your policies, procedures and codes of ethics. But if expectations aren’t written down, people can’t be held accountable for knowing what they are. Monitoring and enforcement are essential for documented procedures to be effective. Above all, leadership must set an example and a tone that inappropriate behavior and acts will not be tolerated.

  1. Organizational Structures and Defined Roles and Responsibilities

Reporting relationships and defined oversight roles within your organization must be set up to ensure that independent reviews and approvals can be established. One person with too much unchecked control over a contract, transaction, or other financial decision could commit fraud by misdirecting funds or altering key information. Review and approval roles can be configured in systems, such as payments and payroll, to control the activity.

  1. Compensation and Other Incentive-Based Policies

Commissions and other performance-based pay programs are intended to reward workers for achieving specified goals. Those intentions can end up backfiring and giving workers the incentive to pad their numbers or reverse a transaction after the commission is paid. Designing policies that do not incent dishonest behavior and system controls that prevent or alert a manager about certain activities can safeguard your organization from fraud.

Don’t ignore the warning signs that a worker is a risk to your organization, even if that person is your best performer. Learn from the mistakes of others…use these three weapons to avoid the cost and reputational embarrassment that comes from ignoring allegations of inappropriate, or even illegal, behavior.

 

Small Business Retirement Options

The Trump Administration recently announced new rules so small businesses can work together to establish employee retirement plans. Sounds like a nice plan, but small businesses don’t need to wait for new rules for to save for retirement and reduce taxes.

What?! That’s right! Existing tax rules provide several retirement plan options for small businesses. Some of the plans are easy to set up and inexpensive to manage. Your existing bank, mutual fund service representative, or financial advisor can help you get started.

Three types of retirement plans that small businesses should consider:

  • SEP IRA (Simplified Employee Pension Individual Retirement Arrangement)

A business of any size, even self-employed individuals with no employees, can establish a SEP. A SEP IRA has no set-up or operating costs and does not require any annual filing. The employer (or self-employed person) contributes up to 25 percent of each employee’s pay to a separate SEP-IRA account established for each eligible worker. Participant loans are not allowed. The 2018 contribution limit is $55,000.

  • SIMPLE IRA (Savings Incentive Match PLan for Employees)

A SIMPLE IRA is also easy to set-up, has no start-up or operating costs, and no annual filing requirement. Any small business can set one up, but the employer cannot have any other retirement plan. The employee contribution limit is $12,500 in 2018. The employer is required to make annual contributions of 3% compensation match or 2% non-elective contribution for each eligible employee/self-employed person.

  • 401(k) Plan

Businesses other the self-employed (e.g., Sub S or partnership) can set up a 401(k) qualified profit-sharing plan, named for the Internal Revenue Code section. A 401(k) allows employees to contribute a percentage of wages to individual accounts using elective deductions from their paychecks/taxable income. Employers can also contribute. Administrative costs for a 401(k) are fairly significant due to the plan’s complexity.

Saving for retirement and lowering your tax bill at the same time knocks two important items from your “To Do” List. No need to wait for the White House and Congress to act. You can get started now.

These are only three of the many available retirement plan options, based on your business type. Want to know more? Check out “Help with Choosing a Retirement Plan” on the IRS website at https://www.irs.gov/retirement-plans/help-with-choosing-a-retirement-plan.

Two Ways to Avoid Vendor Fraud

As a business owner or non-profit leader, you can’t do everything and you usually don’t have the budget to hire employees with the right skills. Outsourcing to a vendor on an “as needed” basis is often the answer. Help is great but is has to be the right help. So how do you protect your organization from the wrong vendor, especially one who is unscrupulous, and can cost you time, money and reputation? Do your homework and pay attention.

The concept of “set it and forget it” might work sometimes for cooking, but it doesn’t work for outsourcing to vendors. Not paying attention to a vendor relationship once the agreement is signed signals that you might not be looking at his or her invoices or performance. Lack of oversight can be tempting for vendors who are experiencing financial or workforce stresses to cut corners (or pad expenses) on your account.
Getting fleeced when you need help is a double whammy. Technically, it’s vendor fraud. The two main ways that organizations can avoid vendor fraud are:

  1. Do Your Homework

Research the backgrounds of companies bidding on your work to verify ownership and qualifications, including key employees. References are great but don’t hesitate to dig in to learn for yourself. Request, obtain and review related documentation.
Conduct face-to-face meetings with the vendor to ensure they are valid, licensed, have real employees, etc. Also check your organization’s contracting procedures and vendor records to avoid engaging a vendor or his/her affiliate that did not perform well for your organization in the past.

  1. Pay Attention

Monitor vendor performance for quality, completeness, and timeliness of expected work and its documentation, based on your written agreement. Inspect or review work periodically and require interim progress reporting.

Verify invoices against the written agreement to avoid and detect duplicate, overbilled, and other fraudulent practices. Require support documentation to substantiate the invoice. Don’t overlook lower priced, repeating items. These small-dollar items are often dismissed as not worth the review time, which presents an opportunity for vendor fraud.
Doing your homework and paying attention cost time and money. But all that could be a lot less expensive than engaging an unscrupulous vendor who costs your organization its time, money and reputation. Even better, engaging the right vendor will meet your needs and expand your opportunities.