So the main difference of a Virtual CFO is that there is a partnership with the business owner where the CFO is an advocate for growth and relieving the business owner of accounting and finance tasks that distract them from what makes them great.
Sometime with a bookkeeper or accountant will only enter the transactions or send you a tax return without explaining the information to you or help us the information to drive business decisions (ie pricing, margins, or when to hire or buy a piece of equipment).
Cash accounting is the easiest method. In that method income is recognized once payment is received and expenses are recognized when paid.
Accrual accounting gives you more flexibility through methods such as accruals to match up income and expenses so the are recognized for the same relevant activities. In this method income would be recognized when invoiced and at the end of the year/period you can accrue for the expenses that relate to that income.
I think ignoring the accounting and finances until tax time is a huge mistake. You should be looking at the P&L and Balance Sheet at-least quarterly but I like to do monthly with my clients.
With that said, it is also important that you make truthful financial statements by including accurate debt balances. Hiding credit cards or loans doesn't make them go away. Acknowledge the debt and make an intentional plan to solve the issues.
I am a huge proponent of cloud accounting because it creates interaction between the accountant and the business owner. So I primarily use Quickbooks Online (QBO) or Xero. I would describe QBO as the Dell and Xero as the Apple of accounting software.
I would encourage you to use cloud accounting and sync with your bank and software like shopVOX to fully integrate your various systems for timely and accurate information so you can make realistic business decisions.
Depending on how you envision the future will determine at business structure you should use.
An LLC is the simplest and the owner has full use of the cash once the tax is paid however the LLC income is subject to self-employment tax. If you are going to keep the company then I encourage an S Corp which allows you more flexibility.
An S Corp allows you to bypass the self employment tax on your net income as long as you pay yourself a "reasonable W2 wage".
If you plan on selling your company then a C Corp might be better since it transfers easier. The only problem is that to properly get money out of a C Corp you need to pay yourself W2 wages or declare dividends which are double taxed.
I think cash flow problems are the most common reason. This can stem from improper pricing, bad margins, excessive owner withdraws, and excessive debt financing.
On my business philosophy bookshelf, I have the following:
(Cash Flow Solution)
(Defining Goals & Teamwork)
Millionaire Next Door
(Defining What Success Is)
War of Art
(Overcoming Resistance & Failure)
It Doesn't Have to be Crazy at Work
(Stress Free Business Environment)
I like the Profit First system for small businesses since it is more behavioral by breaking out buckets with in several bank accounts by percentages.
Say you have an income account where the money comes in. Then you allocate that out to Expenses (50%), Tax (20%), Owner Pay (15%), Profit (15%).
Once allocated you start to build a self-sustaining system to cash flow your business by forcing you to pay your self and make a profit first by contracting and only allocating so much to expenses.
There are Federal tax credits along the lines of research and development in new products, opportunity zones (based on economically depressed areas) or renewable energy (Solar Panels, Wind Mills, or Geo-Thermal).
I also think there are state specific tax credits that are often missed such as a Kentucky credit that we used recently when a client bought a piece of equipment and the associated employee wages could applied for as a credit via a calculation. In that case, the client received a $14k tax credit to offset future state income tax.
I am a fan of automation as some invoices fall through the cracks in customer inboxes so reminders and automated chasers are key. This can be done through tools like Bill.com, InvoiceSherpa, and QuickBooks Online. I know that reminders can be set to go out each week or day overdue however you can tailor the message to meet your company's culture. High amounts of communication is key.
There are companies that will do the collections for you, however you might lose the customer relations you want. Also look to change your A/R policies like up front payment or 50% down until the customer qualifies for net 30 terms. Then have them complete a Net 30 form so it is official and everyone understands the rules of the game
I think that you definitely need to look at your structure keeping a S or C Corp in mind so that you protect more in tax aspects.
Also cash flow is important as you can get revenue rich but be cash poor through taking on too much debt during the growth. Try to balance organic growth with sustainable debt payments, however if you can grow via organic cash flow then you will be better off.
Lastly, take a set back now before the growth to lay the foundation by building the proper systems to scale (ie efficient A/R & A/P systems). Automate as much as possible through syncing your industry software and bank with your accounting systems either through your bookkeeper or accountant so that you can rise above the transactional aspects to make large decisions.
For example, on the A/P systems look at using Hubdoc to pull in the multitude of vendor invoices to sync with QBO, XERO, or Bill.com. Then use Bill.com to make efficient payments which sends the check or ACH then syncs with QBO or XERO. It makes the system paperless and efficiency.
Tyler A. Virgin, CPA, MBA, CGMA
Virgin Consulting LLC
My CPA journey is atypical which is how I would categorize my firm. After graduating from The Ohio State University, I became an Officer in the U.S. Army. During my years in the service, I learned countless invaluable leadership skills throughout multiple deployments to Afghanistan and Iraq. After completing my MBA, I discovered my passion for helping small business owners with cash flow, tax and accounting issues that distract business owners from enjoying their businesses and taking them to the next level.
As a Virtual CFO, there are two things that I have seen most small businesses struggle with: the "Cash is King" concept and protecting the Profit Margin.
After working evenings at a small-town CPA firm where I learned a tremendous amount across a broad spectrum, I became a CPA in 2012.
Additionally, I gained insurmountable experience in corporate finance while working my way up to the North American Financial Controller and traveling the world for an international educational company.
Subsequently, I have started my own firm known as Virgin Consulting LLC to help small businesses. Virgin Consulting LLC prides itself by providing tax and outsourced CFO services to small businesses.
Our CPA firm is veteran owned and deliberately small because we specialize in small town values accessible anywhere with clients across the United States.