026 I’m Not Your CFO
Today, I’m sharing with you why I don’t call myself a third-party CFO for hire. Being a Chief Financial Officer in someone’s business implies a lot of financial control, which is something I do not have nor do I want to have in my clients’ businesses. While I perform a lot of the same operations and functions as a CFO, this is not actually what my role is.
Resources:
Want to get your business organized? Thinking about starting a side hustle? This is the first step: getting those receipts under control! Download Chaos to Calm, my free receipt organization guide.
Other episodes you'll enjoy:
Connect with me:
Get on a consult! AllEaseAccounting.as.me/Consult
Instagram: https://www.instagram.com/alleaseaccounting
Facebook: https://www.facebook.com/accountingwithease
LinkedIn: https://www.linkedin.com/company/all-ease-accounting-llc/
Loved this episode? Leave us a review and rating!
Hey, everybody. Welcome to money through ease. I am so excited to be recording this episode for you today. Actually, I'm recording this on my business anniversary. It is May 1st when I'm recording it, I try to get these recordings in a couple of weeks ahead of when the episodes come out, just so that in case anything happens, I have plenty of time to get my act together. So happy business anniversary to me.
It feels really amazing today to have come this far, to be a year in, and to be celebrating that. I ordered some macaroons from a friend who makes little sweet treats and stuff. And I was able to deliver that to a couple of my clients who came with me and who have been here since the beginning of All Ease Accounting. So that was really fun. And they turned out amazing. One of my favorite, like treats is Key Lime Pie. And so I had her make macaroons, with a Key Lime Pie filling, and they turned out so good. I posted a pic on my Instagram. I don't know if anybody saw that, but they were really good and I was so excited to share that with my clients. And I’m just having a good day.
It's not always a great day. Because I'm still human and there are still a lot of things that stress me out, make me anxious, that I have to work on like there's still, you know, a lot of work to do in my business to get things where I want them to be, but that doesn't mean that I can't stop and celebrate and really like revel and feeling good. And feeling proud of myself for having come this far. I'm just having a good day. It's Monday and it happens to be a good day, which is awesome. Love when that happens.
Today I'm talking to you about why I'm not your CFO. The reason that I came up with this topic was because I see so many like third party, CFO, consultants out there and I was like looking into what the heck does that even mean? Like, why would you outsource and hire a third party CFO? What kind of risks are involved with that? What do I do in comparison to people who are calling themselves third party CFOs?
And so after I did all this like research and stuff. I was like, yeah, let's talk about it. So that is our topic today and I'm going to talk to you about why that's important to think about, no matter what size business you have, if your business isn't even born yet, if it's just a little nugget of a thought in your mind as something you might want to do someday, this is something to think about and to like be aware of and something that you can decide ahead of time like how you're going to handle financial decisions in your business.
So here's a brief overview of the reasons why a business might consider hiring a third party CFO. CFO is a Chief Financial Officer. That is what those letters mean. Typically, a CFO is somebody that sits on a board for a big corporation in the same way that a CEO, a Chief executive officer, sits on an executive board.
Right?
And so when you're a small business, you know. You don't have like a board of people that are voting on decisions in the business, but you may still have somebody whose role and whose responsibility it is to make financial decisions in the business and to kind of act as this person who would be considered a CFO at a big corporation.
So, let's talk about why you would hire somebody as a CFO who is a third party independent contractor versus hiring somebody full time. So everybody's always trying to consider how they keep their costs down in their business and that could be, you know, going with a vendor who charges less than another vendor for like any type of services you know. We're always looking at ways that we can kind of cut down on costs and seeing what exactly are we getting out of paying somebody for a service or buying a certain product or software or something like we're always asking the question, what am I getting out of this because this is a cost that I want to take on in my business. So for a third party CFO you would be getting expert advice without having to actually hire somebody and pay them full time and have them be a member of your staff. And we've talked about this before. If you have people who are an employee, you hire employees in your business, you are responsible for withholding certain taxes from their pay. You also have to pay for social Security and medicare tax. You know, that is an expense to your business. And then you know you would probably also offer them benefits like paid time off and matching 401K or simple IRA and providing health insurance and vision and dental and life insurance and all that other good stuff. Those are all costs associated with hiring somebody, so you're not paying somebody just their salary, you're not paying them, just an hourly wage. You have these other costs that you take on to have employees. So this could be a good option for small business owners? Maybe to hire a third party CFO because you're just contracting them just for the services that they're providing. But they can go and provide those same services to other businesses. We talked about that difference between independent contractors and employees. And so this is somebody that would be a third party CFO, they could go out and you know do work for other businesses. So you wouldn't have them at your attention. Full time. You would have them on hire as needed. You would maybe meet with them on a regular basis to review financial reports and to get their expertise on decision making in your business.
Another benefit of hiring a third party would be that they don't have a bias towards your business. Of course, you know if you're hiring someone to help you with your business, and hopefully that means they're helping you grow. They do want you to be successful, but they're not biased towards you. They're coming at it from a more neutral perspective of like providing a service, providing expertise. But you know their livelihood isn't dependent on you actually being successful and staying in business. So, but then you also have somebody who could have industry experience across many different industries, or you could hire somebody who is specifically working with your industries. So you know, it could be somebody with experience across many industries and I think that personally that's better to have things that you can kind of cross reference for different business types, but it could be the case that you want to hire somebody who is specifically, you know, handling restaurant finances versus someone who helps out in the legal or professional fields?
So why is having a CFO important? I've talked about the role of the Chief Financial Officer is typically to be the financial expert in your business and they would have total control and oversight over financial decisions if you would have a board. And you have a CFO and they're a full-time employee and they would have, you know, control over financial decision. You would have to trust that person to do what's in the best interest of the company. Their responsibilities would include things like bookkeeping, financial reporting, and compliance. So that's compliance with all the related statutes and laws and things like that. That could be federal, state, local, industry specific. It could be employment laws versus environmental laws. So a Chief Financial Officer is making decisions, but they also making sure that you're in compliance rather than relying on a third party contractor who may only be available some of the time and have maybe a delay in answering your question. It means they have limitations on how much they can meet with you all of those things. If you have somebody on staff, you can kind of say like here's what my expectations are. You need to be available versus a third-party contractor. It's like you have to find a mutual agreement of when you guys can meet and talk and review and all that good stuff.
(Ad break)
So here are some of the limitations that come with hiring a third-party CFO. Like I said, they may not always be readily available to you and your questions. They may not be specialized in your industry. They're not a part of your staff. That means that they're really not a part of like your team. If you have other employees. Is that CFO, who's a third-party contractor, is not going to be like working in your office on the day-to-day. So you don't really have that team camaraderie with them, the way that you would with your other staff members. This isn't necessarily a bad thing, it's just a limitation that you need to explore. Do you want somebody that is going to be you know part of your company culture and like on your team and like in communication with people on a regular basis?
So here's some of the challenges that come with building trust and rapport with an external CFO. So anytime you hire somebody who is going to be reviewing, looking at your business through a critical lens, there has to be that level of trust that gets established, especially if it's with a third party external CFO. So trust comes from the ability to make yourself and your business somewhat vulnerable to another person’s critical review, right? This isn't making yourself vulnerable to like having your money stolen from you and stuff we're talking about just having somebody objectively review your finances, review your procedures, review your processes, your systems, all of that good stuff. And they apply critical thinking and they can tell you like this is actually where you need to do some work, and so trusting comes from being able to open up to that person, making your, you know, records available for critical review basically. And trusting that like that person is doing this for your best interest and not theirs necessarily. So you're sharing private financial information that somebody else could use to harm you if they ever decided to exploit that information. So it is the case that you do have to develop that trust and rapport with that person, because, like I said, you're opening up your records to them. You're opening up your processes, you're opening up your systems for somebody else to come in and say, “You're not actually doing this the right way,” or, “you're not actually doing this in the way that that serves you,” and then you have to deal with all of your thoughts and feelings about that criticism or that, you know, response.
And then if they're not there every day in the office or in contact with you, or available to you during any business hour, you may have to spend more time developing that rapport that would come naturally if they were available to you full time as an employee. So we all know that it takes time to develop relationships with somebody. It takes time really to develop good trust in somebody else. And when you have somebody that's working with you day in and day out and you're seeing them like up to 40 hours every week, you develop a relationship much faster just because you spend more time with them in like a week versus a third-party CFO, you may talk to for the total of an hour once a month. So that's just a lot more time that you have to spend in that relationship with that third-party CFO to develop, you know that rapport and to develop that trust with them. And trust can also come from like having good references, having you know, credentials like having a license, something that you need to report to some sort of regulatory board or something every year certifying that person and saying yes, like they're good to go like they do what they say they're going to do. They're in compliance with all the laws and regulations and all that. But you can still develop a rapport with somebody. But like I said, if it's the difference between you developing that with somebody who's in your office every day during the week and then somebody that you only meet or talk to maybe once a month, that is going to take more time to develop that relationship. So that could be a challenge that you face in building that relationship with somebody who you are giving up financial control or financial decision-making responsibility to for your business. So it's just something to consider. There's no right or wrong here, right? We're just looking at what are the limitations, what are the challenges that you might face, because I want you to be able to think about these things now before you go make a decision for your business.
Now let's talk about when you outsource the CFO functions of your business, once again, those functions are bookkeeping, financial reporting, staying compliant with laws. When those functions get outsourced, there are risks associated with that decision. So let's discuss these potential risks of outsourcing CFO function. And this can be loss of financial control of your business. And then of course confidentiality issues. So the risks associated with this are loss of control, the name Chief Financial Officer, CFO to me does imply some level of control over the finances so as the business owner, you are still ultimately the one you know green lighting or vetoing decision saying yes or no, but you've given up the responsibility of the whole decision making process: the research, the comparing, you know, evaluation all of that decision-making. You've given up a lot of that responsibility, and that can mean that you're not in as much control of the financial outcomes of your company and this is not inherently a bad thing, but it's a decision that you want to make because you know, if you're going to outsource somebody, that's less things on your plate, that's less decisions that you need to make. We all get decision fatigue. You know when you go to a restaurant that has like 50 million things on the menu and you literally can't just pick one because you're like, Oh my God, I'm so worn out by how many options there are as a business owner, you're giving up some level of decision making whenever you outsource the CFO functions and that means you're not typically as much in control of those financial outcomes in your company.
And then I want to talk about how bookkeepers steal money. I did a video, short form video, it's in my Instagram reels. If you scroll back quite a ways. It's how bookkeepers steal. And this is something that, you know, I've never done myself, obviously, and I wouldn't say it on here but I haven't. If you go back and watch that video I explained, kind of how that works. But this is something that I've seen that some of my clients, past and present, have experienced with people that they did trust, and they did misplace trust, and they gave up responsibility and they were taken advantage of. And you know, that's not like their fault or anything. And I absolutely am not blaming them or saying that it is something that they chose, but when you give up some control of, like payroll tax filings or payroll tax payments, things like that, you can become vulnerable to people stealing money. So, for instance, the ways that I have seen bookkeepers that have stolen money from people is that they said they were making payroll tax payments on behalf of their client, but then they were actually just taking that money and pocketing it themselves. And the business owner, you know, wasn't going behind and checking things which is not something that you absolutely have to do, but if someone else is paying taxes on your behalf, they should be providing you confirmation that the taxes got paid and that is what I do for my clients. In this case, there were people making, supposedly, making tax payments, but they were actually just withdrawing that money from their client's account and then putting it in their account and not actually paying the taxes. And that is a horrible situation for anybody to be in because you did lose money. You know, that's something that, unfortunately, it does happen, and I've talked about ways to prevent, you know, mistakes and fraud like that from happening. And it's not a surefire 100% [that] it's never going to happen to you, but giving up these tasks can sometimes lead you and your company to being vulnerable to that kind of exploitation.
Let's talk about the confidentiality issues. So we need to make sure that whether you're hiring an employee to be the CFO or you're hiring a third-party CFO and you're consulting and outsourcing that function for your business, there are confidentiality clauses that you need to outline and this is to maintain security purposes of like your data. And this is so that risks to your data can be assessed and only the access that is necessary, that is needed for that person to do their job, is granted and not giving away, not giving them more access than they really need to do their job. So for instance, I do need to have copies of my clients bank statements in order to reconcile their books every month. However, I don't need access to their bank account to transact. So what I do is I have my clients set up a separate login for me and then I only have access to download copies of their statements through my login and so that kind of sets up that boundary for me and my clients, and it protects both of us from that risk of their data being accessed unnecessarily. And so they're protected from me trying to do anything crazy, and I would never, but it's just that it's a good boundary to have in place. Because I offer that up front and I do require that my clients, you know, not give me their banking information and like only set me up on that login is like that is my first gesture of extending that trust to them and saying, here's the way that you can trust me. Because I don't even want access to be able to do anything crazy in your account.
So besides confidentiality risks, there are risks of relying on a third-party CFO for critical financial decision making. Because you are also responsible for the timely filing and payment of tax returns. Relying on a third party for your compliance could be risky, and compliance means that you are literally complying with all of the laws. You may not know what all the laws are. That is why you hire somebody to make sure that you are following all the rules, but you know it's still ultimately your responsibility as the business owner as the person paying employees. As the person paying and reporting taxes is your responsibility that things get filed and paid on time, it doesn't matter that you've hired somebody out and I'm sorry but that is simply the case. There is some inherent risk of having a third-party person, or even somebody who works for you that is making sure you are being compliant. You could be found to be in violation of some laws and end up being liable for, you know, paying taxes, paying penalties and interest on those taxes if they were filed incorrectly or late or not paid at all.
There are some risks to all of this, just like any business is going to have some level of risk or some level of uncertainty, and it's just so important to making sure that you have looked at everything and thought about everything and considered all the ways that you could be vulnerable to risk and then making a good decision based on having the right information.
You can't afford even to outsource those functions to a third party? Let's talk about what your alternatives are. First and foremost, we always want to make sure that we have really strong SOPs. That is standard operating procedures, so that's actually sitting down and outlining your system. Who is responsible for what? How the work gets measured? Because it's not important that the work just gets done. We need to have a way to measure, you know, the results of something getting “done” and whether or not it was done effectively or completely or accurately, we want to have a system for locating errors and discrepancies. And then you need to have a procedure for dealing with errors and discrepancies. So having really strong SOPs, standard operating procedures, is an alternative to not being able to afford a full-time, or not being able to outsource those CFO functions in your business just yet.
You can hire somebody for a one-off project or a training and you know a lot of people say, oh, I can't afford bookkeeping or whatever like that. You know, there are a lot of things that I think I can't afford and then I pay for anyways because I'm like, “I can't afford not to have this.” You know, I could argue with you that I don't, I can't afford homeowners insurance and, you know, I would have a lot more money in my pocket every year if I weren't paying for homeowners’ insurance. However, I know it would be hella more expensive to not have homeowners’ insurance and have something happen to my house and I really need to knock on wood, right now to make sure that nothing. [pause] OK. I knocked on some wood.
Having good SOPs, hiring somebody to train you on how to do all this stuff, right? So like I've said before, I offer training on QuickBooks Online products and that's because I understand that sometimes the price point for monthly bookkeeping is a lot higher than people who are just starting out can afford to pay. I understand. You can find a consultant, or a coach, or someone to help you with these things on a one-off, project basis.
We also want to make a plan for systematizing your operations and taking it one step at a time. We are all under the constraint of the limited resource of time. And when you're a business owner, if you're not putting out fires, you're not managing employees, you're not making a product, you're not providing services, then you have a little bit of time left over to do your admin stuff and that's it. We are all constrained by time, but it is so important to have a plan for what you're systematizing in your business. What SOPs you want to create, and then taking it one step at a time. We want to look at where is the biggest bottleneck of information or the biggest leak of information or leak of money in your business? And I'm sorry, but that comes from looking at your reports, which you do need to have reports to like review some of this stuff. But we're addressing your systems and your operations and your procedures one at a time, but it's going to be based on what is the thing that needs the most attention and then prioritize it in that way. The system that you maybe you really need to optimize right now is like getting your payments under control, like clients paying you for your services and you know getting people to pay you on time. That could be a system that you could really spend an hour a week working on, and maybe in a couple of weeks it would be a problem that gets solved that. And you actually now get paid on time and then you can turn around and reinvest that on time payment into your business and hire a consultant.
So here are the benefits of outsourcing specific financial tasks to specialized firms or consultants. As you all know, I don't do taxes, I only do bookkeeping services. I only do payroll services. The taxes that I do are sales tax and payroll tax for my clients that have those things. I don't do those things just one-off for random people. I don't do individual income tax returns. I don't do business tax returns, but it's still beneficial for people to hire me because I am specialized in, I'm an advanced online pro advisor. I specialize with payroll and so I can help you with those specific things, even if I'm not going to be helping you with taxes. You can find somebody else who likes to do those, and then you've got business consultants and these folks can help you brainstorm new ideas. They can teach you how to streamline processes and increase revenue in maybe a certain area of your business that you really want to push. So hiring somebody who is specialized in the thing that you want to look at in your business could be an alternative to just hiring a third-party CFO. I've got an expert, but you know, they're not really specialized in something versus like, I know a bookkeeper that does training on QuickBooks Online. And I'm really struggling with that and so I could just schedule a training with them instead of having a CFO for hire.
So in conclusion, that's why I don't call myself a CFO. That name, to me implies financial control, which I don't have, and I don't want. I do not want to have control over my clients’ finances in any sense. They hire me for specific services and then beyond that I love consulting with them. I love training people. I love teaching them about their finances. I love helping people feel more empowered and financially literate, but I don't have control and I think it's totally OK to say that I don't want it too. I don't make decisions for my clients, I can only make recommendations and provide support. So, if somebody asks me what would be the best option here, you know I can make a recommendation to them, but I'm not deciding for them. Saying yeah, no, you definitely need to pick this thing. Like, I'm going to give you the pros and cons. I'm gonna make a recommendation based on my experience and expertise in that subject.
Here are the main points of why I'm not your CFO. We did a brief overview of why you might consider hiring a third party CFO. If you can't afford to hire somebody full-time, you know you can contract that out. It's a good option for small business owners. Maybe they wouldn't have like a bias towards your business and they might have experience across many industries or they could be specialized in your industry.
What is the importance of the role of the CFO in a business you maybe didn't know that that meant? They’re the chief Financial officer and so their responsibilities, you know, are bookkeeping, reporting, compliance and all that. But they would have some level of financial control and decision making in your business. And then if you're a third-party CFO that comes with its own limitations, you know they're not there in your office, on your staff and team, available to you every hour of every business day. They may not be specialized in your industry. They may not be readily available to you, you would have to like schedule time with them. And then you know, there's a challenge towards building trust and rapport with somebody that you only see once a month for an hour, maybe versus somebody who would be, you know, working in your office day-to-day and that you would develop a relationship with much quicker.
There are risks associated with outsourcing these functions that a CFO would provide that can include loss of financial control, you know giving up your decision-making, people stealing from you because your business is made vulnerable through these functions. And then of course issues with confidentiality.
So the alternatives to this like we talked about would be having really good SOPs. No matter what size your business is, you could probably benefit from hiring a third-party person to provide consulting or something for your business.
So here's what I want you to. If you're interested in having me help you with bookkeeping services, I want you to get on a consult with me. That link will be in the show notes and that is AllEaseAccounting.as.me/Consult. You can also sign up for a one-on-one training on QuickBooks Online. Once again, I'm a QuickBooks Online Advanced ProAdvisor, which means that I am especially certified to teach you about QuickBooks Online products. Which one is right for you and then developing processes for you, streamlining your workflow. So that it works for you and your schedule. If you want to make sure that you're doing what you need to do to save money on taxes, the training on QuickBooks Online is the perfect option for you, and that link is also at AllEaseAccounting.as.me. And if you just go to that link, you will see all the services that you can sign up for and training on QuickBooks Online is available there.
You can also hire me to come teach this information to you. Your small group of entrepreneurs or business owners. Whatever kind of group that you're in, whether it's for general networking and marketing, if it's some sort of mastermind situation. I would love to come teach this information to you and your group. If you're interested in that, just go ahead and get on a consult with me and we can talk about what you would like me to teach on to your specific group. If you know somebody that hosts a group like that, give them this podcast information and I would love to talk to them. So I appreciate you.
Happy anniversary to All Ease Accounting. Yay, we made it one year and I'm so excited to see what the next 12 months have in store. Thanks for listening and hope everybody has a great rest of your week. Bye bye.