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Beyond Financial Management: Is Your CFO a Bookkeeper or a Strategic CFO?

Beyond Financial Management: Is Your CFO a Bookkeeper or a Strategic CFO?

Most often, when you start a business venture, money is tight. You are usually focused on pouring your savings to get the business up and running. While you’re busy managing the day-to-day aspects of running a business, you may overlook other tasks like developing sound processes and workflows that aid in the management of the finances of your business. It happens a lot. However, once your business starts growing, the importance of having a sound accounting and financial management foundation is highlighted.

Most business owners then begin to consider better, more efficient, and accessible ways of understanding their numbers to grow their business. They start to assess the different roles that make up the accounting and finance function. They start asking questions such as; will a bookkeeper be able to take care of the financial functions of my business, how do I find a good accountant, or do I need a CFO? Below we’ll address these questions to help you better understand the financial management team you need to grow your business.

Bookkeeper vs. Strategic CFO

Depending on how big your business is and its lifecycle, there are various options for managing its financial operations. There are internal and external roles that can help with day-to-day financial processes, such as reporting and strategic advisory functions, that have to be considered when choosing a team to manage your business’s finances.

The financial management team you choose will depend on your goals, resources, and the expertise of the people you already have on your staff. Below, we will further explain who strategic CFOs and bookkeepers are to help you determine which of your organization’s needs.

While we understand that these are two VERY different roles within the accounting and finance function of your business, so if you get that, great. However, you’d be surprised how common it is for the duties tied to these two roles (and others) to be very misaligned with excepted responsibilities and skills. We want to clear that up as both are crucial to your growing business.

What is a Bookkeeper and What Do They Do?

A Bookkeeper is tasked with recording and maintaining financial transactions such as sales revenue, expenses, and purchases. These professionals record these financial data into ledgers and financial software such as QuickBooks Online. Bookkeepers are usually most sought after by small business owners to assist with financial management tasks. A good bookkeeper should be able to perform the following tasks:

  • Record expenses, sales, accounts receivables, and accounts payable.
  • Reconcile bank statements to detect any accounting errors, achieve accurate balance, and record the reconciled bank statements in your accounting system.
  • Paying bills: After recording the purchase transactions, the bookkeeper is responsible for ensuring that bills for supplies and inventory purchases are offset.
  • Sending invoices: Bookkeepers prepare invoices and send them to clients so that your business can receive payments on time.
  • Organizing and maintaining various documents such as purchase receipts.
  • Tracking inventory: Bookkeepers track inventory using various accounts to ensure that the stock is neither insufficient nor above the required capacity.

You should expect that a good Bookkeeper or a Junior or Staff Accountant to provide you with basic monthly financial statements such as income statements, cash flow statements, and balance sheets. However, you shouldn’t expect your bookkeeper to perform the following tasks:

  • Provide guidance on how to improve your finances
  • Analyze your financial results
  • Create financial projections of profit or cash
  • Make decisions about the financial directions that your business will take

Making such decisions is where a Strategic CFO comes in.

First Things First, What is a CFO and What do They do?

A CFO is the Chief Financial Officer of a business. As such, a CFO will focus on your financial strategies and overall financial management. But what makes a strategic CFO? A CFO can be a pragmatic strategist by addressing vital uncertainties, constraints, and performance issues and taking tangible, realistic actions geared toward moving the company forward. The CFO accomplishes this by performing the following tasks:

  • Developing strategies and detailed plans for achieving your business financial goals: It is imperative that CFOs up their game strategically. A CFO’s development strategy should entail performing tasks such as assessing the business environment, confirming the objectives of the business, identifying the resources needed to attain these objectives, and then designing ways of achieving them.
  • Providing comprehensive guidance to help you make financial decisions: A good CFO should assess the market conditions, check the viability of different financial investment projects, and advise you whether to invest in them.
  • Preparing annual budgets and financial forecasts: The CFO should be able to create annual budgets that make a baseline to compare actual results to projected results, determine how the results vary, and come up with ways of remedying the variances, especially if they are negative. Also, they should prepare financial projections that tell you whether the company is heading in the right direction and the expected income that the business will achieve in the future. These budgets and their activities should also align with your greater business goals for that year and beyond. Learn more about strategic budgeting here.
  • Measuring and improving financial performance: They should use different measurement metrics such as current ratio, quick ratio, operating cash flow, return on equity, accounts payable turnover, EBITDA & EBITDA growth to measure the financial performance of your business and develop ways of improving the performance.
  • Maximizing profits: The CFO should perform tasks such as controlling costs, improving productivity, and analyzing the pricing strategies to help you maximize your business profits.
  • Assessing and minimizing financial risks: Suppose a given project is not doing well financially as was projected, the CFO should be able to establish exit goals, evaluate exit readiness, promote exit options, provide analysis of the value of exit options, and execute a strategic exit plan. You can learn more about exit planning here.
  • Managing cash: When it comes to cash management, the CFO is tasked with figuring out how to make payrolls and ensuring that the business does not run losses. Most CFOs manage cash challenges by focusing on cash outflows and stemming the amount of money that leaves the organization.
  • Establishing policies and procedures that ensure smooth financial operations: Your CFO should create accounting and financial processes, procedures, and policies that clarify roles, authority, and responsibilities that help align your F&A operations with your financial goals. They should also understand the scope of financial risks that an organization faces and develop mitigation strategies against these risks.
  • Raising capital: A CFO should be able to source investors, shorten the time required to raise capital, ensure that you get the best investors, and negotiate the best price and terms for the equity.
  • Handling mergers and acquisitions: For companies selling or acquiring smaller businesses for growth, a CFO plays a crucial role in the merger process. For starters, they are the ones who create a transactional plan and maximize the synergy with the potential acquisition targets. They also ensure that the integration between your company and the company you’ve merged with is smooth.
  • Managing relationships with shareholders, lenders, and investors: CFOs are also tasked with ensuring smooth relations with various parties such as shareholders, lenders, and investors. They do this by reporting the financial position of the business or paying dividends and loans.
  • Overseeing all accounting and finance staff and coordinating activities among them: A Chief Financial Officer is responsible for controlling the financial activities of a business and coordinating the activities of accountants and financial managers to ensure that they are geared towards ensuring that the company attains its financial goals.

Read more: The CFO of the Future: Why You Need One On Your Team

Can Your Bookkeeper Just Become Your CFO?

As we noted earlier, if you own a small business or a startup, hiring a bookkeeper would be a smart move. The Bookkeeper will help you keep accurate records and ensure that various transactions, such as cashing checks to pay vendors, are handled on time.

However, after your company has grown exponentially, you’ve hired more employees and attracted more clients. Maybe you’re in the stages of making the next big move like an exit strategy, PE/VC investment, M&A, or hypergrowth to an IPO; then it might be time to include a CFO position within your finance functions.

Free Download: Our guide to the Exit Planning process & what every owner needs to know

Given that your Bookkeeper was the one handling your finances during the growth period, you may be tempted to elevate them to a Controller or CFO position. Frankly, that wouldn’t be the most advisable move. For starters, the Bookkeeper or any other lower-level accountant will now be well in over their head. Moreover, given their lack of or limited knowledge on the responsibilities of a higher level and strategic financial position, like a CFO, they won’t be able to provide you with accurate and relevant information on time, if they do this at all. You, therefore, won’t likely get the accurate or deep visibility and analysis needed to understand how well your business is performing financially.

So, does that mean your Bookkeeper will be unable to perform the tasks of a CFO because they are incompetent? Not at all. While this person may be a stellar Bookkeeper or Staff Accountant, performing the tasks of a senior financial officer such as a financial Controller or a CFO is a different beast altogether. Sure, they all perform the accounting and financial functions for the company, but that doesn’t mean that a Bookkeeper’s experience prepares them for senior financial position rigors, challenges, and responsibilities.

That said, there are instances when you can promote your Bookkeeper to a CFO or a financial Controller. You should only take that step if they have the specific accounting, management, finance experience, and applicable degrees needed to be a CFO. Tasking them with the CFO job with limited or no qualifications is unfair to them and puts your company’s future in jeopardy.

In What Ways Can Your Business Benefit from Hiring a CFO?

While most small businesses benefit from having a CFO or Controller on their accounting and financial management team, not all of them need those roles on a full-time basis. Moreover, hiring a CFO on a full-time basis is costly. According to Salary.com, hiring a full-time CFO or Controller employee costs $170-$350K per year in California. As such, fractional CFO services is a more cost-friendly option for small businesses that need strategic financial guidance on a part-time basis. Opting for fractional services ensures that you avoid hefty salaries, bonuses, benefits, and employers’ taxes that accrue from hiring a full-time CFO.

Free Download: Discover how outsourced accounting can provide more visibility into your business

Most business leaders usually question whether they need one or the other, or both a CFO and a bookkeeper? Well, the question you should be asking yourself is how much your business is suffering or open to unforeseen risks because of not having a proper financial management team?

It would be best if you had a bookkeeper if you’re questioning the quality and meaning of numbers in your QuickBooks. That way, you get to have more time focusing on the core functions of your business. However, if you and your management team are looking at your numbers and using those figures to make data-driven business decisions, yet you’re not sure whether your operations are running well, then you need a CFO.

Whatever your answers are, you have plenty of options to choose from. One excellent choice you can make is partnering with an outsourced accounting and finance team that has the mindset of solving your pain points while helping you meet your current and future accounting and financial objectives. They can also support you in building a roadmap to reach big business goals, taking your business from point A to point B and beyond.

There are numerous reasons to hire a comprehensive accounting and finance team. Some of the reasons why many businesses come to us include the fact that they are experiencing exponential growth, rapid change, preparing for a significant transactional event, or need better management, reporting, and improved visibility in their businesses. They may realize that maintaining the status quo or operating on gut feelings without access to solid, reliable data hasn’t allowed them to grow and improve their businesses, and this is where we swoop in.

Our comprehensive solutions allow for greater scalability and flexibility while your company is experiencing periods of growth or change. Working with Signature Analytics provides all clients with full access to your immediate team and anyone on our staff or within our partner network who can add value or solve problems for your business. Your staff gets the benefit of having the additional support and training they might need, and you reap the rewards of having excellent accounting and financial leadership and expertise joining you at the table. Book a consultation to learn more about our services.

 


 

Discover how outsourced accounting can provide more visibility into your business

3 Ways Outsourcing Accounting Can Improve Your Business

3 Ways Outsourcing Accounting Can Improve Your Business

Few people have the accountant’s touch when it comes to handling a business’s finances, and that’s okay. While you, as the executive, have likely spearheaded aspects of your accounting strategy out of pure necessity at this point, it may be time to update your processes and hand the strategy over to the experts.

Instead of scrambling to tackle finances in-house, consider outsourcing. You’ll receive unparalleled accounting support and strategy while gaining a flexible team of accounting experts so you can go back to focusing on your business growth.

Before focusing your attention on growth, let’s cover the three main benefits of accounting outsourcing for your business so you can make an informed decision.

Some main benefits we’ll cover in more detail below, include:

  1. Letting your outsourced team own the accounting process
  2. Having the right, qualified people on your side & managing through turnover
  3. Gaining access to an entire team and extended network of experts

Let’s dive in.

#1 Owning the entire accounting process

While your business expertise is valuable to inform financial decisions, one of the benefits of outsourcing accounting is that the experts provide you with the best and latest processes and technologies to help you efficiently and effectively accomplish your goals.

First, the experts will evaluate your processes. Understanding your current processes is an essential part of your accounting strategy. By outsourcing, your new partner isn’t trying to reinvent the wheel or overhaul your operations.

Outsourced accountants will come in with a fresh set of eyes and use their expertise and experience to offer suggestions on ways to update and improve your processes. They are looking to make things better by adding efficiencies and ensuring new processes and workflows remain scalable to fit your company’s needs as it changes or grows.

They’ll likely evaluate:

  • The current team and their skill sets
  • Information and structure
  • Current processes and technology uses
  • Data cleanup protocols

Next, the team will evaluate your current technology in the same way. Since automating manual processes is imperative to time-saving, updating your technology may be the key to saving valuable time and money.

By eliminating manual processes and implementing automated solutions, you take the hours of manual (typically low-level work) work off your employees’ plate, giving them more time to work on goal-oriented tasks that add value to the business.

Automation also takes human error out of the equation, which reduces the risk or the possibility of fraud.

Free Download: Discover how outsourced accounting can provide more visibility into your business

From there, it’s time to implement the new processes and technology. Your outsourced experts will document all new processes and provide training to your existing employees. They continue to be accountable for maintaining those processes and managing the team, taking the burden of management off the CEO or Owner’s shoulders while also empowering the current team to stay accountable and perform at their best.

After your processes and technology are optimized, it’s important to hire the right people in the right roles to drive your business into the future.

Read more: What is Outsourced Accounting? 

#2 Hire qualified people & reduce turnover

Turnover is inevitable at any company and is even more common at a rapidly growing company.

Common mistakes we see are:

  1. Companies hire lower-level employees and expect high-level output
  2. Companies hire high-level employees with high pay but they focus on low-level work
  3. Companies do not know how to manage or structure an accounting department

In all scenarios, both lead to frustrated employees and subpar results – which frustrates executive management and leaves employees feeling dissatisfied. Employees feel blamed, and oftentimes, you have good people already; they likely need a little training oversight to be more effective in their role.

So do you hire more people? Can you commit to affording to hire more people or the people you need full-time?

With growth or change, outsourcing becomes an ideal solution. One reason is that an outsourced team can provide scalability and flexibility as you grow and provide continuity if you experience turnover.

If you experience internal turnover, the outsourced team is there to fill those gaps temporarily or permanently. If you’re looking to hire for the internal role, your accounting experts can support you with the hiring, onboarding, and training process.

Suppose you experience turnover within your outsourced team. In that case, the good news is that multiple positions are supporting your company within the outsourced team. And there’s always someone who is being training by your outsourced team before the departure. This is why continuity is such a big deal for many.

Free Download: Discover how outsourced accounting can provide more visibility into your business

Overall, your company will experience lower turnover even in times of high demand, cash flow problems, or special projects with an outsourced partner by your side who is helping to manage this process.

Read more: When Should You Consider Outsourcing Your Accounting Operations?

#3 Direct access to a team of experts

Another benefit of outsourcing to an accounting firm is that you gain an immediate team of trusted experts but also have access to the entire team within the company – should you need it.

What’s important is that your outsourced team will integrate themselves into the fabric of your business. They are always looking for new ways to help, offer ideas and insights they’ve seen in the market, and keep you posted on the latest trends, strategies, and technologies.

Since they are always thinking about your business’s well-being and future direction, if they should ever need to bring in another in-house export or provide an introduction to an outside one, you can bet they’ll do it helps your business. They are well connected with many experts outside of accounting, such as advisors in HR, marketing, banking, and various other reliable partners to support you.

***

Ultimately, the level of sophistication a team of outsourced experts can bring to your business is unmatched. With a plethora of experts acting as part of your team and sitting in the driver’s seat of your strategy, problem solvers are consistently a phone call away. Plus, they’re committed to helping your company grow.

Take the burden of accounting off your shoulders and let your outsourced accounting team manage the process for you. You’ll gain a fantastic partnership, improve your business, and gain better insights than you were likely previously capable of doing alone.


Discover how outsourced accounting can provide more visibility into your business

What is Outsourced Accounting?

What is Outsourced Accounting?

Managing the accounting function and financial reporting in a small or medium-sized business is an enormous undertaking for a growing team. Outsourcing your accounting needs gives you expert-level financial service and support to achieve your business goals.

When you identify the need for a partner in your financial department and begin the accounting outsourcing process, your business agrees to let a team of trusted experts come in and help you evaluate everything you currently do. Doing this can maximize your company’s potential whether you’re in a growth or transition period.

What does an outsourced accounting team do?

The experts you outsource should help you define, develop, and achieve your business goals. To begin that process, some firms will assess your current situation. For instance, we like to review four major pillars of your business which are your people, processes, technology, and reporting.

We’ll also take some time to outline your business goals. If you haven’t gone through this process before, a good financial expert can help guide you through various Q&A sessions with the company stakeholders.

From there, it’s essential you bring all of those elements together and design not only a roadmap for improving your accounting function, processes, and financial reporting but ensure that the right metrics, analysis, and KPIs are developed in relationship to the overall business goals. Whether that be raising capital, improving profitability, scenario planning, or managing hypergrowth. This is really bridging the gap between the day-to-day and the big picture stuff.

Free Download: Discover how outsourced accounting can provide more visibility into your business

The onboarding approach your outsourced accountants use may include:

  • Structuring goal development and building a roadmap
  • Validating your information and process optimization
  • Structuring your financial reporting and conducting deep analysis
  • Managing the day-to-day accounting function
  • Focusing on business advisory & forward-looking activities

Structuring your company’s financial and overall business goals is an essential first step in creating alignment between your business and your outsourced experts.

Goal development and building a roadmap to achieve them

Although your outsourced experts are accounting and financial gurus, they are new to your business even if they have previous industry experience. To develop business goals, they’ll start by reviewing and understanding your business by doing an assessment.

This may be looking into your:

  • Industry
  • Business goals and major drivers
  • Current business concerns
  • Immediate needs and priorities

With the combined industry and business knowledge under your outsourced team’s belt, they can begin gathering information and validating your current processes.

Understanding your information and processes

One of the advantages of accounting experts at your business is evaluating all of your current accounting processes and your financial reporting (including accuracy and consistency), so you and your team don’t have to think about it. Additionally, this allows a new team to come in and see things from a fresh, unbiased perspective and make an impact.

The reason they do this is to:

  • Understand your team’s roles, current capabilities and skills, and development goals
  • Review and validate your existing information and structure
  • Perform data clean up to ensure historical accuracy
  • Validate processes, make recommendations for optimization, and implementing new ones where needed
  • Refine how they integrate with your existing team and where they need to fill the gaps

After this evaluation, the experts can seamlessly integrate into your company, your current team structure and are then able to set a foundation for accurate, relevant, and timely reporting.

Delivering sound financial reports and analysis

Now that your business leaders have had an opportunity to build trust with the experts and have reviewed their recommendations, the next step is to give you the information you need to make sound financial decisions.

That information is typically provided in the form of:

  • Expense management
  • P&L statements
  • Accounts receivables and payables
  • Cash flow management and reporting
  • Month-end closing
  • Financial metrics, reporting, and KPIs
  • Business and financial analysis
  • Board meeting support

Not only will your outsourced experts provide the above reports regularly, but they may also take this reporting one step further by providing business modeling and deeper financial analysis to help you reach your business goals.

This reporting may include:

  • Utilization analysis
  • Breakeven analysis
  • Margin analysis
  • Client profitability
  • Annual budgeting & benchmark reporting
  • Business-specific metrics & KPIs

With this measurable data provided consistently, you will create additional value by taking actionable steps to improve your business.

Supporting your day-to-day needs

Not only do your outsourced experts help you achieve your financial business goals, but they also support your day-to-day accounting and financial operations.

Some of that support includes:

  • Payroll processing
  • Manage A/R and A/P
  • Month-end close
  • Workflow documentation
  • Staff mentoring and supervision
  • Inventory process development and setup
  • Bank and credit card reconciliations

Whatever daily accounting operations help your business desires, your outsourced experts are there to ensure everything is getting done on time and there’s a clear delegation of duties and responsibilities, so you don’t have to.

Why would you need to outsource?

Outsourcing your accounting may be a need because of:

  • rapid company growth
  • cashflow has become a challenge
  • you’re not getting the reporting you need
  • you may have just lost a valuable member(s) of your financial department
  • you’re not quite ready to take on the financial risk of employing a full-time accountant
  • you’re having issues getting financial backing from a bank or investor

These are all valid reasons. Whatever the case is, enabling expert accounting, financial, and advisory help in your business – takes some of this burden off your plate. This team truly partners with you and your business leaders so you can focus on other areas of your business.

It’s a classic case of allowing you to start working on your business again instead of working in it.

Free Download: Discover how outsourced accounting can provide more visibility into your business

Outsourcing for growth

As your revenue increase, so do your daily business demands. As a result, your financial needs or the complexities of your finances will also increase. When you’re scaling your business, it’s often helpful to outsource specific back-office operations, such as your finance and accounting department.

Doing so allows you to hire a team of consultants who specialize in going beyond the numbers and meet your growth needs. As a result, this may include implementing new processes, reporting methods, or technology to match your scaling business needs.

Outsourcing due to turnover

When a prominent part of your financial team, like a senior accountant, controller, or CFO, leaves your business, it can be challenging to fill their shoes immediately, and doing their work on top of your own in the interim could lead to burnout.

Additionally, hiring a replacement may not solve the issues that ultimately led to them leaving the company. Many common reasons we see:

  • they feel unsupported by management and have no career path
  • they tend to have too much on their plates and are feeling burned out
  • they are constantly burdened by either doing too low level or work or even too high-level beyond their skillset

By outsourcing, you’re able to fill these gaps with vetted experts who are in the right role because financial experts hired them.

Even if these employees haven’t left your company, we’re able to come in and provide supplemental support, oversight, training, and career path development for your team.

And as you grow, you may eventually need to hire more in-house employees full-time, and your outsource team will still be to support the onboarding or transition of duties when necessary.

Outsourcing because you desire flexibility

If your accounting needs are becoming more complex, you might find yourself spending a lot of time managing them, taking away from other parts of your business. You may also feel uneasy about taking on the financial risk of building out a finance team or are unsure if it’s the right time to do so or who you should hire next.

By outsourcing to a team of experts, you gain the same benefits of having a full finance and accounting team that you usually see are a larger company; however, you pay for fractional support instead of paying for full-time salaries.

And as the business grows or contracts, so can the flexibility of your team. The model is designed to work for your business based on its needs, unlike a full-time staff or staffing agency.

If your business needs accounting and financial expertise and could use a trusted partner as an advisor, consider outsourcing an ideal solution.

Over the years, we’ve worked with several types and sizes of businesses and have seen so much success using this model – that, in many cases, we’ve made lasting relationships as a result.

Contact us for a free consultation and to learn more about outsourcing.

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Discover how outsourced accounting can provide more visibility into your business

PPP Loans: A Second Wave of Relief

PPP Loans: A Second Wave of Relief

Businesses still seeking relief from the impact of COVID-19 may be able to find it in the second round of PPP loan legislation passed by Congress in late December of 2020. The Consolidated Appropriations Act, 2021 seeks to overcome some flaws of the first round of the Paycheck Protection Program (PPP) while providing additional assistance to businesses still suffering in the wake of the COVID-19 pandemic.

Even those who were unable to get funding during the first round of PPP loans can apply for their first-draw under the new guidance. With relaxed rules on which expenses are eligible for forgiveness and specific funding set aside for lenders who operate in lower-income areas, businesses owned by POC, and small businesses, this round of PPP loans is better suited to serve the American population as a whole equally.

Since the program’s initial launch, our team of experts have had a chance to review the program in greater detail and want to provide our findings below. We know navigating through this legislation can be tricky, just know we are here to provide support and guidance to business leaders in need.

Quick Overview of Changes:

  • Dramatically expanded payroll and non-payroll expenses eligible for forgiveness
  • Additional clarity on loan terms
  • Updated limits on loan amounts
  • Clarity on forgiveness and tax savings opportunities
  • Flexibility on the covered period of the loan
  • Revenue reduction proof requirements
  • PPP Loans: The Changes for Round 2

Covered Expenses

To be eligible for PPP loan forgiveness, borrowers must use the funds on approved, covered expenses. Under the new legislation, the 40/60 split is still required: borrowers must use 60% of the funds on payroll expenses and can use up to 40% on approved, non-payroll expenses.

However, covered expenses in both categories have been expanded. Existing payroll costs included:

  • Salary, wages, commissions, tips
  • State and local payroll taxes
  • Paid leave
  • Healthcare payments
  • Retirement plan contributions

Expanded payroll costs now include:

  • Group life insurance
  • Group disability insurance
  • Group vision insurance
  • Group dental insurance

Existing covered non-payroll expenses included:

  • Interest on mortgage payments, excluding prepayments
  • Rent
  • Utilities
  • Interest on debt obligations incurred before the covered period

Additionally, the new legislation expanded forgivable non-payroll expenses to include:

  • Certain operational expenditures like software and cloud computing service payments used to facilitate business operations, accounting, service or product delivery, payroll processing, billing, inventory, and HR functions
  • Property damage costs incurred during public disturbances that happened in 2020 and were not covered by insurance
  • Select supplier costs including payments to suppliers of goods that are essential to operations
  • PPE equipment and other worker protection expenses incurred to comply with CDC, HHS, OSHA, or state and local government authority after March 1, 2020, until the president’s national emergency declaration expires

Note that expenses for HSAs, QSEHRA, and Commuter Benefits like mileage reimbursement are still not covered under the new PPP guidance.

PPP Loan Terms

The new legislation brings additional clarity to the terms of PPP loans. Here are some of the highlights:

  • Interest rates are fixed at 1%
  • Interest is non-compounding and non-adjustable
  • No yearly fees
  • No guaranteed fees
  • No prepayment penalty
  • Borrowers are not required to provide collateral or a personal guarantee

Providing this guidance ensures that lenders cannot take advantage of borrowers seeking PPP loans. Additionally, while the maturity for PPP loans is five years, payments aren’t required until borrowers know how much of the loan will be forgiven.

Borrowers who do not apply for PPP loan forgiveness, however, will have to make payments within 10 months of the last day of their covered period.

eGuide: What Business Should Expect From Their Accounting Department

Loan Funding Limitations

For first-draw borrowers, there is a limit of $10 million or 2.5 times the average monthly payroll and healthcare costs; whichever is less. Some exceptions may exist for restaurants and other hospitality businesses.

The loan limit for second-draw borrowers is $2 million and includes a stricter method of calculation, which is:

  • 2.5 times the average monthly payroll and healthcare costs in the year prior to when the loan was received or the 12-month period prior to when the loan was made
  • Most hospitality and entertainment businesses, including hotels and restaurants, are eligible for up to 3.5 times the average monthly payroll and healthcare costs using the same methodology as above

If borrowers with an outstanding, unforgiven PPP loan would have been eligible for more resources under the new, expanded covered costs, they may amend their loan application and request a higher amount. Loans that have already been forgiven are not eligible to be amended.

Forgiveness and Tax Deductibility

With the expanded eligible expenses, forgiveness is much easier to receive. Additionally, the SBA has simplified the forgiveness process so that borrowers with loans of $150,000 or less may utilize a one-page application.

Tax benefits also exist for PPP loans. The funds are not included in any gross income that a business is required to report. Better yet, expenses that are paid for using the funding from a PPP loan are tax-deductible. That creates a double tax benefit as no taxes are due on the amount received and business can deduct expenses paid using the funds.

The Covered Period

New legislation has provided additional flexibility as to when borrowers use their PPP loan funds. While the covered period for the first-draw remains unchanged, second-draw borrowers can choose a covered period anywhere between 8 to 24 weeks after receiving the loan. This provides much-needed freedom to utilize the funds as necessary and eliminates the restrictions faced during the first-draw covered period.

Updated Eligibility Requirements

First- and second-draw loan recipients each have specific eligibility requirements. Both types of applications require that a business was operational before February 15, 2020, and remains operational. The first difference occurs in the required number of full-time, part-time, or seasonal employees:

  • First-draw applicants: Must have less than 500 employees
  • Second-draw applicants: Must have less than 300 employees or less than 300 employees per business location

Additional Eligibility Requirements for Second-Draw PPP Loans

Proof of 25% Revenue Reduction
One of the more stringent expectations of second-draw borrowers is the required proof of revenue reduction. In order to qualify, borrowers must show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to that same quarter in 2019. The following are all required to be included in the revenue calculation:

  • Fees
  • Dividends
  • Commissions
  • Sales of products or services
  • All revenue from every source in whatever form received or accrued by the borrower and any affiliates

The funding from first-draw PPP loans is, however, excluded from this revenue calculation.

Only loans totaling over $150,000 will require borrowers to submit documentation to prove revenue decline during the application process. However, all borrowers will need to submit this information when applying for forgiveness. Here are some forms that will help provide the proper documentation:

  • Relevant tax forms
  • Quarterly financial statements
  • Bank statements

Fully Used First-Draw PPP Loan
In order to be eligible for a second-draw PPP loan, borrowers must have already used or will use their entire first-draw PPP loan.

Eligible Businesses

The following are eligible businesses for both first- and second-draw PPP loans:

  • Sole proprietors
  • Independent contractors
  • Self-employed individuals
  • Certain 501(c)(6) non-profit organizations
  • Seasonal employers
  • Faith-based organizations that have less than 150 employees
  • Housing cooperatives that employ less than 300 people

For further information on which businesses are eligible, visit the SBA website.

Ready to Apply?

Applications are ready for borrowers now and will remain live until March 31, 2021. Funds are first come, first serve so it’s best to apply as soon as possible. Finding lenders is easier than ever using the SBA’s Lender Match website.

Before applying, it’s best to gather these documents for both 2019 and 2020:

  • Tax returns, if available
  • Financial statements, including profit & loss
  • Bank statements
  • Payroll records and reports

Borrowers can also review the first-draw application and second-draw application when preparing to apply. When in doubt, hiring a professional accountant can help borrowers get the maximum amount from their PPP loans.

Make your strategic budget a priority

How to Create the Perfect Annual Budget for a Business

How to Create the Perfect Annual Budget for a Business

Have you ever wondered how to create a business budget? An annual budget is an essential financial plan for a company’s expenditure for the coming fiscal year. Company owners can use this plan not only to calculate their yearly budget, but also to determine when to file tax forms, get audited, and close the books. Creating a business budget involves balancing your company’s revenue with its expenses using past trends and realistic revenue expectations so that you can predict your needs for the next fiscal year.

Why Does a Business Need an Annual Budget?

A company needs to know how to make a business budget for many reasons. Most importantly, it acts as a roadmap to where your business is going in the next year. Once you establish how much money you have, you can determine how much money you can spend and how much cash you need to meet the goals of your business. Curious how to prepare a budget for a company? This process is vital for several reasons:

  • It sharpens your understanding of company goals
  • It allows you to portray the real picture of what is happening in your company
  • It provides effective ways of dealing with money issues
  • It fills the need for required information
  • It facilitates discussion of the finances
  • It enables you to avoid surprises and gives you full control

This is How to Prepare a Business Budget

Before you begin your forecast for revenue and expenditure, you will need to gather income and expense data from previous fiscal periods. Collecting this information will help you estimate the future budgeting process based on past trends. For example, if you are creating a quarterly budget, then look back at your previous two or three quarterly financial statements. This way, you can create a custom budget based on your desired timeframe. Once you have the trend data, you can use it to create a baseline projection for future revenue and expenditure. For example, if your revenue has increased at an average of 25 percent each quarter, for the past six quarters, increase your baseline projection for the next quarter by 25 percent.

What Are the Elements of an Annual Budget?

For your budget to be adequate, you should break down income and anticipated expenses either by month or by quarter. Which one you choose will depend on the size of your company. The budget should incorporate separate accounts for each of your business’ departments. These departmental mini-budgets should also be broken down by month or quarter. There are many factors that you need to consider when putting together your company’s yearly budget. These components are essential if you want to create an accurate and up-to-date annual budget and maintain control over finances. The budget needs to include:

  • Projected expenses: the amount of money which you expect to spend during the fiscal year. Projected expenses can be broken down into categories such as salaries, office expenses, etc. There are several steps to make a correct estimate of your projected expenses. The first step is to make a list of your company’s necessities for the fiscal year. You can look back at trends from past years to help you stay accurate. Next, make a list of expenses you will require to conduct typical business activities. It would help if you also listed any of your company’s fiscal obligations. Finally, list the items you would like to purchase for your company but may not be able to afford during the upcoming year. Add up all these expenses to provide a guideline for your budget.
  • Projected income: the amount of money you expect your company to make during the coming fiscal year. Projected income includes revenue and any income which may be coming from grants, contracts, funding sources, memberships, and sales. There are several steps you will need to take to reach your projected income. The first step is to estimate the amount you expect to accrue from sales revenue. Next, determine the amount you expect from fees that you charge for services. Finally, estimate the figures you expect from fundraising, investments, and memberships. Adding up these figures will give you your projected income for the year.
  • Interaction of expenses and income: This aspect of the annual budget entails keeping track of the money that was given for a specific activity, item, or position by a funder. It is important to build in any restrictions that might come with the money so that nothing comes as a surprise later.
  • Adjustments to reflect reality: You must remember to factor in funds for emergencies and unexpected necessary purchases. Also, don’t forget that your annual budget will begin as an estimate, so you will need to adjust it throughout the year to make it more accurate. To do so, layout your figures in a useful format so you can easily compare the total expenses with the total income. Stick to your expenditure budget as much as possible because a budget surplus may not show up until the end of the fiscal year.

This is What Should Non-profit Organizations Should Know

Typically, non-profit organizations are required to undergo an annual audit. The audit must be conducted by a Certified Public Accountant (CPA) that will examine your organization’s financial records to ensure that they are accurate. The CPA will also work with you to solve any problems or correct any mistakes. Providing that the records are in good order, and there is nothing illegal found, the CPA will prepare a financial statement for the organization based on the documents examined. The statement certifies that the non-profit’s accounts are in order and that professional accounting practices (or as we recommend, GAAP) have been followed.

This is How You Trim Your Company Budget

In certain circumstances, you may wish to cut your company’s budget. If so, it’s crucial that you do it in an organized way. Here are some considerations to help you decide on what you can and can’t cut:

  • Make sure you don’t cut services or items that are necessary for running your business.
  • Are you able to reduce the number of physical items you need to run a department?
  • Do you need to consider making staff cutbacks? If this is the case, could you reduce staff hours, ask members of staff to increase their share of their fringe benefits, or is it necessary to lay off some members of the staff?

Do Not Disregard an Annual Budget

Annual budgets are essential for evaluating your company’s performance over the course of a fiscal year. Because you will be comparing and raking revenues and expenditure and comparing these aspects to what was budgeted, you can make sure that your company is sticking to its original plans. Budgeting also presents an excellent opportunity for you to identify issues and opportunities. For example, if sales in the first quarter turn out to be lower than projected, you will be able to see where you can cut expenses late in the financial year to remain profitable. Equally, if you introduce a new product that turns out to be more valuable than you anticipated, you will be able to see exactly where you have additional revenue, and you can revise your budget and perhaps use the extra money to increase production.

Looking for some small business budget templates to help get started? Check out the link or contact us. It’s clear to see why annual budgeting is important for your business. You can make sure that you are utilizing your entire annual budget optimally by employing the best budget management practices. This is the only way your company will truly grow and continue to be successful.

 

Make your strategic budget a priority