Many operators know their industry, but few know how to read complex financial statements or optimize tax positions. Therefore, it is vital to accomplish the requirements of accounting in the best way.
Many of the most important questions are inter-related. Perfect individual answers are not easy to come by. Still, the questions and concerns remain:
- Why is accounting important?
- Should I outsource my accounting, or should I hire an accounting department?
- Does the same resource provide accounting and tax services?
- Is my business big enough to justify creating budgets and forecasts?
- What does a CFO do and how does it differ from these other responsibilities?
Vital For Operations
Whether you are a startup one-car operation, a medium-sized family business, or a large corporation, you should measure your financial performance. After all, these are for-profit businesses, not charities or hobbies, so how you profit (or do not) is one of the most critical factors to measure. Accounting is a common, scientific language that uses set standards, processes, and rules to transform a company’s performance into readable and understandable data. The rules of accounting are generally consistent across nearly all industries. Following those rules allows a business to understand what is going right versus wrong, and what to do about it. It provides the score and report card for the business. It is critical you do that work correctly.
For that reason, most accountants look to Generally Accepted Accounting Principles (GAAP) as the standard for businesses to follow. These rules are captured in volumes of documents, and updated regularly, which is why you should stay abreast of them. They are also difficult to understand, decipher, and apply to your business situation. Still, several overriding important elements should answer the other questions raised.
One of the most important elements of GAAP is the separation of duties — that is, no one person should perform all the accounting duties. Rather, they should be divided so different participants conduct various aspects of the accounting process. By dividing workloads, we avoid conflicts of interest.
Another important aspect is the notion of matching — that is, revenues should be accounted for in the period earned; expenses follow the same rule. This is the notion of accrual accounting, a higher level of accounting than many bookkeepers can provide. With experienced accountants, improved accounting methods can be used. So how should accounting work in your business?
Balancing Your Accounting Needs
If you already have accounting capabilities in-house, you likely do it on your own as long as there is more than a single person. If you do not have enough or the right type of in-house resources, then the best solution is outsourcing.
In today’s accounting services market, outsourced services are common. A team of accountants from different backgrounds and specialties provides fractional resources on a budget and with services agreed upon. The most mundane responsibilities of balancing merchant statements and recording bank and credit card transactions are completed by the staff accountant. A senior accountant then checks and reconciles them. Reconciliations are reviewed, and an accounting manager creates the analysis. If appropriate, a CFO meets with the owner once a month to discuss the effects of the prior month, how they differed from the budget, resulting consequences, and what the operator should do about it.
This team approach typically ranges from $2,000 to $6,000 per month depending on the services provided. Still, they are less than the cost of a single employee and provide the insurance of degreed and certified accountants performing the duties in a safe and secure way.
In these arrangements, the team can use an accounting system already in place, or they can assist in putting up a new system. Most often, simple systems such as QuickBooks are adequate. Licenses are annual, so you can pay as you go, and most accounting services know how to use the system. Reports will be tailored to meet the business’ needs, thereby creating other benefits:
- Payroll can be run through QuickBooks. If you already have a payroll service, you might find insourcing the payroll function, in the hands of professional accountants, could lower the price and speed up the processing of payroll.
- Annual report requirements can be supported. If you use a single resource, the time requirements and legal risk associated with end-of-year reporting (like 1099s), tax preparation, partnership, and corporate filings, create unnecessary business risk. Accounting service firms provide this relief as well.
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Clearly, using a variety of resources is better than using a single one. Similarly, using separate tax and accounting services is better than working with a single firm. While that may seem inefficient, the practice allows you to work with specialists, each with a different set of eyes all intended to protect your interests. The accounting firm creates a set of financial statements the tax firm optimizes. Knowledge of how to create the financials is different than the knowledge of how to optimize its tax treatment — two separate firms are better.
Remember a bigger firm is not necessarily better. Often what you get from the “Big 4” international accounting firms are high prices and newly-hired college graduates. The premium paid for that prestigious signature on financial documents is, most likely, not necessary for small- to medium-sized business. Instead, choose a local or regional tax firm. Identify what firm to use by getting referrals from your accounting firm, your business banker, or from the local chamber. Working with local firms brings added benefits such as lower costs, deeper interest, local knowledge, and referrals unavailable when working with the big firms. Most important is the quality of the people working on your account, and a seasoned and local tax firm will more likely provide a better service.
Finally, it should be noted outsourcing of professional services does not end your responsibilities. When using multiple resources at different entities, communication becomes more important and something you may need to coordinate to get the full benefits of the services you buy. Unless you are skilled at conducting these relationships individually, you would be well advised to get these parties to communicate with each other and with you. Regular meetings should occur to ensure all parties are on the same page. While each seeks to protect your best interests, your financial reports and plans require communication and coordination to ensure correct implementation and continued viability.
Do I Need A CFO?
In many ways, coordinating all the pieces of accounting and reporting is the job of a CFO. While many businesses consider themselves too small to afford a CFO, they are the ones who most need the CFO’s expertise. Rather than a pure accounting responsibility, the CFO acts more as a conductor and coordinator of the professional services around the business. The CFO speaks the various languages, understands how to transform business strategy into economic principles, and always seeks to optimize the business. Don’t underestimate what this set of skills can add to your operation.
In a fractional environment using part-time, on-demand services, the CFO has the responsibility as the last line of defense. The beauty of modern services is this can be achieved without permanently hiring. By using a strategy of coordinated outsourced accounting services, the CFO, the accounting manager, and the staff and senior accountants all can be a part of your team. And they use the most current systems armed with the most current laws and regulations specifically tasked with properly accounting for your business. Hiring this expertise in-house is impossible for most operators, but with fractional services, the costs may equal a good salary. But you get a team with multiple areas of expertise to properly and legally document your business’ financial performance. For nearly every livery operator, outsourcing is the way to go to lower cost and improve your reporting compliance.
Keywords
accounting finance financial planning profits
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TORRANCE, Calif. — An aspiration to create the safest cars on the road and eventually prepare for full autonomy is what will set Tesla apart from all others, said Michael Stafford, North America corporate sales manager for Tesla, during a recent press event.
The rollover capacity of the Model S sedan, which has shown up in a few chauffeured vehicle fleets as a premium level vehicle, is enhanced by its structural rigidity.
“We are monitoring everyone that has a Tesla,” Stafford said. “We have millions and millions of miles of road tests, whereas Google is out there trying to rack up miles.”
