Why Do So Many Businesses Use Outsourced CFO?
There are many benefits to outsourcing the Chief Financial Officer (CFO) role, especially if you own a small business. An outsourced CFO ensures you are getting the same expertise from a CFO even if you may not have the financial resources to retain or support a full-time CFO.
By outsourcing the CFO role, your business will be able to benefit in the following ways:
1. An outsourced CFO will have experience performing valuable functions for other companies, and they will be able to apply this experience to your business.
2. A CFO usually has many relationships with funding sources, generally with commercial lenders. The prior relationships between lenders and a CFO creates confidence that may extend to the CFO’s clients and could make things easier when trying to procure a loan.
3. If a conflict arises within your business in regard to negative performance results, a CFO can help relieve the tension and create a plan to help management and staff by accountable to your business’ goals.
4. The CFO will handle all of the technical problems of forecasting, budgeting, and analyzing performance shortcomings so that you and your management team can focus on things that will bring greater performance and value to your business.
A common question that we receive when discussing CFO services is: what are the most relevant functions of a CFO to my business? Here a several highlights:
- Strategic Planning: A CFO can help you with the process of developing a strategic plan. These types of plans include your business vision, mission statement, and company goals. The CFO usually invites your staff to provide their opinions on the proposed strategic plan that can help you and your management team make your final decisions.
- Forecasting: The CFO can prepare the forecasting (taking this off your and your management team’s plate), which quantifies the company’s goals outlined in the strategic plan.
- Budgeting: One of the most helpful functions of a CFO is preparing a budget. The budget can help show how the decisions of you and your management team can impact your business before those decisions are acted on. This can help you and your management team makes the best decisions for your business.
- Accountability: A CFO helps you and your management team hold everyone within your business accountable to achieve their goals and objectives, which all contribute to your business’ success. A CFO will analyze the difference between the desired and actual results and ask pointed questions. As previously mentioned, this helps relieve potential conflicts within the company when a CFO handles this.
- Bonus Determination: CFOs can also help with the process of determining performance-based bonuses according to your forecasts and budget.
All of these functions help everyone in your business get on the same page and work towards the same goals and objectives in tandem. A misconception about the CFO role is that CFOs work to predict the future of the business. This is not the case. A CFO works with you to create and set goals for your business that allows for flexibility. The whole process makes sure that goals are being met, and, if they’re not, to change the goals themselves or the way to arrive at the set goal.
If you have any questions about what a CFO does or how to bring an outsourced CFO on board, contact us.
Do you Want to go Into Business for Yourself?
There are many ways to conduct a business for tax purposes, including as an S corporation or a partnership. But many new ventures start out as sole proprietorships. Here are nine business tax rules and considerations involved in operating as that entity.
- You may qualify for the pass-through deduction. To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you do not itemize deductions and instead claim the standard deduction.
- Report income and expenses on Schedule C of Form 1040. The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income and not as itemized deductions. If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses, and losses in activities in which you weren’t “at risk.”
- Pay self-employment taxes. For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9% rate on the excess. An additional 0.9% Medicare tax (for a total of 3.8%) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases. Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.
- Make quarterly estimated tax payments. For 2019, these are due April 15, 2020, June 15, 2020, September 15, 2020 and January 15, 2021.
- You may be able to deduct home office expenses. If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home. And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.
- You can deduct 100% of your health insurance costs as a business expense. This means your deduction for medical care insurance will not be subject to the rule that limits medical expense deductions.
- Keep complete records of your income and expenses. Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you are entitled. Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they are subject to special recordkeeping rules or deductibility limits.
- If you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes.
- Consider establishing a qualified retirement plan. The advantage is that amounts contributed to the plan are deductible at the time of the contribution and are not taken into income until they are withdrawn. Since many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork. A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements. If you do not establish a retirement plan, you may still be able to contribute to an IRA.
If you want additional information regarding the business tax aspects of your new business, or if you have questions about reporting or recordkeeping requirements, please contact us.