The CFO-for-Hire role is a high level service that goes beyond accounting and bookkeeping. Three cornertstones of this role are: financial reporting and analysis, cash flow, and taxation. To succeed, the CFO-for-Hire needs a diverse background that includes accounting, tax, general business knowledge, and technology. These skills aren’t learned in College, or by doing 1120S returns for 10 years. There is no CPE (that I’m aware of). It takes a combination of formal education, self-education, diverse work experience, and determination.
Financial reporting and analysis
Generating accurate financial statements is important, but real value is added by translating financial information into meaningful, actionable items. A few examples:
- What accounting framework makes sense for internal use & interim financials (often small business uses an OCBOA framework that resembles modified-cash-basis, with some exceptions)?
- How does this OCBOA framework reconcile to cash on hand and the Statement of Cash Flows? How does this effect reasonable compensation, shareholder loans, and distributions (in the case of S-Corporations). How do I explain to management where all the cash went?
- Custom reports requested by management, for example unpaid vendors by job or inventory turns by product. Further analysis on these reports is always required.
- Why is this vendor under deposited? If this cash was used elsewhere, where, and what caused the shortage?
- How does this product’s turn compare to prior periods? Why the variance? Why did sales volume decrease with a particular customer? Does the customer have a new purchasing agent, change in terms?
- What does net income look like YTD and annualized for tax planning use? Vs. the prior year? Variance analysis?
- A comprehensive review of expenses such bank fees, merchant fees, insurance costs, telephone for reasonableness and other cost-effective options.
There is no go-to method for the above. Only careful analysis of detailed activity and conversations with management can the CFO-For-Hire determine the best strategy. Management still makes all decisions, but can be confident they have and understand all relevant financial information.
Small businesses’ top concern is cash flow. The traditional accountant is looking at the prior year for Audit or Tax purposes, and is not in a position to assist with cash flow. When a client does reach out for help, it’s too late. The time needed for the external Accountant to get up to speed is too much. The CFO-For-Hire understands Company operations, is familiar with the detailed, day to day activity, and has found his rhythm working with management on an ongoing basis. The CFO-For-Hire is in a position to provide timely and comprehensive answers. Crucial cash flow items include:
- Cash inflow: revenue patterns, contracts in force, collection efforts, early payment incentives, future capital investments, loans from stakeholders, short and long term borrowings.
- Cash outflow: Historical expense activity, payroll, float time on disbursements, debt and debt consolidation options, often volatile fees such as bank fees, merchant fees, payroll fees, retirement plan fees.
With this information a projection of cashflow can be made, highly customized to the client. I’ve found that isolating the profit in this projection, and scheduling the inflow of profit on a weekly or monthly basis particularly helpful for projecting cash on hand. Add to this an overhead budget and you know the where and when on your cashflow.
The 3rd cornerstone is taxation. Tax planning based off a Bookkeeper’s 6/30/XX financials is productive, but not nearly as effective as when done by the CFO-For-Hire. High level tax planning done by the CFO-For-Hire before major decisions are made allows for a range of options to be considered, and all pro’s & con’s to be evaluated. Specific examples include:
- Planning for fixed asset purchases – depreciation consequences including 179, 179 phase out, bonus on new purchases, state 179 limitations, AMT adjustments, constructed assets and date placed in service.
- Inventory – stock levels, valuation options, write downs, 263A adjustments.
- Reasonable compensation issues including wage & bonus amounts, distribution levels, and loans to shareholders.
- Income projections at the business & individual level.
- Reviewing qualified plan options at the entity level, and corresponding options at the individual level
- Recommend applicable deductions & credits such as Domestic Production Activities Dedication, R&D credit, health insurance credit, etc.
- Interface with & review 3rd party tax preparation (often firms retain their outside preparer as they’ve had a long standing relationship)
Financial reporting and analysis, cash flow projections, and taxation are the three cornerstones, and also the most frequently requested services of the CFO-For-Hire. However the work doesn’t end there. Other common issues include multi-entity setups, software & technology, inventory management, personal finances, Qualified Plans, Federal & State Compliance, and countless more.