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.

What to Expect from your Bookkeeper

Outsourcing your bookkeeping is one of the best decisions you can make as a business owner. Your time is too valuable to spend it recording transactions and running reports. Engaging a qualified professional lets you spend more time developing new business and planning for the future.

 

You are depending on your bookkeeper to provide complete and accurate financial information so you can make good business decisions. How do you make sure that’s what you get? By setting expectations. Sounds simple, but articulating expectations is the best way to get things done the way you want them.

 

Set expectations for your bookkeeper in these four areas to get the results that you need:

 

  1. Standard Tasks
  • Clarify the tasks and basic skills necessary to meet your needs, such as using accounting systems, analyzing accounting records for errors, and reconciling financial activity.
  • Establish a schedule for monthly financial statements and other reporting needed to manage your business.

 

  1. Critical Thinking
  • You need someone who can focus on the little things and understand how they work together. She or he must be a problem solver, gathering information and developing solutions.
  • Make it clear that projects and tasks must be logically prioritized and followed through to completion. Deadlines must be met.

 

  1. Two-Way Communication
    • If something is not understood, she or he has to be willing to ask for clarification or help. Communication is critical; it is better for the finance person to ask questions, rather than guess.
    • You need a finance person who can handle day-to-day issues and who knows when to escalate an issue to you.

 

  1. Technical Proficiency
  • A 21st-century bookkeeper can conduct a majority of your financial business electronically, including working the bank and other third-party companies to pay bills and receive payments.
  • Your bookkeeping solution should be explaining and encouraging the use of technology to save time and money through process automation.

Getting the bookkeeping help you need starts with setting expectations. Then, you’ll be able to get complete and accurate financial information while focusing your time on building your business.

What is a Fiduciary?

A certain presidential candidate recently used the term “fiduciary” when referring to his personal income taxes. I was confused. Fiduciary responsibility is not about personal taxes or finances. It’s about the legal obligation to act in the best interest of another party or organization. It’s about keeping a promise to use funds for a specific purpose.

 

Other listeners were probably as confused as I was when hearing “fiduciary” in a personal finance context. Three facts about fiduciary responsibility should clear up that confusion:

 

  1. Obligation to Act on Others’ Behalf

A fiduciary relationship is based on mutual faith and confidence between the individual(s) placing and accepting legal responsibility to serve the best interests of others. That includes the interests of individuals or an organization. The duties of a fiduciary include loyalty and reasonable care of assets in custody.

 

  1. Relationship Extends to All Actions

A fiduciary relationship extends to every possible case in which one party places confidence in the other party and such confidence is accepted. Placing and accepting confidence creates dependence by one party and influence by the other. The fiduciary is trusted by the dependent party to act in its best interest at all times.

 

  1. Scrutiny of Fiduciary Actions

Financial transactions between parties involved in a fiduciary relationship are subject to higher scrutiny. The spotlight on these transactions is due to the fiduciary’s dominant role that provides the capacity to profit or otherwise gain from financial decisions at the expense of the party under her or his influence.

 

It’s no wonder that these three facts will never be included in any political speech. They’re pretty dry stuff. Regardless, understanding these facts is important, whether you are accepting or placing confidence as part of a fiduciary relationship.

 

Is the Home Office Deduction for You?

Do you use part of your home for your business? Questions about home office deductions come up all the time with new tax clients. The topic also came up at last month’s IRS Tax Forum in Washington, DC.

 

A home office deduction is a potential IRS “red flag” because of how often it is abused. IRS audits find some taxpayers who inflate home expenses or take a deduction that isn’t allowed. Home office audits were described at the IRS Tax Forum, and it didn’t sound like fun. IRS auditors come to your home and use a tape measure on your home office. For real!

 

So how do you follow the tax rules and avoid the tape measure? A home office deduction can be taken for:

 

  1. Regular and Exclusive Use

You must regularly use part of your home exclusively for conducting business. Generally, deductions for a home office are based on the percentage of your home devoted to business use. Keep in mind that the IRS is strict about exclusive use. That means no personal items in the home office. No shared spaces like hallways or bathrooms, either.

 

  1. Principal Place of Business

You must show that you use your home as your principal place of business. Your home office must be used to substantially and regularly conduct business, such as in-person meetings with patients, clients, or customers in the normal course of your business. It’s okay if you also carry on business at another location.

 

If you are an employee and you use a part of your home for business, you may qualify for a deduction for its business use. In addition to the tests discussed above, you must:

 

  1. Use the home office for the convenience of your employer, such as teleworking to reduce the employer’s real estate footprint. If you work at home to perform tasks around your personal schedule, a home office deduction is not allowed.

 

  1. Not rent any part of your home to your employer and use the rented portion to perform employee services for that employer.

 

If you qualify, the home office deduction can reduce your tax liability. Follow the rules and the IRS tape measure won’t stress you out.

NEED A MID-YEAR TAX CHECK-UP?

Anything you meant to do before Labor Day, but didn’t? Was one of those things checking your tax withholdings to avoid a nasty surprise when you file your 2016 tax returns? This year, more than before, it’s important to consider a mid-year tax withholding checkup.

 

Early tax filers who traditionally depend on getting their tax refunds early in the filing season could be disappointed in 2017. Several new factors implemented by the Internal Revenue Service to reduce identity theft and increase refund fraud protections could delay tax refunds, so it’s even more important than ever to perform a mid-year tax withholding checkup.

 

So what is changing?

 

  1. A new law effective in 2017 requires the IRS to hold refunds until at least February 15 for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC). The IRS holds the entire refund to provide time to detect and prevent refund fraud, not just even the portion associated with the EITC and ACTC.

 

  1. The IRS and state tax administrators continue to strengthen identity theft and refund fraud protections which means some tax returns could face additional review time next year to protect against fraud.

 

As in the past, the IRS will begin accepting and processing tax returns once the filing season begins. The IRS says that in spite of the new law and steps to prevent refund fraud, most refunds will still be issued within the normal 21-day timeframe after being accepted for processing.

 

All these changes mean it’s even more essential to check on your tax withholding and plan ahead for next tax season. It’s your personal choice whether you want to have extra money withheld to get a bigger tax refund. It’s great to know how long you’ll have to wait for that big refund “pay day.”

Tools to Get the Job Done

If you don’t have the right tools, jobs take longer and don’t turn out well. Those jobs often need fixing or re-doing later. It’s the same with people. Trying to get a job done without qualified, experienced people costs your organization more money and aggravation in the long run.

 

Think that lower compensation saves money? Think your budget isn’t big enough to invest in the people you really need? Think about it this way: What does it cost not to invest in knowledgeable and experienced people?

 

Organizations are exposed to five risks by not investing in the right people:

 

  1. Limited Capacity

People without the necessary skills require more supervision and are less familiar with the latest practices, systems, laws, and other areas. To grow or to stay competitive, organizations need people that keep up with changing conditions and new methods.

 

  1. Turnover

Unqualified hires often result in higher turnover. Hiring and training takes time. Vacancies put stress on the rest of your team. Time and stress are not expense items on your financial statement, but those costs are real.

 

  1. Higher Error Rate

Unqualified employees make more errors, which is time-consuming and expensive to correct. And that assumes the errors are detected; undetected errors create costs you cannot identify.

 

  1. Inefficiency

Experienced people know what to do and how to it because they’ve seen it before. They assess new situations quickly and accurately. Inexperienced people take more time because they are figuring it out as they go.

 

  1. Regulatory or Legal Compliance Issues

Employees who are unaware of compliance issues can harm the organization, increase costs, and tarnish reputations. Issues can range from industry-specific issues to general business concerns, such as taxes and payroll.

 

Getting the right people on your team isn’t easy, but it’s impossible if you don’t pay enough to attract and retain them. Considering the five risks of not investing in the right people can reduce the expense of making a cheap decision.

Are Moving Expenses Deductible?

After month of looking, you found your dream job! It’s everything you’ve always wanted. Only problem is that it’s located about 500 miles away. Moving is expensive. You heard somewhere that moving expenses are tax deductible. Is that true?

Moving expenses can be tax deductible for “reasonable” transportation, storage, and other relocation costs, other than meals. But the deduction is only allowed under specific circumstances when you experience a job-related home move.

Answering three important questions will help you determine whether your moving expenses are eligible income tax deductions:

Is the Move for Work or Business?

To be considered a deductible expense, your move must correspond with the timing and location of starting a new job or business. Moving expenses that are incurred within one year of starting that new job or business can be considered for the deduction, assuming other tests are satisfied.

Is New Work 50+ Miles from your Old Home?

Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.

Did You Work Enough Post-Move?

Also known as the “time test,” employees must work for 39 or more weeks during the 12-month post-move period to take advantage of the moving expense deduction. Entrepreneurs and owners must engage in their business for 39 or more weeks during the 12-month period.

The distance and time tests rules do not apply if you are a member of the Armed Forces and your move was due to a military order and permanent change of station. To claim moving deductions, file IRS Form 3903. Want more info? Check it out at http://bit.ly/2ca0HlW.

Your Budget: A Powerful Financial Tool

Your organization probably has a budget. But is that budget helping you increase income and control expenses? If not, you can use your budget as a powerful financial tool starting now! Here’s how:

 

Follow these three steps to make sure that your organization’s financial goals are being met all year long:

 

  1. Set Expectations Upfront

 

Define the process and expected outcomes from the budget comparison. Establish a formal financial oversight process stresses its importance and sets clear actions and time frames. At a minimum, a budget comparison should include an income statement and a balance sheet with current and prior year comparative data.

 

  1. Take Action to Stay on Course

 

It’s not necessary to review every financial line item. Only significant line items and budget variances should be reviewed in detail. Those areas require more action to get to the root cause of variances or unexpected results. Explaining the root cause often helps you identify the corrective action that is needed to stay on course and meet budget goals.

 

  1. Keep your Results in Mind

 

Stay laser focused on your business objectives while comparing your budget with actual financial activities. Documenting the review and resulting decisions and actions help to track progress throughout the year toward meeting financial goals and overall business objectives.

 

Regularly comparing the organization’s budget to actual financial activity is worth the time and effort. It helps organizations to determine whether budgeted financial goals are achieved and provides an opportunity to make any changes needed to stay on course.