Many times, due to constraints with managing operations and cash flow, you sometimes find entrepreneurs and business owners trying to handle challenging issues by wearing many hats or by employing a family or friend to assist them. These constrains don’t always allow to hire the necessary expertise, so instead the owner often times will carry out the duties. But, what I have found is this, to be a train wreck waiting to happen.
This is fairly common when it comes to managing the accounting and finances of many businesses. I have seen owners with limited accounting and financial experience processing invoices and payroll on their own or sometimes delegating to the administrative assistant slash bookkeeper. What this does is what I consider bad accounting practices, bad inputs equals bad output. This happens quite often when the person inputting the data does not have enough time to devote to the accounting and finance duties to be effective or efficient and does not understand. This causes even more problems when you as the business owner cannot rely on the financial data from your accounting system and reports to make business decisions.
Tracking the transactions of your business can become complicated and timely, therefore utilizing an accounting software and hiring a trained bookkeeper is a good investment for any business owner. Equally important is managing the big picture money matters. Like determining whether or not it makes dollars and cents to start or discontinue a business segment or operation, laying off employees or reducing hours to manage downturns in the economy, cash-flow forecasting or setting up project management and billing systems to maintain operation and financial stability. The experience and expertise of a controller or chief financial officer (CFO), a person who understands the language of business with a head for numbers, is what the business needs, someone who can introduce alternative measures and strategies to help improve the business.
It is important to have someone who understands the balancing system of debits and credits and how the chart of accounts interact with both the balance sheet and profit and loss statement. Businesses are in need of more than just bookkeeping services, their in need of someone to guide them through and out of a financial crisis. A controller or CFO helps the CEO achieve the financial goals, a much bigger role than tracking receipts and checks. They also help connecting the business with the right resources and providing the right information for long range planning and decision making.
The average cost of hiring someone to fulfill these roles range from $79,250 to $465,750 per year, according to the 2015 Salary Guide by Robert Half International for Accounting and Finance.” The salary is dependent on many factors such as experience, location, market size and the industry you are in, and does not include bonuses, employment taxes and benefits. The solution and strategy is to consider sharing the cost of a controller or CFO by contracting one rather than hiring one. There are various fee structures depending on the needs of the business, which can be set with a monthly fixed fee or a flat rate fee by the hour for project base or more routine needs. Contracting with someone with the right experience and expertise for hire is a money saving alternative that will yield a return on your investment, and is significantly less costly than employing someone on a full time basis. On average, the rate per hour can range anywhere from $150 to $250 per hour or $2,500 to $6,000 per month, dealing with high level issues to less routine management issues such as preparing for a financial or compliance audit, tax audit, managing investors or debt financing plans.
Most entrepreneurs and business owners want to spend time working to improve their business to create value and enjoying the fruits of their labor. But, as the business grows, there’s a point in time when there is a need for the expertise of someone with a high level financial perspective to assist you in managing the complex issues, someone who can see the budget at work and to help you understand where the business is going, to make sense of it all. This also helps the CEO with a fresh perspective coming from someone with an objective and independent assessment and viewpoint. An outsourced controller or CFO can help you look at graphs and trends to better understand what has worked and what has not worked and to improve systems. For example, while working with one of our new contracts for controllership services, we recognized that the business had a loan that was not decreasing after being on the books for more than three years. After reviewing the loan documents and amortization schedule, we realized that the repayments over the past three years were all being recorded to interest expense and didn’t take into consideration any principal payment reductions. Therefore, we were quickly able to assist in adjusting the transactions and ultimately amending the federal income tax returns for the business due to the overstatement of interest expense. The CEO was thankful because not only did we improve the accuracy of the financial reports, we helped to find an error early on which saved the client from future tax, interest and penalties which would have come to play if the error would have been discovered later on by the IRS.
All entrepreneurs and business owners should have their books managed by a controller or CFO, to help motivate and guide the owner on how to manage their business. I on occasion, recommend reading, “Managing by the Numbers” by Chuck Kremer, which is a resourceful book to help business owners and entrepreneurs to provide insight on how to comprehend and improve their basic understanding of how to better run the financial side of their business. But reading alone is not enough, it is only a start, sometimes the best thing to do is to hire someone like a controller or CFO to help you make wise decisions on when to spend and when to sell. Consider hiring an outsourced controller or CFO on a part time basis to provide financial clarity or hands on financial assistance for specific projects, this will help you to focus on your core business operation.
Gerri Lazarre, CPA, MS Tax is a certified public accountant in the state of Florida and Georgia. She is principal of TriMergeCPA and TriMergeTax in Miami, Florida. Lazarre specializes in providing professional advisory services in the areas of accounting, audit and tax planning to individuals, businesses and nonprofit organizations for over 13 years. For more information, please visit www.TriMergeTax.com and www.TriMergeCPA.com.