What, Why, and When is it essential for a business to employ a CFO?

Handling your finances when you first start your business is difficult enough, but as it grows, it becomes exponentially more difficult. It is now time to hire someone whose sole responsibility is to handle your financial analysis and planning.

You ought to hire a chief financial officer (CFO) at some point. Why do you need a CFO? And how does one go about choosing one?

But First, What is a CFO? 

A CFO, or Chief Financial Officer, is a senior executive who is in charge of the company’s financial operations. They serve as market analysts and forecasters. They also manage departments such as accounting and financial planning and analysis, where they discuss the company’s financial situation and plan a course of action.

A CFO reports directly to the CEO and the board of directors. A CFO, as the chief financial spokesperson, collaborates with the COO to identify opportunities and potential risks within the company.

They are in charge of keeping track of all financial activities at the company, ensuring that they are all documented, reliable, and finished on time.

A CFO’s primary responsibilities include, but are not limited to:

• Keeping records
• Management of financial risks
• Data analysis
• Fundraising
• Correspondence with stakeholders

A CFO and his or her team assist the CEO by providing accurate information and a framework that can help guarantee transparency within the company and provide a foundation for making decisions that can help the company grow and develop.

 

Next Question is: Why should I hire a CFO?

A CFO studies and analyzes a company’s finances, including ledgers, staffing, and cash flow. They can simulate your company’s finances in all aspects in order to provide and calculate an accurate ROI for your company, or lack thereof.

According to Inc.com, there are many hidden costs in doing business, such as the cost of maintaining a demanding client. This can be difficult to see without running the numbers, which many people don’t know how to do.

 

Here are the five most important responsibilities of a CFO:

• Financial forecasting and strategy – CFOs alongside the FP&A team analyze financials to make strategic investments and reallocations.
• Reporting – The CFO is responsible for ensuring that financial reporting is error-free, compliant, and timely.
• Management – The CFO is in charge of both the finance and accounting departments, ensuring that proper accounting procedures and policies are followed.
• Transactions- Payroll and accounts payable and receivable are monitored by the CFO to ensure that they are accurate, up-to-date, and paid on time.
• Treasury- The CFO evaluates the company’s financial situation and then charts the best path for utilizing resources in terms of debt and equity.

 

Despite all of these responsibilities, the most important duty of a CFO is to identify business risks and mitigate them through ongoing financial data analysis. This includes identifying underperformance, margins, and potential pitfalls within the team.

A CFO advises key stakeholders on the next steps the company should take after charting the data.

 

Last but not least: When should I hire a CFO?

Making the decision to hire a CFO is a difficult balancing act.

Hiring one too soon may mean you can’t afford one, and hiring one too late may mean you’ve already missed out on an opportunity to advance your business.

Traditionally, a company would not hire until its annual revenue reached $50 million. If they intend to hire in-house, they specifically hire a controller if their annual revenue is between $1 million and $10 million. This controller will be in charge of the bookkeeper and accounting teams, as well as acting as the CEO’s de facto CFO.

When to hire a CFO depends on the company’s financials, competition, market, and growth expectations, as well as the team’s financial skills and experience. Companies with $1 million in revenue are usually able to afford a part-time CFO from an outsourced firm.

 

If you have thoughts about hiring a CFO, here are some things you need to think about

• Would you be able to secure and progress past a Series A without the assistance of a CFO?
• Could you manage corporate tax compliance while maintaining annual revenues in excess of $10 million?
• Would you like an accountant to help you with your workflow and increase your bandwidth?
• Do you have the expertise to forecast future events based on historical data?
• Do you understand cash flow, profit and loss, the bottom line, and so on?

 

You may have access to the company’s financial data, but that does not mean you have the knowledge or expertise to use that data to propel your business forward.

You may be concerned about hiring someone to handle your finances, and you may believe that doing so diminishes or reduces your power and control in the company; however, separation between a CEO and CFO is healthy and natural, and contracted CFO services are a cost-effective solution for most businesses. Working with an outsourced CFO can mean the difference between making it to the championships and not.

 

If you need more convincing that it is time to hire a CFO, consider the following seven indicators:

• Communication has become more difficult. If you are working with many consultants, they can be difficult to communicate with, as they may not understand the work and position of other consultants and can lose direction when working autonomously.

• Contracts are falling behind. Growth in businesses often requires multiple loans to expand, hire key players, and invest in infrastructure. However, keeping up with all of the details can be difficult.

• Risk Management Worries You. Hiring a CFO can help business owners identify red flags and provide timely solutions to “what if” scenarios. A CFO can drive and monitor strategy and plans and provide timely responses.

• Your business is growing. When a company reaches a certain size, additional legal and compliance rules come into play, and they require the assistance of a CFO to manage these regulations. A CFO is a professional who can assist a company in adhering to government regulations and dealing with potential risks associated with its rapid growth.

• The Auditing Process Appear to Be Exhausting. Audits can be intimidating for business owners who are not finance experts, but a CFO can create and monitor accounting systems with internal controls to make them easier to manage and reduce stress.

• Investors Want More Information. Hiring a CFO is an excellent way to ensure that investors are satisfied with the amount of information you provide. A CFO will be able to review and prepare reports for everything from corporate minute books to internal financial controls.

• Tax compliance has become more difficult. Because tax compliance mistakes can be costly and dangerous to your company’s financial health, your CFO should design tax systems that are simple to manage and facilitate accurate reporting.

 

If you’re still curious to know why a CFO is important, consider this definition from Harvard Business Review, which embodies the role’s ethos and functionality:

“CFOs act as: a strategist, offering financial leadership; a catalyst, instilling a financial approach and mindset; a steward, protecting and preserving the organization’s critical assets; and an operator, fulfilling the finance function’s core responsibilities.  “

Harvard Business Review

Now, when you first hear the term CFO, you probably think of large corporations like Apple, Tesla, and so on, and as a small business owner, you might wonder, “What about me?” “What about my company?” “Who would help me manage my company’s finances?” Then we have the solution for you:

Virtual CFO:

A virtual CFO allows small businesses to obtain CFO support that they could not previously afford.

Small businesses now have too many options, resulting in the commoditization of services such as compliance, tax preparation, and bookkeeping. This lowers the value of these services.

Cloud technology reduces the value of basic accounting services, making them more efficient and productive.

Virtual CFOs provide an experienced financial professional at a fraction of the cost of a full-time CFO. 

• They handle all the duties of a traditional CFO, but work remotely and on a part-time basis.

• They offer financial insight and guidance,

• They use cloud technology to monitor the company’s financial health and well-being.

• They also handle back-office functions such as managing accounts ledgers. 

 

So, if you want to learn more about how a CFO or a Virtual CFO can benefit your business or if you need someone to specifically manage your company’s financial responsibilities, feel free to reach out to us for a complimentary discussion on how we can assist you and your business today.

Are you tired of relying on a single source of income? 

Are you looking to increase your earnings and achieve greater financial stability?

Creating multiple streams of income can help you do just that. By diversifying your income sources, you can reduce your risk and increase your overall earning potential and provide greater financial stability. 

What are Multiple Income streams?

Multiple income streams refer to having more than one source of income. It is a strategy for diversifying your income and reducing your reliance on a single source of income. This can include both active and passive income sources and in some cases, portfolio income. 

3 Common Sources for Income:

• Active Income: Active income is the kind of income you earn when you exchange your time and effort for money.

• Passive Income: Passive income, on the other hand, is like making money while you sleep! It’s the type of income that doesn’t require you to actively work to earn money.

• Portfolio Income: Portfolio income is the revenue you earn from your investment portfolio, which includes assets such as stocks, bonds, and mutual funds.

 

What is the difference between Active, Passive and Portfolio Income? 

Active income is like a treadmill – you’ve got to keep running to keep earning. It’s the kind of income you earn when you trade your time and effort for money. This includes things like your salary from your job or the money you make from your own business. Examples of active income include things like wages, salaries, tips, and commissions.

Passive income, on the other hand, is like a money tree – it keeps on growing, even when you’re not actively working. It’s the type of income that requires upfront effort to create or invest in, but once established, they can continue to generate income with little ongoing effort.

Portfolio income is like a tree that bears fruit in different seasons. Each fruit represents a different investment, such as stocks, bonds, and mutual funds. As the tree grows, it produces more fruit and becomes stronger, just like your portfolio income. With careful cultivation, you can enjoy the fruits of your labour and create a bountiful and fruitful financial future.

By having multiple income streams from active, passive and portfolio sources, you can increase your earning potential and financial security.

Let’s kick things off by exploring 6 common sources for income that you can take advantage of.

1. Real Estate
2. Peer-to-Peer Lending (P2P)
3. Affiliate Marketing
4. Freelancing/Consulting Work
5. Investments in Stocks or other assets
6. Creating and Selling a Product or Service

 

• Real Estate

Investing in Australian property can generate great rental income and increase in value over time. With record low interest rates and the assurance of the Reserve Bank of Australia that they won’t rise until at least 2024, it is an ideal time to invest, but don’t forget to factor in the tax implications and expenses involved in maintaining an investment property. Luckily, the Australian Taxation Office offers tax incentives such as interest deductions, insurance deductions, and property maintenance deductions to help investors save money.

Tax Incentives- The ATO has many different tax incentives that you can take advantage of to maximise your bottom line. Take advantage of the ATO’s tax incentives for investors, such as deductions on loan interest, real estate fees, insurance, and maintenance, and learn how to minimise capital gains tax when you buy or sell a property or shares.

Capital Gains Tax (CGT)- Capital gains tax is a tax that you pay when you sell an asset, such as a property or a stock, for a profit. There are multiple ways that you can save on your CGT, read on here to learn how to minimise your CGT with our legal strategies. 

Property Gearing- Investing in property through borrowing is called Property Gearing. It can result in either positive or negative gearing depending on whether you are making or losing money from that investment.

Make sure you weigh the benefits and drawbacks of each investment type and seek professional advice.

• Peer-to-Peer Lending (P2P)

P2P lending refers to the practice of earning interest on money that you lend to others. This requires a bit of an investment but can pay off significantly if done correctly and cautiously.

Through an online platform that connects borrowers directly with investors who are willing to lend money, P2P lending eliminates the need for traditional financial institutions such as banks as the loans are funded by individual investors. The borrowers typically have lower credit scores and are seeking smaller loans, while the investors can earn returns on their investment by providing the funds. 

• Affiliate Marketing

Affiliate marketing is a performance-based marketing strategy in which an affiliate earns a commission for promoting another company’s product or service. This can be done through various channels such as a website, social media, or email marketing. The affiliate will receive a unique affiliate link to share, and if someone clicks on the link and makes a purchase, the affiliate earns a percentage of the sale. 

It’s a win-win situation where the merchant gets more sales and the affiliate earns money without having to create their own product. One real-life example of affiliate marketing is Amazon Associates, where affiliates earn a commission by promoting Amazon products on their website or social media.

• Freelancing/Consulting Work

Freelancing consulting work is a great way to turn your expertise into a source of income. As a consultant, you can offer specialised services such as market research, project management, or training to clients in need of your skills. You can work with clients on a short-term or long-term basis, depending on their needs and your availability. Consulting work generates income by charging clients a fee for your services, which can be based on an hourly rate or a fixed project fee. By building a reputation for providing high-quality consulting services, you can attract more clients and increase your income over time.

This type of work is popular among professionals who have experience in areas such as marketing, accounting, graphic design, and IT. Freelancing consulting work can generate income by charging clients an hourly rate, fixed project fees, or a retainer fee for ongoing work.

• Investments in Stocks or other assets

Investing in stocks and other assets can be a great way to earn passive income and build wealth over time. By purchasing shares in a company, you become a part owner of that company and can earn a share of its profits through dividends. Additionally, the value of the shares can increase over time, allowing you to sell them at a profit. Investing in other assets, such as real estate or commodities, can also be a way to generate income through rental income or appreciation in value. 

However, it’s important to remember that investing always comes with risks, and it’s crucial to have a solid understanding of the market and your investment goals before diving in.

• Creating/Selling a Product or Service

Creating and selling a product or service is a great way to turn your passions into a sustainable income stream. One popular example of creating and selling a product is to start an ecommerce business. This can involve creating a unique product, such as handmade jewellery or artisanal soap, and selling it through an online store on platforms like Etsy, Amazon. Another option for creating a product is to develop a digital product, such as an ebook, online course, or software program. Alternatively, you could source existing products from wholesalers and resell them for a profit. 

Whether it’s baking and selling your famous cookies, offering coaching services, or developing software, there are many ways to monetize your skills and expertise. The key is to identify a niche market and offer a unique value proposition that sets you apart from your competitors.

Now that you have some ideas for generating multiple streams of income you can get started and check out which option to try out. It is important to always introspect and weigh out the pros and cons for each option before committing. Seek professional advice and do your research before jumping in to try a new investment avenue.

If you’re interested in creating multiple streams of income, start by exploring some common sources of income and finding what works best for you. The information provided here is for general informational purposes only and should not be construed as professional, financial, or legal advice. Any reliance you place on such information is strictly at your own risk. Before making any financial or legal decisions, you should consult a qualified professional who can take into account your specific circumstances and advise you accordingly. 

As a medical professional in Australia, you’re always looking for ways to manage your finances effectively and minimise your tax liabilities. One tool that can help you achieve this goal is a family / discretionary trust. 

Here are the top 5 reasons why medical professionals should consider setting up a trust:

• Asset protection: A family / discretionary trust can provide asset protection, as assets held in the trust are separate from the trustee’s personal assets. This can be particularly beneficial for medical professionals who own a family business or investment portfolio.
• Income splitting: By distributing income to family members who are in a lower tax bracket, you can reduce the overall tax bill for your family. This can be particularly useful if you have children who are still studying or are not yet working.
• Flexibility: A family / discretionary trust provides flexibility in terms of the timing and amount of distributions, allowing you to manage your cash flow more effectively. This can be particularly useful for medical professionals who have changing income levels from year to year.
• Tax deductions: There are several tax deductions available for expenses related to managing a family / discretionary trust, such as trustee fees, legal fees, and accounting fees. These deductions can help reduce your tax liabilities and increase your after-tax income.
• Estate planning: A family / discretionary trust can also be a useful tool for estate planning, allowing you to pass on assets to your beneficiaries in a tax-effective manner. This can be particularly useful for medical professionals who want to ensure their assets are distributed according to their wishes after they pass away.

 

When is a family / discretionary trust best used? 

It can be particularly beneficial if you have a family business or investment portfolio, as it allows for tax-efficient income distribution. A family / discretionary trust can be a powerful tool for medical professionals looking to manage their tax liabilities and protect their assets.

It’s important to note that there are also tax implications to consider when setting up a family / discretionary trust. While income distributed to beneficiaries is taxed at their individual tax rates, any income retained in the trust is taxed at the highest marginal tax rate.

Some Tax implications to watch out for:

Operating through a company doesn’t automatically lead to lower taxes. Many doctors mistakenly believe that operating through a company will result in reduced tax payments. However, this assumption is not necessarily true. Below are some implications that you need to watch out for:

• Personal Services Income (PSI) Rules: Doctors providing services directly to patients are subject to PSI Rules. These rules limit certain deductions and attribute personal service income to individual practitioners.
• Additional costs: Operating a medical practice through a company incurs additional costs, including compulsory superannuation payments, PAYG withholding, workers’ compensation insurance, potential payroll tax liability, and increased accounting and compliance expenses.
• Individual circumstances matter: The appropriateness of incorporating a medical practice depends on individual circumstances, such as specialty, premises, equipment needs, and staff requirements.
• ATO guidelines for incorporation: The Australian Taxation Office (ATO) provides guidelines for the incorporation of medical practices. Compliance with relevant laws, valid business reasons, no income diversion, and access to greater superannuation benefits are essential considerations.
• Anti-avoidance measures are in place: Australian tax laws have anti-alienation and anti-avoidance measures to prevent income diversion from personal services to family members or other parties.

 

While there are many benefits to setting up a family / discretionary trust, it’s important to keep in mind that they can also be complex and require ongoing management and compliance.  If you are considering setting up a trust, it’s important to seek advice from a professional accountant or financial advisor who can help you navigate the complexities of trust law and taxation and ensure that it is the right approach for your individual circumstances.

At Aero Accounting Group, we specialise in helping medical professionals setup and manage their family and discretionary trusts. Contact us today to learn more about how we can help you achieve your financial goals and manage your tax liabilities effectively.