Q: What is a virtual CFO? What do they do differently compared to a regular accountant or book keeper?
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).
Q: What questions should you ask when hiring an accountant or book keeper?
Determine if they are true partners with you company and create value instead of causing more headaches. The accountant or bookkeeper should relieve stress not be a drain to the owners.
Make sure that they are proactive in their work to include cloud solutions like syncing banks with your accounting system then weekly or monthly touching base with you.
Ensure that there is real time, honest communication. Use project trackers like a simple spreadsheet or Airtable.
Choose someone that has the heart of a teacher and is willing to work with you and teach you. It is important that you understand the financials and make decisions based on those facts.
You want accurate and yet timely information so you have to find that balance.
Q: What the hell is cash vs accrual accounting? And which one should a sign shop or print shop use?
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.
Q: What’s the most common mistake you see accounting wise?
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.
Q: What accounting software do you recommend? And why?
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.
Q: What is the best way to structure your business legally to keep more cash?
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.
Q: What is the most common reason you’ve seen businesses struggle and/or fail?
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.
Q: Do you have any recommended books for shop owners on cash flow, accounting, profitability, etc?
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)
Q: Are there any quick wins or recommendations that you give to new clients for solving some of these cash flow issues?
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.
Q: Are there any tax credits that you see shops miss that could save them some money?
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.
Q: What are your top recommendations to help solve consistently high A/R? Any tools, software, services?
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
Q: Any recommendations for the company looking to cross the threshold from 5-6M/yr into 10M/yr in revenue?
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.
Want to learn more about Tyler and his services?
Tyler A. Virgin, CPA, MBA, CGMA
Virgin Consulting LLC