We’re Not Business Coaches
I’ve written before about the role of a CFO versus an accounting manager, but have found that there is still a good bit of confusion surrounding what an outsourced CFO/accounting consultant does. The major misconception is that we offer business coaching. In order to clarify how that is not what we do, I thought it might be helpful to expound upon the differences.
Focus
Coaching is directed toward an individual, often a company owner or higher-level executive. Financial consulting is based on the needs of the company as an entity. While a business coach might direct an owner to how they might discover their personal passion, and build a company around that, a business consultant would view the areas of profitability for the company, and help devise a plan for focusing toward the best area of ROI, while still serving a diversified client base. Someone struggling to define their personal vision would make a better client for a business coach, than for a consultant.
Methodology
Financial consulting is based in quantitative data. We do work in forecasting, with margin for error, but all analysis of future possibilities comes from what is quantifiably measurable in the present. Business coaching can be based around more nebulous information, and be more aspirational in pursuing goals. Financial consulting can be used to deal with a moving target, as opposed to aiming for a destined endpoint.
Relationship
Though we love our clients and are always willing to lend a sympathetic ear, we recognize that we are not trained therapists. (I do feel like we should at least get an honorary license for talking hundreds of people through PPP applications, however.) We want what’s best for our clients, and sometimes that means having to have difficult conversations. Our role is not to be a cheerleader, but an arbiter of fact-based truth. If a client is dead-set on a given business path regardless of the data, and is seeking encouragement only, they are not a good candidate for our consulting.
In short, via our consulting services, we seek to assist a business owner in improving their company. We do not endeavor to improve the performance of the business owner his or her/self.
What Does a CFO Do?
If you asked the average person what a CEO does, they can probably give you a fairly detailed answer, somewhere between the truth and the truth as influenced by pop culture. CEOs are visionaries who run companies by giving presentations and going to board meetings.
By contrast, if you ask what a CFO does, the answer you might get is, “Shred documents.” CFOs rarely get famous, and it’s even more rarely for good reasons. But CFOs do serve real, legal, purposes. So we seek today to answer the question: What does a CFO do?
CFO vs. Accounting Manager
It might help to start by clarifying what a CFO does not do. Though a CFO is, by definition, the Chief Financial Officer of a company, their role is not the same of that as an Accounting Manager. An Accounting Manager directs the accounting department and ensures accuracy and timeliness of company financials, as well as making sure the day-to-day accounting operations run smoothly. In contrast, the CFO is responsible for the financial health of the company, as well as leading its financial direction. To put it in simple terms, if the power gets shut off because someone forgot to pay the bill, it’s the Accounting Manager’s fault. If the power gets shut off because the company can’t afford to pay the bill, it’s the CFO’s problem.
How Do Big Companies Use CFOs?
A CFO’s role is to develop and implement the financial strategy of an organization. They not only analyze the present financial position, but develop projections and forecasts for where the company is headed. If an accountant is a historian, the CFO is a futurist.
Beyond analysis of the basic company financials, they develop KPIs to track financial health, and are a key figure in making financial decisions, such as issuance of shares. In publicly-held companies, the CFO also ensures that regulations are being met and obligations to shareholders fulfilled.
What Can a Small Company Do?
Per Salary.com, as of March 29th, 2022 the average CFO in the United States makes $412,529 per year. This is an expense that is not an option for many small-to-midsized businesses. Many small business owners choose to cover those duties solo, though some choose to outsource the work to a fractional CFO.
An outsourced CFO can help with obvious needs, like pursuing financing from lenders or investors, or special reporting required for grants and government contracts. However, they can also help with everything else the big companies get: budgets, pricing strategies, expansion planning, etc. The trick is in finding a good outsourced CFO.
What Makes a Good Outsourced CFO?
Projects die when there’s a lack of focus, and that includes financial projects. A good CFO consultant will help determine what CFO services are needed, in what order, and the timeline for their implementation and overlap. (Since the CFO is not a full-time employee, and human capital in a smaller company is more limited as well, it’s impossible to start all projects desired all at once.)
The good CFO will not just assist with the higher-level thought exercises, the analysis of data already collected, but will also help with practical implementation. A company who is outsourcing CFO work may also not yet have an Accounting Manager, and the CFO consultant can help fill in those gaps, and be sure that financial systems are well-developed and running smoothly. Since the CFO cannot provide good analysis without good data, it benefits all for the books to be clean and timely.
Most importantly, a good CFO will exhibit flexibility in working with a client, not trying to sell a set package of services, but developing plans unique to that company’s needs. A sales bonus plan doesn’t necessarily help a company with receivables issues, nor should a company with poor cash-flow focus on immediate expansion. A good CFO will be dynamic, instead of taking a one-size-fits-all approach, and will be honest with the client, even when they don’t want to hear it.
And, of course, they won’t rely on the paper shredder to cover up financial crimes.
What does a bookkeeper do?
"So, what do you do?" It's one of the first questions we ask upon meeting someone. My usual answer is "bookkeeping and fractional CFO". The typical response to that is, "Okay...and what does that mean?"
Most people have a general understanding of bookkeeping is, but fractional CFO is a murkier concept. Essentially, we act as an "outsourced" CFO (Chief Financial Officer) for companies too small to have their own. Offering this service is one of the primary ways we distinguish ourselves from most bookkeepers.
However, there are several differences between what a standard bookkeeper does, and what we do.
A bookkeeper offers monthly reconciliations at an hourly rate. The process most bookkeepers use is to, at the end of the month, have their clients bring a stack of financial documents, such as bank statements, receipts, pay stubs, etc. The bookkeeper then uses that information to make entries and perform a reconciliation. This takes time, and their clients will usually receive that past month's financial statements about midway through the following month. Once the month's work is completed, the client receives an invoice for the hours worked. Depending on how busy that month was, this bill fluctuates.
The Bookkeeper offers bi-weekly reconciliations at a monthly rate. Instead of waiting until month-end, we enter information downloaded from the client's bank accounts every few days, so their financials stay more current. This prevents a long clean-up process at the end of the month, and allows us to complete the monthly financial statements more quickly. Furthermore, we offer our ongoing clients a monthly flat rate, so there are never any surprises on the bill (even when the month was a busy one).
A bookkeeper moves on and makes assumptions. Most bookkeepers focus on one specific aspect of their business, which is just getting transactions entered. If they have an expense and aren't sure what it's for, it gets stuck into "Uncategorized Expense" for the client to figure out later. If they're entering payroll and see that a contractor really should be paid as a W-2 employee, they're just going to make the entry as it's presented to them and move on. They might make a mention of it to the client when they see them again in a few weeks but, in most cases, likely not.
The Bookkeeper pauses and asks questions. Our clients hear from us frequently. If something looks "off", or if there are improvements to be made, we'll bring it to the client's attention immediately. In one account, we identified a case of credit card fraud before the bank and client did, and were able to alert them to it. We also warn clients about potential cash flow issues, or when certain bills are due, to help prevent overdraft fees and other penalties.
A bookkeeper does exactly what the client asks. That's not a bad thing, at all. But most bookkeepers do only what the client asks, and nothing else.
The Bookkeeper proactively seeks out ways to improve our clients' financials. On our own time (again, without charging the client a cent more), we've done things like developing a new pricing strategy to propose to a client having issues with their retailers. We've identified overdue Accounts Receivable to find clients money, and we've saved clients money by negotiating better vendor contracts. We've used our connections with merchant card processors to save clients thousands in credit card processing fees. And we have done all these things without the client ever asking us to.
Money, it is said, is a vehicle.
A bookkeeper is a mechanic. They do routine maintenance. If something breaks (and you notice it), you take it to them to get fixed. If something breaks and you don't notice it for a while, and the problems gets really big, when you take it to them to fix, you're going to end up with an expensive bill.
The Bookkeeper is a travel agent. We help you figure out where you want to go, and we get you there. Whether you drive, cruise, or fly, we are there for you at every step of the journey. And we work to help ensure that the trip is as enjoyable as the destination.
Of course, all of this is hard to sum up in a casual introduction. That is why we offer free 1-hour initial consultations, so we can get to know prospective clients and show them the differences we have to offer.
If you know someone whose business isn't going where they want it to go, before you send them to a bookkeeper, send them to The Bookkeeper.
Stop Eating Frogs
Mark Twain famously said, “Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.” In recent years this has become a particularly popular sentiment amongst entrepreneurs, used as a reminder to not procrastinate in completing disliked chores. Small business owners typically have to manage so many different aspects of their company, it's inevitable that there will be some tasks they dread.
For many, their "frog" is accounting.
But, here's the secret...for some people, frog is a delicacy.
We may be in the minority, but, at The Bookkeeper, accounting and finance aren't just something that pays the bills. We actually find a lot of it fun.
Here are a few of our services which, though business owners typically find distasteful, we really enjoy.
You know the only thing more fun than reading a collections procedure manual? Writing a collections procedure manual. It combines several of the things we love, like research, technical writing, and custom-tailoring business practices to an individual company. What's not to love?
Of course, we've heard some people refer to research as "boring" or technical writing as "tedious". But we feel the same way about SEO optimization and, apparently, some people enjoy that.
Budgeting
Budgeting seems to have a negative connotation for a lot of people. A budget is seen as something constraining. But we think budgeting is awesome. You get to look at all your revenues and expenses, and figure out where you can save or earn more money. Who doesn't like having more money? A budget lets you make plans and take steps to achieve your goals. Not knowing your budget is like driving blindfolded. Maybe exciting for some, but too risky for us.
Debt Repayment Plans
A lot of people who are in a great deal of debt don't like to think about how much debt they're in. Of course, ignoring a problem doesn't make it go away.
For business owners overwhelmed by debt, figuring out a way to repay it all is too big a frog to eat. Much easier to just make the minimum payments and try not to think too hard about those rising balances. Fortunately, we love writing debt repayment plans.
Like so many problem, debt seems a lot bigger when you're in the middle of it. That's why we enjoy taking an objective, mathematical look at the problem, and coming up with a tangible, step-by-step solution to eliminating it. And it is so exciting to show someone how they can, often without even spending additional money, be debt-free and have savings built up in, frequently, as little as five years.
Profitability Analysis & Pricing Strategies
Some people may be put off from some aspects of accounting because of the math involved, particularly when it comes to things like calculating gross profit margins. We at The Bookkeeper are huge fans of math, perhaps because of its consistency and objectivity or, perhaps, as the great philosopher Cady Heron stated, "Because it's the same in every country." (Yes, both Mark Twain and "Mean Girls" quotes in one article. Small business accounting can be very culturally relevant.)
Math is especially useful when it comes to looking at which products or services provide higher revenues or greater returns, and where prices can be raised to improve profitability. Using a little bit of math and research to make more money, without having to sell more or perform more work? That's fun.
These are just a few of the services we provide for our clients, not just because our clients find them difficult or loathe doing them, but because we actually do find them interesting. Where the client sees a live frog, we see a perfectly seared filet mignon.
If there's some chore in your business which you simply despise completing on a daily basis, whether it's finance-related or something else, consider whether it's worth it to you to pay someone else to eat that frog.
You're in business for yourself, so why do something you hate?
Success Stories: The client who got a financial makeover
A good deal of the time, business owners don't recognize potential issues within their company until they become real problems. By the time those issues are discovered, drastic actions are required to remedy them.
That was the case when Craig was approached by a friend who, bluntly and truthfully told him, "I have no idea how my business is doing."
A surface look at his financials didn't present a clear answer. He was billing plenty, but there just wasn't much money left in the account at the end of each month. He couldn't see where the money was going.
So, Craig dug deeper.
He went through all of their financials for the past two years and found a few areas of concern. The biggest problems were:
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All personal expenses were being run through the company.
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Net wages were being recorded as gross salary (causing a greater tax expense).
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The company was significantly overstaffed.
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There were no legal documents.
Complicating the issue was that the client actually had an in-house accountant, and The Bookkeeper was only working on this issue in a consulting role.
A change was clearly necessary but, like many changes, that didn't mean it would be easy.
At the next meeting, Craig brought all of these issues to the client's attention. From there, they devised a multi-step plan to get the company in shape.
First, they took all personal expenses out of the company, so they could get a more accurate picture of its financial status.
Second, Craig went back and corrected the two years' worth of payroll entries in the in-house accountant had entered incorrectly.
Third, the client reduced surplus staff (including the accountant).
In the end, the client ended up hiring us for his bookkeeping and CFO work (for a fraction of what the in-house accountant was being paid). There was a great deal of work up-front in cleaning up his financials, but ever since the "makeover", records have been kept accurate and up-to-date, with no issues or surprises.
Here have been the effects of this change:
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All payroll expenses are now accurate.
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The company is staffed at an appropriate level.
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Monthly expenses have been reduced by $4,000.
Most importantly, the client has peace of mind that he knows exactly how well his business is doing, and no new problems are sneaking up on him.