Accountant vs. Fractional CFO vs. Software

Tax filings, bookkeeping, deductions, write-offs, credits, extensions, and forms (1120-S, 1065, 1055, 940, etc) are all time-eating tasks. You can also add managing transactions, setting up the payroll, and organizing financial statements to the list. So what’s your best option?

If taxes aren’t your expertise, there’s a high probability that you’re not maximizing your benefit. Having a tax-expert in the C-suite can be very costly, so for many small businesses, outsourcing this capacity may be the best option. There are a few ways to do this and it’s critical to understand how it will impact your business. 

Why is bookkeeping important for small businesses?

Every asset and liability in the business must be well organized. If one detail is missing or miscalculated, the rest of the dominos may fall in the wrong direction. Here are some things to consider when bookkeeping:

-Organizing documents and forms: There should be an effective storage system for every single year that the company has been in business. A number of circumstances will require you to retroactively sift through old documents.

-Tracking business expenses: Detailing the areas where the business is deploying it’s capital will be useful when filing deductions and applying for tax credits.

-Finding errors and omissions early on: Having a well organized system that manages transactions will catch errors early on and reduce the chance of having a larger issue in the future.

-Separating business from personal finances: This will keep business owners from being held liable for debts tied to the business.

-Identifying ROI in the business: Full knowledge of net positive and net negative facets of the business. Will help entrepreneurs figure out where they’re getting the most lift, as well as the areas where they may want to decrease their exposure.

Lots and lots on the line here. So how should small businesses and startups attack these functions? Here are a few of the options:

Accountant:

An accountant brings a lot to the table. They’ll save you time and money, prevent tax liabilities, prevent penalties, find deductions and credits for the business, and provide insight in other ways. 

Cost?

Accountants charge hourly and will cost anywhere between $75-$400 per hour. Depending on the tasks and complications of your business situation, these fees can add up quickly.

Insight:

An accountant can be super valuable for certain circumstances. If they specialize in your industry, that’s a huge plus. For example, you run a life sciences company and you have an accountant that only works in that space. They’re personally knowledgeable about lab equipment, peers in the industry, and they eat, sleep, and dream about R&D tax credits. Another specialty where I find value in having an accountant is for businesses that have international employees. In some sectors, having talent overseas is mandatory and cost effective. Navigating the complexities of taxes in the United States is challenging enough, can you imagine handling that in other countries as well? An accountant that’s well versed internationally can alleviate the burden of paying and remitting the appropriate taxes. They’ll also make sure that your business is following foreign country laws and regulations. Lastly, you must have an accountant that you’re very comfortable with and trust. There’s a lot on the line here with proprietary company and personal information. 

✅ When should you consider using an accountant?

-Need someone that specializes in your Industry.

-Have an international tax burden (if you have non-US employees.)

❌ When should you not consider using an accountant?

-Cost.

-Have very little bookkeeping needs.

Fractional CFO:

Having a full time Chief Financial Officer on staff isn’t cheap. It’s a critical role in the business, but some companies may not need a lot from a CFO in the beginning stages. Outsourcing this position has become a common practice in the last decade. There are plenty of reputable providers that can lend their expertise. 

Cost?

The cost here varies anywhere from $2,000 to $10,000 per month, based on need. 

Insight:

Fractional CFOs usually have extensive experience in the role. Their expertise in finance can do wonders for small businesses. Putting together detailed financial models, tax and audit preparation, mergers and acquisitions support, and bookkeeping are just a few of their tasks. Since the talent and experience levels aren’t shabby, you better be sure that your company has a ton of needs to address. With fractional CFOs being contracted monthly, you have the flexibility to terminate the service at anytime if you’re not receiving the value. Alternatively, things may go extremely well to the point that you end up hiring them as your full time CFO.

✅ Why should you consider using a fractional CFO?

-Flexibility in the position instead of having someone full-time.

-Finding talent. They could end up being your full-time CFO in the future.

❌ Why should you not consider using a fractional CFO?

-Cost.

-Availability. They may not be available to support consistently. They also may not be familiar with how your business or how businesses in that industry operate.

Software:

Not all accounting software is just a spreadsheet that integrates well, like a Quickbooks. Players in the space like Xendoo and Pilot are very unique and pair their tools and spreadsheets with dedicated bookkeeping specialists, access to CPAs, and finance experts. Businesses can cut costs while also having the option for real-time support, only when needed.

Cost?

These services cost anywhere from $300-$1500 per month.

Insight:

This type of solution is meant for businesses that want to manage costs. They’ll be equipped with the bookkeeping tools that they need and have access to experienced professionals in the field. Your company may already have someone on staff that can handle the balance sheet, in addition to other functions in their role. Now they’ll have some guidance to make their work life easier.

✅ Why should you consider using a software solution?

-Cost.

-Expertise available when you need it.

❌ Why should you not consider using a software solution?

-Business is scaling fast.

-Complex bookkeeping needs. They’re great for essential setup, but if your situation isn’t that simple, it’s important to involve an expert that's knowledgeable about your company and industry. 

Best fit by scenario:

This business is set up with multiple entities and has employees based in 3 different countries: Accountant 

This business needs the balance sheets and accounting tools, and would like to leverage advice from a specialist whenever they need: Software

This business needs someone that has extensive experience in preparing financial models, audits, and bookkeeping. They would like to keep costs low by not staffing someone full-time in the role: Fractional CFO

These three options serve their purpose one way or another. Aligning with the best one for your business depends on the infrastructure and needs. Businesses will find themselves going through stages where they subsequently use each. 

To learn more about what solution is right for your business, visit us at goluminescent.com or call 713-444-3242.