FAQ

The modern-day CFO’s job is multifaceted and complex, taking on a variety of responsibilities depending on a company’s needs and growth stage. Essentially they’re accountable for anything that has a financial impact on a company from legal agreements to financial agreements.

Of course, a chief financial officer will complete a lot of foundational financial planning for your company, but where they really shine is in the five areas of analyzing data & giving insight, inter-departmental collaboration, process optimization, risk reduction, and prioritizing expansion opportunities.

For a full discussion of how hiring an outsource CFO can impact and improve your financial strategy, visit our blog.

Many have so eloquently referred to business valuation as part science and part art. This sentiment may be because as we mentioned earlier, business valuations can be used for a variety of reasons, and often the purpose behind the valuation guides the valuation itself. There are many approaches to business valuation, but we will focus on those used for bigger or more established companies including:

• Asset-Based Approach
• Market Approach
• Income Approach

To learn more about each type of business valuation, refer to our blog on the subject.

A 3-statement financial model takes the foundational financial statements of every company, the income statement, the balance sheet, and the cash flow statement, and integrates them into one dynamically connected financial forecast. Though there are more simplified financial models that use only one of these statements (your Profit & Loss / Income Statement), they often misrepresent the full financial picture of your company. The core result of using a full 3-statement financial model is that you will be able to conduct scenario planning and see an accurate picture of how changing your business model will not only impact your income statement and balance sheet but most importantly how that will impact your cash flow. For more on this topic, visit our blog.

If you will need to file your return late, and your tax day deadline has not passed, then file an extension as soon as possible and prepare to make your tax payment. This will allow you to avoid penalties and interest and will give you an extra 6 months to get your return together.

If your tax deadline has passed and you weren’t able to file an extension, then the best course of action is to prepare and file your tax return as soon as possible (in this case, an extension will no longer be accepted). The quicker you get your return to the IRS the fewer penalties and interest you will be subjected to. In this scenario, you will face both the late filing penalty and the late payment penalty and will begin accruing interest on both, but by getting your return filed and paid as quickly as possible you can mitigate your penalties as much as possible.

For more information, refer to this article.

There are two types of profitability ratios margin ratios and return ratios. Margin ratios help us measure how efficient a business is at turning its sales into profits and include:

• Gross Profit Margin (GPM)
• Operating Profit Margin (OPM)
• Net Profit Margin (NPM)

Return ratios represent the returns a business generates for its investors or shareholders and include:

• Return on Assets (ROA)
• Return on Equity (ROE)

We can’t explain profitability without first beginning with profit. Very crudely, profit is an absolute number depicting a company’s income or revenue less its expenses.

Profitability is closely related to profit, but it is a relative number instead of an absolute amount. Profitability is a measure of a business’s performance depicting the relationship between two absolute numbers.

For example, the gross profit margin of a company is its gross profit divided by its revenue and shown as a percentage. Similarly, the net profit margin of a company is its net profit divided by its revenue and is also shown as a percentage. Margins are a considerably easier way to see trends in performance and benchmark against industry averages. For more on this subject, refer to the article, “What Can Profitability Ratios Say About Your Business?“

Qualified business income is the net amount of income, gain, deduction, and loss from your business and can’t include the following items:

• Business income obtained outside the U.S
• Income from business investments
• W-2 income paid to an S-corp owner
• Guaranteed payments to a partner
• Capital gains or losses
• Dividends and dividend equivalents
• Non-business interest income

For an all-inclusive list, please refer to the IRS’s website. Or for more information about the qualified business income deduction (QBI), visit this article.

The qualified business income deduction (QBI) is a tax deduction that business owners and the self-employed can claim to deduct up to 20% of their qualified business income on their tax return. For the 2020 tax year, claimants must have taxable income under $163,300 for single filing or $326,600 for filing jointly to receive the full 20%. For the 2021 tax year, the limits will increase a small amount to $164,900 and $329,900 respectively. For more information refer to our article on the qualified business income deduction.

Serial entrepreneurs know that when it comes to accounting there is no room for bootstrapping and that a great outsourced accountant can be leveraged as a tool for scaling your small business and strengthening your company. The benefits of hiring an outsourced accounting firm are as follows:

1. Less Stress: Hiring an accountant takes the burden of following accounting best practices off your plate and places them on the shoulders of an expert.
2. More Time: Entrepreneurs don’t have a lot of time to spare, so hiring a firm to manage your accounting will cut hours spent in QuickBooks out of your schedule.
3. Time Off is No Big Deal: Outside of being a business owner you have responsibilities like taking care of your children or you may even like to take a vacation every now and then. Your accounting firm will never leave you hanging over the holidays or to sleep off a cold – they have staff around the clock to keep your finances in check.
4. They’re Experts: Some things can be let to DIY, like painting your office. But your business’s accounting tie to your ability to make sound business decisions and file your taxes correctly. Letting the professionals manage your accounting requirements is a good way to ensure that every i is dotted and every t is crossed.
5. Accuracy and Consistency: Small businesses have a small margin of error when it comes to their finances. Hiring a professional accountant will reduce the risk of mistakes and increase the credibility of your numbers. Allowing you the accuracy and consistency required to pass audits, meet GAAP compliance, and have great visibility into your financial data.

Learn more about how an outsourced accounting firm can help your business prosper including two more benefits in this article.

There are three main reasons tracking KPIs is important to your business and they are as follows.

1. It is difficult to know where to go if you don’t know where you’ve been and “what gets monitored gets managed” (thank you Peter Drucker). KPIs provide a roadmap. A lot of entrepreneurs blindly work day after day making ‘as many sales as they can’ and growing ‘as much as they can’ but if they’re not reviewing their roadmap and recording the targets they did and did not hit and understanding why or why not, then they can’t learn and evolve their business through intentional decisions.
2. Knowing your numbers helps you keep track of and stay laser-focused on the critical numbers of your organization (i.e. what is truly important to your business!) There’s a lot of ‘noise’ when you’re an entrepreneur but in reality, there are actually just a few really critical numbers and ratios that you need to keep track of to ensure your company succeeds.
3. While whole numbers such as the variance analysis between a business’s budget versus their actuals is useful, metrics like ratios and the relationship between those whole numbers is more insightful. There are already so many numbers an entrepreneur reviews on a daily basis and metrics are all about cutting through the noise.

Learn more about tracking KPIs including our four KPI rules to live by in our “Intro to Metrics and Four KPI Rules to Live By.”

Financial modeling allows you to prepare for “balancing the books” and manage the cash flow for your business. Building a financial model helps you achieve three things:

1. Awareness. You know the right questions to ask and have the right information to shape your business plan.
2. Plan, Execute & Monitor. Now that you know what to look for you can reshape your business plan for the better and create a cycle of monitoring and improvement.
3. Learn, Modify & Grow. You have a true foundation of understanding of your business to make awesome decisions, show its value, and encapsulate its value for others.

Far too many companies get caught up in building financial projections solely to raise capital and but there is so much more to the financial model’s purpose than this one function. Consider this, investors and employees will flock to a kickass company and a kickass company is one that understands its future and has a clear and believable game plan to get there.

To know your future is synonymous with building a financial model. If you’re only building a model to raise capital, people will see right through that, and without a model, you’ll be navigating blindly based on whatever strategy you feel is important on any given day. So should you build a financial model and continually reforecast it? The answer is a resounding yes!

Learn more about why building a financial model is integral to building a sustainable business in this article.

The US Small Business Administration has been helping startups and small businesses start, grow, expand, and recover since 1953 and one of their core services is the SBA loan program. The SBA doesn’t actually loan entrepreneurs funds, but what they do is guarantee loans issued by participating lenders, like traditional household name banking institutions such as Wells Fargo, Chase Bank, and Bank of America.

For a full discussion of the SBA loan program, visit our blog.

A bookkeeper records and classifies the financial transactions of a business through the single-entry or double-entry method and provides the information from which accounts are prepared. Typically, bookkeepers use cash basis accounting and perform tasks like assigning income and expenses to a named account in your accounting software, maintaining financial records, and posting transactions.

Learn more about the role of a bookkeeper and how they differ from accountants in “Do You Need a Bookkeeper or an Accountant?“

Accountants are bookkeepers on steroids! They apply wider, more sophisticated concepts (accrual accounting) to the more simple components of bookkeeping (cash basis accounting). They understand the rules and regulations of accounting and are often Certified Public Accountants (CPA). Accountants understand the importance of workflows, consistency in reporting, and creating a level of predictability within a company’s data.

Further, accountants dig into how the business runs its operations to define what is appropriate in its financial records. Compared to the simple art of bookkeeping, accountants level up the rigor of your procedures and hence the credibility of your numbers. To learn more about the specific responsibilities of an accountant and how they compare to a bookkeeper, read, “Do You Need a Bookkeeper or an Accountant?“

A controller is still an accountant (at heart), meaning they have the educational background and perform some accounting functions, but they do not fill the role of an accountant (keeping and analyzing financial records). They’re taking on the larger role of overseeing a firm’s accounting department and use their expertise to influence the financial strategy of a company and keep its financial data in tip-top shape.

Learn more about the role of the controller in the following blogs:

1. Do You Need a Controller or a CFO?
2. Do You Need an Accountant or a Controller?

According to the IRS, start-up costs are eligible to be taken as startup tax deductions if they fit into the categories of Creating a Business, Launching the Business, and Organization Costs. In addition, startup costs are amortizable over a 180 month (or 15 year) period if the costs meet these two criteria:

1. If you paid for or incurred the cost to operate an existing active trade or business in the same field / industry as the one you entered into and,
2. It is a cost you paid for or incurred before the day your active trade or business began.

For a full discussion on startup tax deductions, visit our blog.