GrowthLab Blog

Why Cannabis Accounting Matters

Thu, 23 Apr 2026 14:28:50 GMT

The Biggest Accounting Risks for Cannabis Businesses

Most cannabis operators don’t have an accounting problem — they have a “prove it” problem

Most state-licensed cannabis operators I talk to can produce a P&L and a balance sheet.

That’s not the hard part.

The hard part is that cannabis is one of the few industries where you can be fully compliant with state law and still face punishing federal tax treatment, banking friction, and heightened scrutiny from almost everyone who touches your financials—lenders, investors, buyers, and yes, the IRS.

So “good” cannabis accounting isn’t just clean books. It’s defensible positions : on federal tax, on what goes into inventory and cost of goods sold (COGS), on cash controls, and on whether your financial activity matches your licensed activity. In other words, you’re not just closing the month, you’re building a file that can survive questions later.

If you want a deeper look at how we support cannabis operators across compliance, reporting, and tax-aware accounting, see our cannabis accounting and finance services .

280E is the cash-flow killer — you need to model it like a tax, not a surprise

IRC Section 280E is the headline risk for cannabis accounting for one reason: it can turn a “profitable” business into a cash-starved one.

In plain English, 280E says that if you’re in the business of “trafficking” a Schedule I or II controlled substance (marijuana is still treated that way federally), you can’t deduct ordinary business expenses on your federal return. That means costs that feel fundamental: rent, payroll, marketing, admin, insurance, software, professional fees —may not reduce federal taxable income the way they do in every other industry.

The result is brutal but predictable: effective tax rates can spike because your taxable income can look nothing like your book income. I’ve seen operators budget for taxes the way a normal retail business would and then get hit with estimated payment requirements that feel disconnected from reality, because the rules don’t match their intuition.

This is where FP&A earns its keep. You need an 280E-aware tax cash forecast that models estimated payments, seasonality, and sensitivity, especially margin compression. If gross margin dips three points because wholesale prices soften or yields come in light, your cash tax burden might not dip with it. You’ve got to know that before it happens, not after the quarter closes. For many operators, that starts with a 13-week cash flow model that makes tax timing and liquidity constraints impossible to ignore.

One more thing I push leaders to internalize: month-end close needs a 280E lens. Otherwise, you’ll confuse accounting profit with usable cash—and in cannabis, that confusion gets expensive fast.

COGS is where cannabis tax strategy actually lives — but the rules are tighter than most people think

280E blocks deductions—but it doesn’t change the concept of gross income . That’s why COGS matters disproportionately in cannabis.

Your tax outcome often comes down to a single practical question: what costs are legitimately included in inventory/COGS, and what costs must stay in nondeductible operating expense? Get it wrong and you can create two different kinds of pain:

Internally, you might overstate margin and make bad decisions—pricing, hiring, expansion—based on a profitability picture that isn’t real.
Externally, you might understate taxable income and invite IRS scrutiny, penalties, and back taxes that hammer cash flow.

When people hear “inventory capitalization,” they tend to think it’s a year-end tax adjustment someone else will handle. That mindset doesn’t work here.

Inventory capitalization just means this: certain costs that are connected to producing or acquiring inventory get “stored” on the balance sheet in inventory and then flow through COGS when the product sells. Costs that aren’t properly part of inventory stay as operating expenses—and under 280E, those operating expenses may not help you on federal taxes at all.

The key is that cannabis businesses don’t get to freestyle this. The IRS has specifically addressed inventory-costing rules for marijuana businesses, and their training materials have historically flagged inventory and Section 471 (inventory accounting rules) as central audit focus areas. If your “method” is basically “we’ll see what the preparer does,” you’re building on sand.

What you want instead is a documented, repeatable methodology that you run monthly—how you classify costs, how you allocate shared labor, how you treat overhead, and how you handle variances. Not a one-time scramble in March to reverse-engineer a story.

Inventory accounting is unusually sensitive — because you’re reconciling reality, the GL, and seed-to-sale

In most industries, inventory is a technical accounting area.

In cannabis, it’s also an operational and compliance area—which is why it breaks so often.

The risk isn’t just valuation. It’s everything that happens between “we grew it or bought it” and “we sold it”: **shrinkage, waste, spoilage, destruction events, transfers between facilities, repackaging, remediation, write-downs**. Each of those events needs to be reflected in quantities and value, and each one needs an audit trail.

The control stack I like to see isn’t complicated—but it is disciplined: physical counts on a real cadence, variance thresholds that trigger investigation, clear approval for write-offs, and documentation that explains *why* the adjustment exists. If you’re doing adjustments because “that’s what the system says,” you’re one question away from not being able to support your own numbers.

Then there’s the reconciliation problem that’s uniquely cannabis. Your inventory records usually need to tie out across three places:

Your seed-to-sale / compliance system (the state’s view of your inventory)
Your POS/ERP or inventory tool (the operational view)
Your general ledger (GL) (the accounting/tax view)

When those don’t match, it’s not just a messy close. You can end up with tax issues (because COGS is wrong), audit issues (because support doesn’t tie), and licensing issues (because compliance records don’t reflect reality). I’ve seen operators treat that mismatch like an annoying systems issue—until someone external starts asking for tie-outs and the room gets quiet.

Cash handling and banking: if you’re cash-heavy, your controls need to be overbuilt on purpose

Even in 2026, many cannabis businesses still operate with limited banking access—so they carry more cash than a typical retailer would ever tolerate.

FinCEN guidance has made it possible for banks to serve marijuana-related businesses with heavy due diligence and reporting, but “possible” isn’t the same as “easy.” And even when you do have banking, cash volume often stays higher than normal—because of customer behavior, vendor constraints, or the friction of moving money.

That reality changes what “good controls” look like. If you’re cash-heavy, your controls have to be overbuilt on purpose : daily cash reconciliations, deposit logs that tie to actual deposits, vault counts, dual custody, segregation of duties, and tight documentation retention. If refunds, voids, tips, or cash paid-outs aren’t supported cleanly, you’re effectively asking your financials to be questioned.

This is also where accounting meets diligence. Lenders and investors don’t give cannabis operators the benefit of the doubt on cash. Strong controls reduce the “assume the worst” discount that shows up in underwriting, valuation conversations, and audit scopes. B etter cash documentation makes your month-end faster. When cash is sloppy, every account becomes a mystery account.

Entity structure and related parties can help — or backfire if it’s not a real business separation

A common strategy in cannabis is to separate activities: a plant-touching entity for licensed operations, and separate entities for management services, real estate, IP, staffing, or equipment.

Sometimes that structure is legitimate and helpful.

Sometimes it’s a tax strategy in search of substance—which is where it gets dangerous.

The big misconception is that creating multiple entities automatically improves the tax outcome. It doesn’t. The question the IRS cares about is whether these are truly separate trades or businesses with real economics, real operations, and real records. There are cases (CHAMP is the one everyone cites) that show a separate lawful trade or business can matter—but weak structures can collapse fast under scrutiny.

“Defensible” separation looks like boring, unsexy execution: intercompany agreements that match reality, clear service descriptions, invoices that tie to deliverables, time tracking or cost allocation that isn’t made up after the fact, and clean eliminations/consolidation workpapers so your reporting isn’t double-counting activity.

From an FP&A standpoint, intercompany setups also change how you should read the business. They change margin, cash movement, and tax forecasting. If you only model one entity’s P&L, you’ll miss where the cash is actually going—and you’ll be shocked later when a “profitable” entity can’t make its tax payments.

Indirect taxes and payroll aren’t background noise — they’re liabilities that compound fast

Cannabis operators often focus so hard on 280E that they underweight the taxes that can quietly compound into a real problem: sales tax, excise tax, and local cannabis taxes .

Depending on your state and municipality, you may have multiple layers assessed at different stages—cultivation, transfer, wholesale, retail—with different filing frequencies and definitions. That complexity creates a simple accounting requirement: your chart of accounts has to cleanly separate revenue from pass-through taxes and track liabilities by agency. Otherwise you’ll end up with “phantom margin”—a P&L that looks strong because taxes collected from customers are sitting in income instead of a liability account.

Payroll is the other sleeper issue. In most businesses, payroll is a massive deduction that lowers taxable income.

In cannabis, payroll tied to trafficking may not behave like you expect under 280E—which affects budgeting and tax forecasting. I’ve also seen employers assume normal federal treatment around credits and incentives, only to learn that cannabis doesn’t get to play by normal rules.

The fix isn’t glamorous: build a month-end compliance cadence. Reconcile tax filings to the GL monthly, not quarterly. If you wait, these liabilities don’t just “show up”—they stack, and they hit cash at the worst possible time.

We're Trusted by Growing Cannabis Businesses

How to prioritize your cannabis accounting build-out

If you try to fix everything at once in cannabis finance, you’ll get stuck. The better move is sequencing—because the early decisions drive the later ones.

Here’s the order I’d prioritize:

280E position + tax cash forecasting
COGS / inventory capitalization methodology
Inventory-to-seed-to-sale-to-GL reconciliation
Cash controls + banking documentation
Entity structure / related-party arrangements
State and local indirect tax compliance

If you execute that sequence, “good in 90 days” is realistic. Not perfect, good. That means documented policies, repeatable month-end steps, and clean workpapers that tie out without heroics. It also means leadership can look at the numbers and understand what they imply for cash, taxes, and runway.

This is the core point I’ve learned working with complex operators: in cannabis, accounting isn’t bookkeeping.

It’s risk management and decision support built to defend your tax treatment, your inventory methodology, your cash story, and your compliance record at the same time.

Frequently Asked Questions

Daniel Gertrudes

As CEO and Founder of GrowthLab Finance-as-a-Service (FaaS), Dan is the vision behind GrowthLab’s success. After spending 15 years at Fortune 500 and medium-sized companies, Dan transferred his knowledge into building GrowthLab, which now supports over 400 scaling businesses throughout their entire finance and HR value stream.

Related Blogs:

AI in Accounting Is Powerful—But Only If You Use It Responsibly

Mon, 13 Apr 2026 21:10:06 GMT

AI in Accounting: How to Leverage It Without Losing Control

The following is based on the article written by Matthew Binshtok at Vercel , adapted for accounting teams using AI.

AI accounting tools are improving incredibly fast. They can categorize transactions, generate reconciliations, and propose journal entries in seconds. Internal tools and assistants like Claude Cowork make accounting teams dramatically more productive.

In the hands of disciplined accountants, this is a productivity multiplier. Without rigorous judgment, it becomes a highly efficient way to ship bad assumptions directly into your financial statements .

Our Principles for Using AI in Accounting

As we integrate AI deeper into accounting workflows, we operate under a simple set of principles:

There is a fundamental difference between using AI to accelerate your work and trusting AI to own the outcome. Leveraging means you understand why the AI categorized a transaction, how adjustments affect financial statements, and what assumptions were made. Relying means assuming the output is correct because it looks right.

Leverage AI. Don’t rely on it.
There is a fundamental difference between using AI to accelerate your work and trusting AI to own the outcome. Leveraging means you understand why the AI categorized a transaction, how adjustments affect financial statements, and what assumptions were made. Relying means assuming the output is correct because it looks right.
The accountant owns the result.
AI can do the work. But you own the numbers. Every AI-generated output must pass through human review before approval. Someone must always be responsible for the final figures — AI outputs are not self-approving, no matter how clean they look.
Before you approve, ask yourself:
Do I understand what this entry or reconciliation actually represents?
How could this be wrong, and what would the impact be on the financial statements?
Would I be comfortable explaining and defending this during an audit?

Yes to all → Approve it.
Any no → You have more work to do.

False Confidence

AI-generated outputs are extremely persuasive. They come with well-formatted reports, clean explanations, categorized transactions, and reasonable-looking assumptions. On the surface, it can look like the work of an experienced accountant.

But AI doesn’t fully understand your company’s internal policies, the context behind unusual transactions, tax implications tied to your jurisdiction, or how a decision today affects reporting next quarter.

The gap between “this looks right” and “this is actually correct” has always existed. AI simply makes that gap wider.

Leveraging vs. relying

There is a fundamental difference between leveraging AI and relying on it.

Relying on AI

Relying on AI means assuming that if the system categorized transactions and produced a report, the job is done. No one builds a mental model of what happened. The result is accounting work that looks complete but contains hidden assumptions nobody actually verified.

Leveraging AI

Leveraging AI means using it to accelerate the mechanical parts of the work while maintaining full ownership of the outcome. You understand why the AI categorized a transaction a certain way, how adjustments affect financial statements, what assumptions were made, and what risks might exist in the output. AI can do the work. But the accountant owns the result.

The litmus test is simple: would you be comfortable explaining this output during an audit?

Guarding production

The goal isn’t to stop using AI. The productivity gains are real and will only increase.

When AI can generate large volumes of work, the limiting factor is no longer execution — it’s human judgment and accountability.

Accounting teams should design processes that assume AI will be used and include guardrails like these:

Verification workflows — Every AI-generated output should pass through human review before approval.
Explainable outputs — AI systems should provide reasoning for categorizations, adjustments, or recommendations.
Incremental automation — Automate well-understood processes first (expense categorization, draft reports)

before automating sensitive decisions.

Clear ownership — Someone must always be responsible for the final numbers.

Monthly Accounting for Scaling Businesses

What we’re Investing in

We aren’t just theorizing. Our development team is actively building these guardrails into the AI agents our accounting teams use every day.

At the same time, we’re investing heavily in training and awareness across our accounting and bookkeeping teams. Responsible AI adoption isn’t just about better tools — it’s about better judgment and shared understanding of how those tools should be used.

New AI agents and workflows are introduced gradually, often starting with small groups before broader rollout. This allows us to learn, refine controls, and ensure the systems behave as expected before scaling their use.

Leverage Agents in Accounting. Own the Risk.

Our bar: leverage AI, don’t rely on it.

Accounting work that was incorrect used to look incorrect. That’s not always the case anymore. AI tools are only going to get more powerful. Transaction categorizations will look cleaner. Reconciliations will sound more convincing. Journal entries will appear perfectly structured.

And the temptation to trust the output without questioning it will grow.

The accountants who thrive won’t be the ones generating the most AI-assisted work. They’ll be the ones who maintain ruthless judgment over the numbers they approve.

Before approving AI-generated accounting work, ask yourself:

Do I understand what this entry or reconciliation actually represents?
How could this be wrong, and what would the impact be on the financial statements?
Would I be comfortable explaining and defending this during an audit?

If the answer is yes , you’re leveraging AI. Approve it.

If the answer is no , you have more work to do.

Frequently Asked Questions

Gonzalo Alvarez de Toledo

An accountant and VibeCode developer with over a decade of experience helping US accounting firms adopt AI and automate their processes. At GrowthLab Financial, he builds AI-powered tools that accelerate reconciliations, automate browser-based workflows, and reduce manual work for accounting teams. He pioneered the concept of VibeCode Accounting — a new technical role that combines accounting expertise with the ability to collaborate deliberately with AI: designing, inspecting, and iterating, rather than relying blindly on its output.

Should You Switch from Cash to Accrual Accounting?

Wed, 01 Apr 2026 11:59:33 GMT

Should You Switch from Cash to Accrual Accounting?

Why Should You Switch from Cash to Accrual Accounting?

I’ve watched this decision sneak up on founders more times than I can count.

One day you’re happily running on cash-basis books because it’s simple and it matches your bank balance. The next day you’re trying to understand why you “made money” last month but your cash is gone—or why your P&L looks mediocre while your pipeline and backlog say you’re crushing it.

That’s the moment this question actually matters: should you switch from cash to accrual accounting—and if so, when?

Because switching isn’t just a bookkeeping preference. It changes how you measure performance, how you forecast, how you talk to lenders and investors, and sometimes how—and when—you pay taxes.

The Core Problem or Challenge

Cash accounting answers one question really well: “Did money move?” You record revenue when you receive cash, and you record expenses when you pay cash.

That’s clean. It’s also misleading the moment your business stops being “simple.”

If you invoice customers after the work is done, cash can lag reality by 30–90 days. If you collect annual prepayments, cash can make a month look wildly profitable even though you haven’t delivered the service yet. If you buy inventory or prepay vendors, cash can make you look unprofitable in a month where you’re actually building future margin.

Accrual accounting answers a different question: “Did we earn it or incur it?” You record revenue when it’s earned (when the work is delivered), and expenses when they’re incurred (when they support that revenue)—even if the cash hasn’t moved yet. If you want a quick refresher on the mechanics, here’s a clear breakdown of what accrual accounting actually means in practice .

That’s why teams eventually feel stuck on a cash basis. They’re trying to make real operating decisions with a scoreboard that updates late—and sometimes in the wrong direction.

Key Insights and Solutions

Here’s what I’ve seen over and over again: accrual doesn’t make your business better—but it makes your decisions better.

On accrual, your P&L becomes a performance report instead of a cash-timing report. When your revenue is matched to the costs required to deliver it, gross margin gets clearer, customer profitability gets easier to see, and “we had a great month” starts meaning something consistent.(If your team is still getting comfortable using the report, this guide on how to read a profit & loss statement .

It also forces cleaner thinking about a few terms founders often use loosely:

Accounts receivable (A/R): money you’ve earned but haven’t collected yet—think invoices you’ve sent.
Accounts payable (A/P): money you owe for costs you’ve incurred—think vendor bills.
Deferred revenue: money you’ve collected but haven’t earned yet—common with retainers, annual plans, implementation fees, and subscriptions.

Those three lines are where the cash basis tends to hide operational truths.

There’s also a practical compliance angle. For 2025, the IRS gross receipts threshold commonly referenced for using the cash method is $31 million (inflation-adjusted annually). If you blow past the threshold—or your business model triggers other rules—you may be required to move off cash for tax reporting. And a method change isn’t casual: it typically involves Form 3115 and a Section 481(a) adjustment (a catch-up mechanism so income/expenses aren’t double-counted or missed), as the IRS outlines in its guidance on accounting methods.

So yes—sometimes you switch because it’s strategically smart.

And sometimes you switch because you have to.

Practical Steps or Framework

If you’re deciding whether to switch from cash to accrual, I’d run it through a simple framework: visibility, complexity, and stakeholders . (If you want a side-by-side comparison before you commit, this overview of cash vs. accrual accounting and which is better for your business (lays out the tradeoffs cleanly.)

1) Visibility: Are you flying blind on profitability?

If you regularly ask, “Are we actually profitable?” or “Why does the bank balance not match the P&L?” you’re feeling the limits of cash. Accrual won’t fix cash flow—but it will separate operational performance from cash timing so you can diagnose both.

2) Complexity: Has your timing gotten messy?

Accrual starts paying for itself when you have any of the following:

Meaningful invoicing with payment terms (Net 15/30/60)
Prepayments, retainers, annual contracts, or deposits
Inventory or work-in-progress
Multi-month projects where costs happen before billing
Rapid hiring where payroll is rising faster than collections

If your business has a “delivery cycle” (sell → fulfill → bill → collect), cash basis usually lags too much to be a good management tool.

3) Stakeholders: Is anyone outside the business grading you?

Banks, investors, and buyers generally prefer accrual-based financials because they’re more comparable and harder to game with timing. Even if no one is asking today, if you’re headed toward a credit facility, outside investment, or an eventual exit, accrual makes your reporting easier to trust—and easier to diligence.

Once you’ve decided, don’t treat the switch like a single toggle. Treat it like a controlled migration:

Get your A/R and A/P clean first —old invoices, unapplied payments, vendor credits, and stale bills will haunt your first accrual close.
Define your revenue recognition rules in plain English —for example: “We recognize subscription revenue monthly as the service is delivered,” or “Implementation is recognized when the milestone is complete.” (Here’s a real example of revenue recognition for a subscription model .
Set a cutoff date and run parallel reporting for 1–2 months —cash view for taxes/comfort, accrual view for management. The goal is confidence, not perfection.
Build a monthly close checklist —accrual only works if it’s maintained. That means recurring entries for prepaids, deferred revenue, payroll timing, and reconciliations.

The win isn’t “being on accrual.”

The win is having numbers you can run the business on —every month, without re-litigating what they mean.

Common Mistakes to Avoid

The most common mistake is switching to accrual… and still operating like you’re on cash.

You’ll see it when a founder says, “Our P&L says we’re profitable, so why are we tight?” That’s not an accrual problem—that’s a cash conversion problem (collections speed, billing cadence, payment terms, inventory timing). Accrual reveals it. It doesn’t solve it. This is also where a statement of cash flows becomes no n-negotiable—it bridges accrual profitability to actual cash movement.

The second mistake is ignoring the tax impact. Accrual accounting for management can be a huge upgrade—but tax accounting method changes are their own beast. If you’re changing the method used on the tax return, you need to plan for the mechanics (Form 3115, the 481(a) adjustment) and the timing—because the “catch-up” can move taxable income between years.

Another big one: messy deferred revenue. Teams collect cash up front, book it as revenue immediately, and then act shocked when margins swing or renewals don’t behave. If you take prepayments, deferred revenue isn’t optional—it’s the line that keeps your income statement honest.

Finally, don’t underestimate the operational discipline required. Accrual isn’t harder because it’s fancy—it’s harder because it forces you to be consistent: accurate invoicing dates, clean coding, reconciled balance sheet accounts, and a real close process.

If you don’t have that discipline yet, switching early can create the worst outcome: more complex reporting that’s still not trustworthy.

Monthly Accounting for Scaling Businesses

Next Steps

Should you switch from cash to accrual?

If your business is simple, you get paid immediately, and you mainly need clean numbers for tax filing, cash basis can be perfectly fine. Simple and accurate beats complex and sloppy every time.

But if you’re growing, invoicing, taking prepayments, carrying inventory, running projects, or preparing for outside scrutiny, accrual becomes less of an accounting preference and more of an operating requirement.

The clearest signal I look for is this: Are you making decisions based on financials you don’t fully trust?

If the answer is yes, it’s probably time to move toward accrual—either fully, or at least in the way you manage the business—so your P&L reflects performance, not payment timing. And once you’re there, accrual-based reporting tends to unlock better forecasting, budgeting, and KPI visibility through a real Financial Planning & Analysis (FP&A) process .

From there, the next step isn’t a dramatic system overhaul.

It’s a controlled shift: clean up receivables and payables, define recognition rules, build a monthly close, and get to the point where your numbers tell the same story every month—without excuses.

Frequently Asked Questions

Daniel Gertrudes

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CAS is a Prescribed System and not an Hourly Service Line: How Accountants Can Stay Indispensable in an AI World

Mon, 09 Mar 2026 14:45:31 GMT

Client Advisory Services: How Accountants Can Stay Indispensable in an AI World

I’ve spent the last 13+ years sifting through founder meetings, and the biggest surprise is this: most aren’t asking for “cleaner books”. They’re wondering, “Am I going to be okay?”

They’ve got payroll coming, a major customer wobbling, a key hire to make, and they’re making decisions in the dark. The financial might be done and delivered but they don’t feel clear. That’s where Client Advisory Services (CAS) comes in. It’s not about just closing the books but turning the numbers into decisions, de-risking, and a plan you can actually run.

Why is CAS essential for your clients and for your firm?

Businesses are operating with thinner margins and navigating more uncertainty than they’re comfortable admitting. They don’t just want historical financials or financial pro formas. They want guidance. They need a partner who is an extension of their team and can clearly translate numbers into decisions.

I believe that the CAS is the bridge between “here’s what happened” and here’s what to do next.” And as routine work gets commoditized, firms that win will be the ones who consistently turn financials and dashboards into decisions.

Moreover, for firms, CAS addresses an equally important challenge: differentiating the value proposition. If your primary revenue source is producing compliance deliverables, you are increasingly in a price war because automation and AI will continue to drive down the cost of routine work. (This is why GrowthLab started STRMS.io in 2022). That doesn’t mean accounting compliance isn’t important; it just means it is becoming less of a premium offering.

I meet with many firm owners, and here’s what they won’t say out loud: advisory services often break down not because accountants lack expertise but because advisory is difficult to price, impossible to scale, and offered sporadically or reactively.

CAS wins when you turn it into a repeatable, prescribed operating system, and not an occasional “nice conversation.”

AI changes the game, but not the way most accountants fear

There are two versions of the AI conversation in accounting right now: Hype and reality .

No doubt AI is compressing the time and cost of routine work such as coding, reconciliations, and first-pass reviews, not to mention insights. The client baseline expectations are rising. The value shifts from producing financials and reports to interpreting with judgement and trust. AI Insights can tell a client what changed but CAS helps them decide what to do about it and what to do next.

The human side now enters the equation. Clients won’t be hiring an accountant because we love spreadsheets; they hire because they want greater confidence and someone who can bring calm to complexity and clarity to the chaos.

I think of it as “Automation buys time.” Trust and unreasonable hospitality earns you relevance.

The GrowthLab approach: It’s all about Cadence + Rigor + People

At GrowthLab, we’ve always appreciated that advisory scales when you treat it like a product. Simply put, standardize parameters and pricing, backed by documented process, a defined scope, and fixed monthly fee. That’s how you solve for the sporadic advisory challenge without losing humanity and hospitality.

We obsess over these two words: cadence and rigor . Here’s our way to explain CAS: if you want CAS to scale, you need rhythm your people can repeat and your clients can rely on.

The GrowthLab 4: The four questions we ask every month - Our CAS Compass

The GrowthLab 4 is core to how we keep advisory grounded, practical and relevant:

Cashflow - What are our sources and uses of cash (and timing)?
Profitability - Where are we making and losing money?
People - How do we pay for performance?
Marketing - How do we maximize our marketing ROI?

And what does CAS look like in the trenches (a monthly recurring workflow you can steal)

Many talk about CAS yet few can describe the actual recurring actual workflow that ensures consistency and delivers value to the client. Here’s a simplified version of the cadence we use to keep advisory from drifting or worse yet becoming reactive.

Prep and Package : Our analysts and CFOs don't walk into a meeting hoping to find the story. We ensure the close is complete by working with the accounting team, ensuring the reporting package is ready (actuals-to-budget, for example), and updating the forecast .
The Ops Call (what changed in the business) : Happens prior to the close at the beginning of the month, where we capture real-world inputs that affect anticipated outcomes: headcount, pipeline shifts, marketing changes, operational constraints, product development priorities, capital needs, etc. This is the important call because it prevents the classical CAS failure: talking about last month, even though the business dynamics have already changed.
The Finance Call (what were the variances in the numbers and why) : After the close call, we now connect the operational reality to the financial story: Actuals vs Annual Operating Plan (Budget) vs Updated Forecast, risks and opportunities based on variances, cash flow (13-week cash flow), and scorecards.
Closing the loop (recap + updated rolling forecast) : Every cycle ends with documented takeaways, a follow-up recap, updated 12-month rolling forecast based on what we learned, creating clarity and momentum.

If you’re an accountant feeling like this is a lot, here’s the good news: it is, and it is valuable. But it is not more work; it is structured work that can be leveraged with AI and the right talent. Structure is what makes CAS teachable, repeatable, and ultimately scalable.

The Annual Strategic Business Cycle - The backbone of CAS

The monthly advisory is powerful when it is based on cadence + rigor + the right people. But the real unlock is connecting the monthly cadence to an annual planning cycle: Long Range Plan > Annual Operating Plan > 12-month Rolling Forecast > Monthly Ops and Finance Calls. That’s how your client stops feeling like they are reacting to the business and start feeling like they are in the driver's seat.

There will be unforeseen risks and opportunities along the way, but the cadence and numerous touchpoints help de-risk business operations throughout the year under your leadership.

Preparing the next generation: the job is changing

As a non-accountant who owns an accounting firm, I understand firsthand the challenges accountants face in offering advisory services. The profession is also being asked to evolve faster than we’re training people or recruiting non-accountants to the profession. Next-generation training needs more than technical accounting and compliance coursework.

They need:

Technical fluency (systems, processes, AI)
Communication (explaining causals and tradeoffs simply)
Critical thinking (stating the obvious vs inference)
And dealing with Ambiguity (beyond balancing debits and credits)

CAS is different work. And that’s why I believe in structured CAS education, making advisory a competency model to develop and mentor with intention, versus hoping your accounting staff just picks it up.

This is why it’s exciting that Intuit has developed its Client Advisory Services Foundations Pathway - a free program that provides 50-hours of hands-on training in the competencies that matter for CAS professionals. Courses include training on: accounting fundamentals, technology and AI, client communication, and financial analysis.

The Future is more Human: Unreasonable Hospitality + AI

As AI and automation accelerate, clients will have more data and more DIY opportunities but not more confidence. CAS is how the profession becomes the trusted partner that helps business owners make strategic decisions in the future. Build a repeatable system and process, use AI to remove busywork, develop and attract the right people, and lead with calm and clarity.

This blog is a paid partnership with Intuit.

Daniel Gertrudes

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The Most Common Year-End HR Mistakes

Tue, 03 Feb 2026 17:32:29 GMT

The Most Common Year-End HR Mistakes and How to Prevent Them

A Practical Guide to Avoiding Payroll, Benefits, and HR Compliance Errors

Every February, after year-end payroll filings, W-2s, 1099s, benefits reconciliations, and compliance reporting are complete, the same issues surface again and again.

The most common year-end HR mistakes rarely come from December itself. They’re the result of small payroll, benefits, and compliance gaps that compound quietly throughout the year.

For growing businesses without dedicated HR or payroll teams, these mistakes are common, not careless.

Payroll systems, HRIS platforms, benefits providers, and tax agencies don’t always stay in sync. This becomes more challenging as:

Employees move
Roles change
Companies expand into new states

The good news? Most year-end HR errors are preventable. You just need consistent, proactive processes throughout the year.

Below, we break down:

The most common year-end HR compliance mistakes
Why they happen
How to prevent them from happening again

W-2 and Payroll Tax Errors That Cause Year-End HR Problems

W-2 and payroll tax issues usually come from the same root problem: misaligned data.

Payroll systems, HRIS platforms, and benefits records often fall out of sync. This happens when:

An employee moves
A tax rate changes
The business expands into a new state

In many cases, tax settings are never updated to reflect these changes.

When these details aren’t correct throughout the year, they show up as incorrect W-2s, wrong taxable wages, and state tax notices.

Common Payroll and W-2 Errors

Employees taxed in the wrong state after relocating
Employee addresses not updated promptly
Incorrect SUTA rates carried over from prior years
Missing local or municipal tax setups
Misaligned exempt vs. non-exempt classifications
Off-cycle payments not processed through payroll
Fringe benefits missing from taxable wages (HSA, FSA, GTLI, S-Corp health premiums)

How Payroll Errors Impact Your Business

W-2 corrections and amended filings
Confused employees and reduced trust
State tax notices, penalties, and interest
Time-consuming payroll adjustments
Increased year-end costs and operational stress

How to Prevent Payroll and W-2 Issues

Build a quarterly payroll → HRIS → benefits audit. A quick review each quarter helps keep employee data, tax settings, wages, and benefit deductions aligned across systems. This process catches small issues early, before they turn into:
Incorrect W-2s
Mismatched benefit totals
State tax notices
Update all tax settings immediately when an employee moves. A change of address can shift which state or city taxes apply, which unemployment rate you owe, and whether new registrations are required. Update the tax setup at the time of the move to ensure wages are taxed correctly and to prevent amended filings.
Update SUTA rates every January because they are subject to change every year. State unemployment tax rates are reassessed annually, and payroll systems don’t always update them automatically. Using the wrong rate, even for one payroll, can trigger underpayment notices and additional penalties.
Run every off-cycle payment through payroll right away. Handwritten checks, reimbursements, spot bonuses, and late payments should always be run through payroll. This ensures taxes are calculated correctly. If they aren’t, year-end wage totals can be incorrect, and W-2s may need to be fixed.
Maintain a simple fringe benefits tracker. Items like life insurance over $50,000, car allowances, relocation stipends, and S-Corp owner medical premiums must be added to taxable wages. Tracking them throughout the year avoids scrambling in December to remember who received what.
Use a classification checklist when promoting or restructuring roles. Promotion decisions and role changes sometimes shift whether someone should be exempt or non-exempt under federal and state overtime laws. A quick classification review prevents misclassification penalties and incorrect wage reporting.
Use our Guide to Setting Up Payroll for Small Businesses .

Why this matters:

Most year-end mistakes can be prevented with small, consistent habits throughout the year.

Keeping payroll and tax settings up to date helps:

Protect your employees
Reduce compliance risk
Save hours of cleanup during the busiest time of year

Check out our Year-end compliance & payroll checklist .

Benefits Reconciliation Errors That Create Year-End HR Issues

Benefits-related payroll mistakes often occur because payroll deductions, HR systems, and insurance carriers fall out of sync — especially after Open Enrollment or employee life events.

Common Benefits Administration Mistakes

Incorrect payroll deductions after Open Enrollment
Dependents enrolled with carriers but missing from payroll
Incorrect employer contribution amounts
Missing benefit waivers leading to unintended enrollments
Employees on leave not transitioned correctly in benefits systems

The Cost of Benefits Misalignment

Employees lose coverage or face denied claims
Incorrect insurance invoices
Delayed reinstatements
Overpaying for dependents who shouldn’t be covered

How to Prevent Benefits Reconciliation Problems

A monthly invoice → payroll deduction audit. Comparing your carrier invoice to payroll deductions each month helps ensure everything matches. It confirms employees are charged correctly and that employer contributions align with the carrier’s records. This quick review can catch:
Missing deductions
Incorrect amounts
Outdated dependents
Employees still enrolled in waived plans

Catching these early helps prevent billing errors and coverage issues.

A shared OE change log accessible to your HR/payroll partner. During Open Enrollment, dozens of small changes happen at once. Keeping all elections, waivers, and dependent updates in one shared location ensures nothing gets lost between the benefits platform and payroll. This log becomes your “source of truth,” reduces back-and-forth questions, and prevents missed payroll updates that lead to incorrect deductions.
A benefits eligibility tracker for employees on leave. Leave status can affect an employee's benefits. It determines whether coverage continues, when premiums change, and when benefits must be stopped or restarted. Keep track of important details like:
Leave start and end dates
Grace periods
Premium responsibilities

Doing this prevents coverage gaps, billing mistakes, and compliance issues, especially for state-mandated leave programs.

A standard workflow for life events (marriage, birth, divorce, etc.). Life events give employees a limited time to add or remove dependents and adjust benefits. Having a clear, repeatable process for:
Notifying HR
Updating documentation
Adjusting payroll

ensures changes happen on time and in the correct order. This protects employees from denied claims and keeps payroll and carrier records aligned.

Why this matters:

When payroll and benefits don’t match, employees often discover the problem at the worst possible time — during medical appointments or claims.

Ready to get started?

Common 1099 Reporting Mistakes for Contractors

1099 reporting is straightforward only when contractor payments and vendor information are centralized and complete.

Common 1099 Compliance Issues

Contractors paid through Zelle, Venmo, PayPal, or handwritten checks
Missing or incomplete W-9s
Incorrect FEINs that don’t match IRS records
Contractor payments recorded in accounting systems but excluded from 1099s
Issuing the wrong form (1099-NEC vs. 1099-MISC)

The Business Impact of 1099 Errors

IRS mismatch notices
Delayed filings
Amended 1099s
Increased audit risk

How to Prevent 1099 Reporting Errors

Collect a completed W-9 before the first payment. A W-9 gives you the legal name, address, and tax ID the IRS uses to match payments to the right person or business. If you don’t have this information upfront, you risk issuing incorrect 1099s or getting IRS mismatch notices later.
Centralize all payments; one system, one owner. When payments to contractors happen through multiple platforms (PayPal, checks, Zelle, credit cards, etc.), year-end totals become incomplete or inconsistent. Running everything through one system with a single person responsible keeps your records accurate and audit-ready.
Run a mid-year contractor audit to catch missing info. A quick review halfway through the year helps you spot missing W-9s, incorrect addresses, outdated tax IDs, or contractors who should actually be employees. Fixing issues in June is far easier than correcting 1099s in January.
Use a single tracking sheet for all contractor spending. A simple spreadsheet or dashboard that logs every contractor payment — no matter how small — becomes your source of truth at year-end. This prevents underreporting, duplicate 1099s, and time-consuming reconciliation when filing deadlines are approaching.

Why this matters:

Clean contractor records reduce audit risk and eliminate last-minute year-end scrambles.

HR Compliance Issues: The Small Gaps That Create Big Problems

Many businesses underestimate how many employment laws apply to even small teams — and how frequently those laws change.

Common HR Compliance Gaps

Missing or expired I-9 documentation
Required state notices never issued
Outdated or missing harassment prevention training
Employee handbooks referencing old laws or unused policies
Payroll job titles that don’t reflect actual duties

What These HR Compliance Errors Lead To

Fines during audits
Legal exposure in disputes
Inconsistent management practices
Employee confusion and mistrust

How to Prevent HR Compliance Issues

Quarterly personnel file audits
A state-by-state required notice tracker
Annual handbook updates each November
A training calendar for mandatory courses
Routine alignment checks between job descriptions, payroll titles, and responsibilities
Review our Yearly HR Compliance Every Business Should Know

Why this matters:

Outdated HR policies quietly increase risk — often without leadership realizing it until an issue arises.

How GrowthLab Helps Prevent Year-End HR Mistakes

To help businesses avoid recurring year-end HR and payroll problems, GrowthLab Financial’s People Advisory Services team provides year-round support, including:

Quarterly payroll cleanup and readiness checks
PTO, sick leave, and time-off compliance reviews
Benefits reconciliation (payroll ↔ carrier)
Multi-state payroll tax audits and registrations
Personnel file and I-9 audits
Contractor classification and 1099 readiness
Annual handbook updates
A quarterly HR compliance dashboard tailored to your business

If your organization is tired of reacting to year-end issues, GrowthLab can help you build systems that prevent them altogether.

Key Takeaways

Proactive Audits: Most year-end errors stem from small data gaps that compound over time. Quarterly payroll audits and monthly benefits reconciliations are the most effective way to catch issues early.
System Alignment: Ensure payroll, HRIS, and benefits carrier data are synchronized immediately after employee moves, role changes, or life events.
Tax Accuracy: Prevent W-2 corrections by updating SUTA rates every January and tracking taxable fringe benefits throughout the year.
Contractor Compliance: Collect W-9s before the first payment and centralize all contractor spending into a single system to simplify 1099 reporting.
Regulatory Readiness: Maintain a compliance calendar for annual handbook updates and state-specific labor notices to reduce legal exposure.

Abigail Church

Abigail Church, HR Business Partner at GrowthLab, brings a wealth of experience from her 12 years working for global corporations before transitioning her focus to small businesses. She has over eight years of experience in payroll and payroll tax registration and compliance, and leverages her cumulative knowledge and skills to collaborate with leadership, ensuring a dynamic and inclusive workplace. She adeptly aligns HR strategies with the company's overall objectives while also addressing critical aspects of payroll management and regulatory compliance.

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AI Automation ROI: The Truth for Small Businesses

Tue, 27 Jan 2026 15:36:23 GMT

AI Automation ROI: The Uncomfortable Truth for Small Businesses

(And why most companies are measuring it wrong)

I’ve been wrestling with one question since 2022 when we started GrowthLab’s STRMS.io and first started investing seriously in workflow automation and AI:

How do you measure the true ROI of AI when you’re spending hundreds of thousands of dollars (5%-10% of revenue) on engineering talent, management oversight, tools, and implementation?

This question comes up constantly in my conversations with other business owners, accounting firm owners, and service business operators, especially those doing between $2M and $20M in revenue.

The challenge isn’t whether AI can create value. It can.

The challenge is that the value often shows up in ways that make your Outsourced CFO head spin in the first 6 months. And in a world where everyone wants instant gratification, that creates a lot of confusion, disappointment, and “innovation theater.”

So I want to share the most honest answer I can, grounded in what I’ve experienced personally at GrowthLab and what we’ve observed while building automations for other companies.

If you’re investing in AI, you need to start by accepting this:

AI ROI in small businesses is real, but it’s rarely immediate, rarely linear, and often measured in the wrong places.

AI ROI basically shows up in a few places

When you strip away the hype, AI and workflow automation ultimately impact a business in two primary ways:

Cost efficiency → improved margins, increased capacity, reduced friction
Revenue growth → new customer acquisition or expansion inside existing customers

There’s also a third category that doesn’t get enough airtime, but in my view, it matters a lot:

3. Risk Resilience → flexibility when markets contract or the business needs to right-size

Most managers obsess over #1 and #2. Almost no one plans for #3 until they’re forced to.

So the “how” matters; let’s break these down.

The cost-efficiency myth: why one automation won’t save you money

Here’s the part that will make some people uncomfortable:

A single automation almost never produces immediate cost savings in a small business.

Whether it’s an AI agent or a “linear” workflow automation, the real world doesn’t work like this:

“We built an automation, we can eliminate a role.”

In smaller companies, people wear multiple hats. Roles are messy. Work is interconnected. And the idea that one automation will magically delete part of your payroll is usually fantasy.

What happens instead is this:

You build an automation
It removes friction from one part of one workflow
The team gets faster
The team gets better
But payroll stays the same

So leaders look at the investment and think, “Where’s the ROI?”

The ROI is there. It’s just not showing up as an immediate reduction in headcount.

The real reason: automations get “sprinkled” across the business

Here’s what I’ve seen over and over again, especially in businesses under $20M:

When companies start building automations, they usually spread them out across the org:

A little automation in HR
Some in accounting and finance
Some in customer experience
Some in marketing and sales

This is natural. Teams see pain points. They want relief. You start solving problems where they show up. Moreover, smaller companies under $20M may have the breadth of functions but not the depth in complexity and volume.

Therefore, “sprinkling” is exactly what makes cost ROI hard to measure.

Why? Because cost savings typically require you to concentrate automations around a specific role or function enough that you can:

eliminate a role, or
avoid hiring the next role, or
consolidate responsibilities across fewer people

When automation is scattered, the outcome is usually:

✅ better quality
✅ faster delivery
✅ fewer mistakes
✅ less chaos
✅ less overtime
✅ happier customers

All good outcomes. But not always a clean line item on the P&L… except for the incremental engineering or consultant expenses.

So when does cost ROI show up?

In my experience, on the cost-efficiency side, it can take 18–24 months before ROI becomes obvious enough to point to with confidence.

Not because AI “doesn’t work.”

But because the payoff doesn’t come from one automation. It comes from a concentrated portfolio of automations.

Cost ROI shows up as capacity before it shows up as

savings

The early ROI looks like:

“We’re getting more done with the same people.”
“The team feels less underwater.”
“We’re turning things around faster.”
“We’re dropping fewer balls.”
“Our quality has improved and less rework.”

The later ROI shows up as:

Avoided hires as revenue grows
Margin expansion as costs don’t rise linearly
Consistent throughput with fewer people
The ability to right-size without collapsing delivery

This is the key unlock:

AI cost ROI is more often about avoiding future costs than cutting current costs.

That doesn’t make it less real; it makes it harder to measure with traditional thinking and accounting metrics.

The practical way to measure cost ROI

If you want a cleaner measurement model, stop trying to measure AI ROI solely as “cost reduction.”

Instead, measure it as one of these:

1) Capacity ROI (time and throughput)

Track:

hours saved per week per job/process by employee
cycle time reduction (essectially how long a process takes end-to-end)
fewer handoffs and rework

Even if you don’t translate it into dollars immediately, this creates baseline visibility. We integrated one of these KPIs into our EOS Weekly Scorecard.

2) Avoided-hire ROI (the most honest metric for SMBs)

This one is simple:

If revenue grows but headcount does not, you have created leverage.

That leverage is measurable even if it’s not “a layoff.” At GrowthLab, we experienced this during the 2024-2025 economic slowdown, where revenue slowed to single-digit growth, yet quarterly margins grew over 10 points while headcount decreased.

3) Margin trend ROI (but with discipline)

Gross margin and EBITDA margin are the ultimate scoreboards.

But the discipline is this:

Don’t attribute margin improvement to AI unless you can explain:

what workflows changed
what capacity constraints were removed
and why this isn’t simply pricing, seasonality, or random variance

The mistake is treating margin improvement as proof.

The better approach is to use margin improvement as the financial outcome and workflow metrics as the operational explanation.

Revenue-side ROI: faster, but only if your GTM is structured

On the revenue side, you can observe ROI sooner.

But it comes with a big catch:

AI accelerates what already exists. It doesn’t magically create a go-to-market engine.

Most small businesses still grow through:

relationships
referrals
founder-led selling

That’s not a bad thing. It’s just harder to “automate” because it isn’t a system, it’s a person.

Where AI can truly help revenue growth is when there’s already a defined motion:

a clear ICP
a structured inbound funnel
or a repeatable outbound workflow

In those environments, AI can improve:

targeting accuracy
speed-to-lead
personalization at scale
follow-up consistency
pipeline hygiene and prioritization

This is where AI can increase throughput and conversion, meaning revenue ROI becomes measurable.

But again, it requires maturity.

Our GrowthLab Experience: Where we’ve seen the biggest ROI… inside the existing customer base

Here’s the part that surprised me as we matured our own AI strategy:

The greatest ROI we’ve experienced has come from identifying opportunities and risks within our existing customer portfolio, not from pure acquisition.

Think about it:

Most businesses are sitting on an enormous amount of signal data in:

client meetings
support tickets
project notes
emails
slack messages
financial reports
feedback loops

But humans don’t have the bandwidth to synthesize it all daily. Even great operators miss patterns because they’re busy delivering.

AI changes that.

It can review and synthesize signals across hundreds of interactions and mediums:

cross-sell opportunities
expansion opportunities
early warning signs of churn
scope creep patterns
operational risks
unmet needs customers aren’t stating directly

This is a form of intelligence that small businesses have never had access to at scale.

And in my view, it’s where AI becomes a growth engine that also improves customer experience.

The ROI decision every owner has to make

So here’s the real fork in the road:

Option A: Wait until you have a perfect, provable use case

This is the “safe” route.

You invest only when:

the use case is obvious
the savings are immediate
the measurement is clean

But you risk being late.

Option B: Invest early and build a portfolio of agents and automations over a 24 month period

This is the “strategic” route.

You accept that:

the first 6 -12 months will feel underwhelming
early wins will look like operational relief, not instant profit
the value compounds over time as the portfolio grows

In my experience, this is where durable advantage is built.

And there’s a second benefit that rarely gets talked about:

AI creates optionality.

When markets soften or uncertainty rises, a business with automation and AI embedded in workflows has greater flexibility to adapt without chaos.

That, too, is ROI but just not the kind that shows up on a dashboard until you need it.

A simple AI ROI Scorecard you can use quarterly

If you want to measure AI ROI like an operator, not a like an accountant, here’s a practical scorecard.

Review this quarterly:

Adoption and portfolio health

of automations / agents in production ⇒ % actively used weekly
owned by a specific role (clear accountability) ⇒ failure rate / exceptions rate

Capacity and efficiency

hours saved per function (estimated + validated)
cycle time changes (close, onboarding, response time, delivery time)
reduction in rework / error rates
fewer handoffs in key workflows

Financial outcomes

avoided hires (roles you didn’t add despite growth)
gross margin trend with causal
EBITDA trend with causal

Revenue outcomes

expansion pipeline sourced by AI (count + $)
conversion rate improvements in funnel steps
retention improvements (if AI impacts CX and responsiveness)

Resilience

ability to maintain customer delivery with fewer people
ability to redeploy talent to higher-value work
ability to right-size without collapsing service quality

This scorecard won’t make AI ROI “instant.” But it will make it visible, explainable, and operationally grounded.

The Bottom Line

If you’re a small business investing in AI, here’s the most honest conclusion I can offer:

You don’t invest in AI for a single automation. You invest in AI to build leverage.

Leverage shows up as:

margin expansion over time
avoided hires as revenue grows
better throughput without burnout
improved customer experience
faster identification of expansion and risk inside your customer base
optionality when uncertainty hits

It’s not always exciting in month three or nine!

But in month eighteen? It becomes very hard to imagine going back.

And the companies that build this muscle early will be the ones that thrive as the decade

moves on because the competitive advantage won’t be “knowing about AI.”

It will be operating with AI embedded into real workflows.

GrowthLab Example: What AI ROI looked like in the real world

At GrowthLab, our AI and workflow automation investments didn’t create instant, “one-automation = one job” savings. The ROI showed up as capacity and margin expansion over time .

In December 2023 , we had 25 employees across our accounting and tax departments. Today, we operate those same departments with 18 employees , while revenue has continued to grow steadily. Put simply: we built workflows and AI-enabled systems that allowed output to increase without headcount scaling linearly.

By December 2025 (2 years after the restructuring) , our margins reflected that compounding leverage with accounting department gross margin climbed back to just under 55% , the highest level we had achieved in several years. We can’t isolate exactly how many margin points came only from AI, but we can clearly observe the operational impact: revenue growth + fewer people + improved consistency.

The biggest lesson: for small businesses, AI ROI often appears first as avoided hires and increased capacity , then later as margin expansion but not immediate payroll reduction.

Key Takeaways

Timeline: Real AI ROI in small businesses typically takes 18–24 months to manifest clearly.
Avoided Hires vs. Layoffs: ROI is more often found in "avoided future costs" and increased capacity rather than immediate headcount reduction.
The "Sprinkling" Trap: Spreading automation too thin across departments makes ROI hard to measure; concentration within specific roles yields clearer financial results.
Strategic Value: Beyond margins, AI provides "Risk Resilience," allowing businesses to scale or right-size without operational collapse.
Measurement: Shift focus from "cost reduction" to "Capacity ROI" (throughput) and "Margin Trend ROI" (causal operational efficiency).

Daniel Gertrudes

Frequently Asked Questions

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The Unspoken Dark Side of Small Business Ownership: Debt (and What It Really Does to You)

Wed, 21 Jan 2026 17:30:11 GMT

Small Business Debt (and What It Really Does to You)

Most people talk about the risk of owning a small business like it’s a scoreboard problem:

“What if you don’t make money?”

That’s real. But it’s not the quiet thing that keeps founders awake at 2:17 a.m.

The darker, unspoken reality is debt.

Not the abstract concept of leverage you read about in finance books. The kind of debt that shows up every month, on schedule, with zero interest in how your pipeline feels, how your customers behave, or whether your team had a rough quarter.

Debt is often the true weight of entrepreneurship and small business ownership whether you started from scratch or entered through Entrepreneurship Through Acquisition (ETA).

And if we’re being honest: debt doesn’t just sit on the balance sheet.

It sits on your nervous system.

Why Small Business Owners End Up Here

Here’s what makes small business debt different from the “startup story” that gets all the media oxygen:

Most small business owners don’t have access to meaningful equity funding.

No VC rounds. No “pre-seed.” No safety net of investors who are underwriting risk as part of their model.

So founders do what the real economy does: they borrow.

That borrowing can come from a bunch of places:

Conventional bank loans
SBA-guaranteed loans
Seller notes (especially common in ETA)
Lines of credit
Friends & family loans
Personal guarantees that follow you home

And it’s not hard to understand why this happens.

Debt can create the growth capital you’d otherwise never touch.

Debt can help you buy a business, hire key talent, expand capacity, invest in systems, or survive a down period long enough to recover.

Debt can be a catalyst.

But debt is also a constraint, especially when the economy gets uncertain.

The Thing Nobody Says Out Loud: Debt Shrinks Your Flexibility

Founders usually take on debt in the name of growth.

But as the debt load increases, something counterintuitive happens:

Your flexibility decreases.

Because every dollar of debt creates a future obligation. And future obligations change how you lead.

At low leverage, you ask questions like:

“What could we build?”
“What bet should we place?”
“Where do we want to go next?”

At higher leverage, the questions start to change:

“What can we guarantee?”
“What can we control?”
“What if revenue drops?”
“How do we make sure we don’t violate covenants?”

Debt nudges you toward certainty.

And the more you crave certainty, the more risk-averse you become.

Not because you lost your ambition.

Because your margin for error got smaller.

Debt Doesn’t Just Impact the Business. It Impacts the Humans.

This is the part that doesn’t show up in the spreadsheets.

Debt can create mental health pressure. It can create tension inside a marriage. It can create conflict between business partners. It can create a low-grade stress that never fully turns off.

Why?

Because debt isn’t just math; it’s interpretation.

Two people can look at the exact same debt load and feel two very different things:

One person feels energized (“We’re building something big.”)
Another person feels trapped (“We’re one bad quarter away from disaster.”)

Neither is wrong. They’re just carrying different emotional realities.

And the higher the leverage, the more that gap matters.

Debt can expose fault lines you didn’t know existed.

The Real Fork in the Road: Where Free Cash Flow Goes

Once a business starts generating real free cash flow, founders like to imagine it goes one place:

growth.

But in practice, free cash flow usually goes to one of three places:

Growth (the fun answer)
Owner income (the necessary answer)
Deleveraging (the reality for many owners)

This third bucket is where a lot of founders quietly live, especially in the seasons where the business is stable but the future is uncertain.

And that’s where an important reframing comes in:

Deleveraging isn’t always a retreat. Sometimes it’s the strategy.

The Paradox: Deleveraging Can Be the Best Growth Strategy

Over time, many businesses accumulate meaningful debt, often in the pursuit of scale.

A couple million dollars of leverage isn’t unusual for a small business that has:

acquired another company
expanded headcount
built infrastructure
invested in systems
weathered a downturn

The problem is: once the debt is there, growth gets harder, not easier.

Because the payments don’t care about your ambitions.

So what happens when uncertainty rises, economy softens, demand volatility increases, or slower sales cycles?

In those moments, becoming more conservative for a season can be a power move.

If the timing is right, a couple years of deleveraging during uncertain times can:

reduce stress on the organization
create operational breathing room
protect your team from panic decisions
open up future borrowing capacity
position you to seize opportunities later (when others are stuck)

This is the founder version of playing long-term chess instead of short-term checkers.

You’re not shrinking.

You’re reloading.

“What’s the Optimal Debt Load?” The Truth: There’s No Exact Equation.

Founders often ask the same question:

“How much debt is too much?”

The honest answer is: there isn’t one universal formula.

The “right” debt load depends on things like:

cash flow consistency
customer concentration
gross margin profile
working capital needs
seasonality
sales cycle length
your ability to cut costs quickly if needed
your personal tolerance for risk

A debt structure that’s healthy for one business can be deadly for another.

So instead of searching for a perfect number, I think founders should aim for something more practical:

A debt load that preserves options.

If the debt removes your ability to make good decisions, it’s too much even if the math technically works.

A Practical Playbook Before You Take On Debt

If you’re considering debt regardless if it’s an SBA, conventional, personal, and friends & family loan, don’t run it like an optimist.

Run it like an operator.

Here’s what that looks like.

1) Build a Real Operating Plan

Not vibes. Not “we’ll grow into it.”

Build an Annual Operating Plan (AOP) that ties together:

revenue assumptions
gross margin expectations
headcount and comp
operating expenses
cash flow timing
debt service requirements

2) Create a 12–24 Month Cash Forecast

Profit doesn’t pay loans. Cash does.

A cash forecast shows you the timing reality of:

payroll
tax payments
customer collections
vendor payments
loan payments

3) Stress Test the Bad Stuff

This is the part founders skip because it feels negative.

But it’s not negative. It’s responsible.

Stress test scenarios like:

revenue down 10%
revenue down 20%
slower collections
churn spikes
margin compression
sales cycle extends by 30–60 days

Then ask: what operational changes would we need to make to still cover debt service?

If the plan requires miracles, the debt is telling you the truth.

4) Keep Relationships with Multiple Bankers

Talk to bankers consistently, and talk to more than one.

Different institutions see risk differently. Market perspective changes. Terms change.

That perspective can give you something founders desperately need when leverage rises:

peace of mind through optionality.

5) Don’t Guess; Model It with a Fractional CFO for Small Businesses

If this isn’t your core strength, don’t wing it.

Bring in a financial professional or fractional CFO to run FP&A around:

debt service coverage
liquidity buffers
covenant headroom
downside scenarios
deleveraging timelines

You’re not buying spreadsheets.

You’re buying clarity.

Debt Isn’t Bad. But It’s Not Neutral.

I’ve always believed debt can be a good thing, when it’s done optimally.

Debt can create leverage. It can accelerate a business. It can open doors that would otherwise stay shut.

But debt amplifies everything:

your upside
your downside
your stress
your relationships
your decision-making posture

It’s not for the faint of heart.

And the worst part is that many founders carry it silently, like they’re the only one who feels the weight.

You’re not.

The Closing Question

If you’re a founder or operator:

What decision have you made (or avoided) because your debt load changed your tolerance for risk?

And if you’re staring at a debt decision right now, here’s a simple thought:

Don’t just ask, “Can we get the loan?”

Ask, “What will this loan do to our options, our sleep, and our ability to lead in uncertainty?”

Because that’s the part nobody puts in the pitch deck.

Key Takeaways

Emotional Weight: Debt is more than a financial metric; it creates psychological pressure that impacts decision-making and leadership.
Flexibility vs. Certainty: High leverage forces founders to prioritize certainty over innovation, shrinking the margin for error.
Strategic Deleveraging: Reducing debt during uncertain economic times can be a "power move" that creates future operational breathing room.
No Universal Formula: The "right" debt load is unique to every business and should be measured by whether it preserves or removes options.
Operational Rigor: Before borrowing, founders should use an Annual Operating Plan (AOP), cash forecasts, and stress tests to model downside scenarios.

Daniel Gertrudes

Frequently Asked Questions

Related Blogs:

Start 2026 With a Financial Budget You’ll Actually Use

Fri, 02 Jan 2026 20:52:40 GMT

Financial Budgeting You’ll Actually Use in 2026

An FP&A Playbook for Founders and Finance Leaders

January is when most teams build a budget. March is when many of them stop looking at it.

Not because they don’t care but because the budget no longer reflects how the business actually operates. If your annual budget feels outdated just a few months into the year, the problem usually isn’t effort or discipline. It’s how the budget was built.

A useful budget isn’t about predicting the future perfectly. It’s about creating a financial model you can actually run the business with.

Why Most Budgets Fall Apart Early in the Year

Traditional annual budgets are often built in isolation and disconnected from the realities that change week to week.

We see budgets break most often when:

Last year’s numbers are rolled forward with a growth percentage
Hiring plans aren’t tied to real operational capacity
Cash flow is reviewed separately from the P&L
Assumptions are locked in and never revisited

Once reality diverges from those assumptions, leadership stops trusting the model and decision-making becomes reactive.

What Breaks Budgets Most Often

Most budgets don’t fail because teams didn’t try hard enough.

They fail because:

Assumptions aren’t documented
Hiring and spend aren’t tied to revenue drivers
Cash flow isn’t modeled alongside the P&L
The budget is static in a dynamic business

By the time leadership realizes the budget doesn’t work, they’re already reacting instead of planning. That’s when re-forecasting becomes a constant fire drill instead of a strategic tool.

What We’ve Seen Firsthand in FP&A Work

We’ve seen this play out repeatedly while supporting growing companies through FP&A, including a fast-growing skincare brand: Things We Learned Doing FP&A for a Viral Skincare Brand

On paper, revenue growth looked strong. But underneath:

Cash timing told a very different story
Hiring plans weren’t aligned to true capacity
The budget couldn’t flex when demand shifted

The issue wasn’t growth — it was visibility .

Once the budget was rebuilt as a living model instead of a static spreadsheet, leadership could:

Run scenarios confidently
Plan hiring with cash in mind
Adjust strategy without starting over

If You’re Re-Forecasting by Q2, Here’s Why

If you’re usually doing a full re-forecast by Q2, chances are your January budget didn’t have the right inputs.

Most budgets break because they’re built without context:

Legislation changes after assumptions are locked
Tax implications aren’t modeled into scenarios
Cash impact is treated as an afterthought

We’ve spent a lot of time helping teams understand how recent policy changes — including the Big Beautiful Bill — affect FP&A, not just tax filings.

For a deeper look at this intersection, see: Big Beautiful Bill: What It Means for Financial Planning & Analysis

Good forecasting isn’t about reacting faster, it’s about building models that expect change. January is the best time to get that right.

What a Budget You’ll Actually Use Looks Like

A strong FP&A-driven budget should be:

Driver-based: Built around revenue, capacity, and hiring drivers — not flat percentages.

Scenario-ready: Able to answer “what if” questions without rebuilding the model.

Cash-aware: Because profitability without liquidity still creates risk.

Flexible: Designed to evolve as the business changes, not break under pressure.

3 FP&A Questions Every Founder Should Answer in January

Before Q1 gets too far away from you, there are three questions every founder should be able to answer clearly:

If your 2026 budget is just last year’s numbers plus a percentage, it may be time to rethink the approach.

A budget shouldn’t live in a folder. It should be something leadership actively uses to make decisions. That’s the difference between budgeting as a once-a-year exercise — and FP&A as a competitive advantage.

If you’re heading into 2026 and aren’t confident your forecast will hold up through Q2, pressure-testing it now can save months of rework later. This is exactly where strong FP&A support makes the biggest impact.

Ready to get started?

Related Blogs:

Navigating Today’s Economy | Gratitude, AI Transformation, and Financial Discipline

Mon, 29 Dec 2025 19:08:18 GMT

Navigating Today’s Economy

For many businesses, the start of 2024 felt like the unraveling of COVID economics. Everything was shifting: new business development, customer retention, and even the dynamics of how we work with our teams. 2024 became the year of hard resets and new beginnings.

Then came 2025. As the dust settled and the post-COVID “new normal” started to make sense, another transformation took hold, the AI revolution. It’s changed the way we think about efficiency, workflows, and customer experience. I’m incredibly grateful for a team that has embraced this new chapter and for the clients who have trusted us to guide their financial evolution.

And if you’d like to know more about how we can help transform your AI journey or prepare your business to be AI-ready, give us a call. The STRMS team is always ready.

Navigating Today’s Economic Changes

Let’s be honest, it’s not easy out there. The pressure to “get it right” with financial planning has never been higher. Growth is harder to finance, margins are thinner, and every decision carries a little more weight than it used to.

So, let’s break it down.

The Current State of the Economy

The Fed isn’t flinching. The prime rate is holding at 7%, and no one’s talking about cheap money coming back soon, just small decreases next year.

Inflation may be cooling, but borrowing costs are still high and that means financing company growth remains expensive.

Consumers are maxed out. U.S. household debt hit $18.6 trillion in Q3, up nearly $200 billion from last quarter, according to the New York Fed.

Corporate debt is rolling over at higher rates, “squeezing earnings and discouraging investment,” as one recent market analyst put it.

Growth is harder to fund, and the cash in your business burns faster than before.

What This Means for Your Business

In this environment, “winging it” with your finances isn’t just risky, it’s reckless.

Revenue can dip faster than your next board meeting.
Rising debt service can quietly choke your cash flow.
One missed forecast can snowball into layoffs or cuts.

This is where CFO leadership and FP&A discipline become your competitive edge.

How to Stay Ahead

Implement a 13-Week Cash Flow Forecast

Your cash is your oxygen. A rolling 13-week forecast helps you see trouble coming before you’re gasping for air.

�� Download our 13 week cash flow template

We’ve put together a quick walkthrough video on how to get started.

Put Planning on a Cadence

Annual budgets are dead. Quarterly reviews and monthly updates keep your plan connected to reality.

Run “What If” Scenarios

What if sales drop 15%? What if debt costs rise another point? Planning now means you won’t panic later.

Invest in FP&A Discipline

Even small and mid-sized companies benefit from financial visibility, forecasting, and scenario modeling — often more than the big guys.

For companies ready to build that discipline, GrowthLab’s FP&A team delivers the modeling, budgeting, scenario planning, and financial visibility needed to stay ahead.

Final Word

Today’s economy rewards the proactive, not the panicked.

By pairing CFO-level strategy with FP&A discipline, you can safeguard your margins, manage uncertainty, and build a business that lasts.

At GrowthLab, we’re helping founders and operators navigate this new chapter, from financial planning and forecasting to transforming their operations with AI.

Daniel Gertrudes

Frequently Asked Questions

Related Blogs:

Year-End Compliance & Payroll Checklist

Wed, 17 Dec 2025 19:09:32 GMT

Year-End Compliance & Payroll Checklist

As we move into the final stretch of the year, December brings a familiar mix of celebrations, time off, and last-minute administrative tasks that can easily catch business owners off guard. If you’re managing HR on your own or you’re the CEO/Founder wearing several hats at once, this year-end checklist is designed to help you stay ahead of the most important HR, payroll, and compliance items before January arrives.

Emergency contacts
I-9 reverifications
Address changes
Dependent and benefit accuracy
Payroll profiles (titles, rates, withholdings)

Why this matters

January is chaotic enough — starting with accurate data makes everything smoother.

Final Thoughts

Year-end doesn’t have to feel like a scramble. A little planning in December can prevent costly payroll errors, compliance issues, and employee frustration in January. By reviewing these items now, you set your business up to start 2025 organized, compliant, and confident.

If you’re feeling stretched or unsure whether everything is covered, GrowthLab helps founders streamline payroll, HR, and compliance so nothing slips through the cracks during the busiest time of year.

Frequently Asked Questions

Abigail Church

Related Blogs:

Big Beautiful Bill: What It Means for Financial Planning & Analysis

Thu, 04 Sep 2025 18:10:57 GMT

What The Big Beautiful Bill Means for Financial Planning & Analysis

The One Big Beautiful Bill (OBBBA) has introduced a wave of new tax rules, benefit expansions, and reporting requirements. While much of the attention goes to payroll and HR, there’s another area where the ripple effects are significant: Financial Planning & Analysis (FP&A).

For FP&A teams, the challenge is clear: these changes aren’t just about compliance. They directly influence forecasts, budgets, and the long-term financial story your business is telling. Let’s break down why the OBBBA matters for planning and strategy.

Payroll & Benefits Forecasting

The OBBBA expanded several employer benefit programs like higher caps on dependent care FSAs, permanent tax exclusions for student loan repayments, and enhanced childcare tax credits.

For FP&A, this means:

More variables in labor cost modeling : Benefits are no longer static; they’ve become moving targets tied to both employee participation and legislative changes.
Deeper visibility needed : Payroll projections must capture not just base wages but also the expanding ecosystem of credits, exclusions, and reimbursements.

In other words, payroll planning can’t just be a line item; it’s a dynamic component of total compensation forecasting.

D eep dive on payroll/benefits-specific changes.

Scenario Planning Around Tax Law Tweaks

Some of the OBBBA’s tax changes, like deductible snack expenses or revised auto loan interest rules, may sound small. But scaled across an organization, they can add up.

FP&A teams will need to:

Build what-if models that factor in these tax changes at different levels of adoption.
Adjust cash flow forecasts to account for how deductions and credits flow through the business.
Communicate these impacts clearly to leadership, so small changes don’t slip through the cracks.

Timing Is Everything: Revenue vs. Expense Recognition

Pairing GAAP’s treatment of deferred revenue with new OBBBA deductions highlights a core FP&A responsibility: understanding timing.

Deferred revenue means you can’t always recognize cash as income right away.
Deductions and credits may kick in at different times than expenses are incurred.

For FP&A, aligning revenue recognition with expense timing is critical for accurate margin analysis and forecasting. The OBBBA adds another layer of timing complexity to already delicate planning.

Strategic Opportunities to Explore

The OBBBA isn’t just about new rules; it also creates opportunities. Expanded credits, deductions, and benefit structures may make workforce investments or new employee programs more attractive than before.

FP&A plays a central role in evaluating these opportunities by modeling short-term cash impact vs. long-term strategic value (like retention, productivity, and growth potential).

By connecting legislative changes to business strategy, FP&A ensures leadership isn’t just reacting, but making proactive, informed choices.

The Bottom Line

The Big Beautiful Bill adds complexity to FP&A work, but it also expands the value finance teams can deliver. By updating forecasts, running scenarios, and aligning strategy with new opportunities, FP&A becomes the bridge between legislation and long-term business health.

Ryan Clifford

FP&A Manager, helping small and mid-sized businesses understand their numbers, plan for growth, and make smarter financial decisions. With over 4 years in finance, his focus is on building clear financial models, budgets, and cash flow plans that turn data into direction. Passionate about helping business owners feel confident in their financial story and equipped for what’s next.

Frequently Asked Questions

Related Blogs:

Big Beautiful Bill: What’s Changing with 529 Plans

Thu, 28 Aug 2025 20:46:13 GMT

What’s Changing with 529 Plans

When Congress passed the One Big Beautiful Bill (OBBBA), a lot of attention went to tax deductions, fringe benefits, and payroll updates . But tucked inside the legislation is another change that could have a real impact on families, students, and even professionals later in their careers: 529 Plan expansion.

If you’ve ever saved or thought about saving for education, this is big news. Let’s break down what’s changed, why it matters, and what you should be watching for.

K–12 Withdrawals Just Doubled

Until now, families could withdraw up to $10,000 per year from a 529 Plan to cover elementary or secondary education expenses. That cap has now doubled to $20,000 annually .

Why does this matter? Because private school tuition, tutoring, and specialized programs add up quickly. Families who’ve been relying on other funding sources may now find 529 accounts a much more practical option for managing costs year to year. Best of all, these withdrawals can be made without federal tax worries.

More Expenses Qualify Than Ever Before

This is where the change really broadens the usefulness of a 529. Under the OBBBA, the definition of “qualified education expenses” has expanded beyond traditional tuition. New eligible expenses now include:

Curriculum materials and instructional books
Fees for standardized testing (SAT, ACT, etc.)
Dual-enrollment fees for college courses taken in high school
Online educational resources and courses
Tutoring or supplemental classes outside the home
Specialized learning strategies and programs for students with disabilities

In short: if your child’s education goes beyond classroom tuition, which it often does, your 529 funds can now stretch further, tax-free at the federal level.

It’s Not Just for Kids Anymore

One of the most forward-looking parts of the law is its recognition that learning doesn’t stop at high school or college. The OBBBA now allows 529 funds to be used for career training, certifications, and continuing education. That includes:

Programs listed under the Workforce Innovation and Opportunity Act
Courses or certifications in the VA’s WEAMS database
Industry-recognized licensing exams (think CPA, IT certifications, trade licenses)
Continuing education fees required to maintain credentials
Miscellaneous fees, books, exam costs, and supplies for eligible programs

This means 529s are no longer just “college savings accounts.” They can be lifelong learning accounts, supporting career shifts, professional development, and job-readiness well into adulthood.

Why This Matters for Families & Professionals

For families, the obvious benefit is flexibility. You’re no longer limited to tuition-only expenses, and you can plan for a wider variety of educational needs without facing surprise tax consequences.

For working professionals, this expansion acknowledges the modern reality: careers change, industries evolve, and credentials need to be maintained. Having access to 529 funds for these costs could make upskilling and reskilling far more affordable.

A Few Things to Keep in Mind

Like many new provisions in the Big Beautiful Bill, the timing and application will depend on federal guidance and, in some cases, state legislation. Some states may need to update their laws before these benefits are fully available.

The Treasury will also play a role in issuing guidance that determines when and how these changes roll out. It’s a good idea to check with your state or your financial advisor before making big withdrawals.

Ready to Meet Your New Tax Team?

The OBBBA’s 529 changes may not grab headlines like new tax credits or payroll rules, but they could make a huge difference for families and professionals planning their educational paths. With higher withdrawal limits, broader qualified expenses, and new opportunities for career-focused learning, the 529 Plan just became a more versatile and valuable tool than ever before.

TLDR

Annual K–12 withdrawal limit doubled from $10,000 to $20,000 .
“Qualified expenses” now cover tutoring, online courses, dual-enrollment, testing fees, and specialized programs.
529 funds can be used for workforce training, certifications, continuing education, and related fees/supplies.
Withdrawals can be made without federal tax worries.
Some states may need to update laws, and Treasury guidance will determine rollout timing.

Frequently Asked Questions

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

At GrowthLab, Stephen helps entrepreneurial founders and small to mid-sized businesses optimize their tax planning and strategic financial management. His approach is rooted in bridging technical accuracy with actionable financial strategy to support growth and compliance.

Abigail Church

Other Blogs Related to OBBBA

New 2026 Tax Law Changes: Gambling Loss Limits, Snack Deductions, and Auto Loan Interest

Tue, 05 Aug 2025 19:08:17 GMT

New 2026 Tax Law Changes - Gambling Loss Limits, Snack Deductions, and Auto Loan Interest

The IRS has introduced sweeping changes to the tax code that will impact individuals and employers alike starting in 2025 and 2026. From limits on gambling loss deductions to the elimination of tax breaks for office snacks and a brand-new auto loan interest deduction, here’s what you need to know to stay compliant and optimize your finances.

Below, we break down the most significant updates from the new tax law.

Topics Covered:

Gambling Loss Under New Tax Law
Office Snacks Under the New Tax Law
Interest Deductions on Auto Loans Under the New Tax Law

Gambling Loss Under New Tax Law

Starting January 1, 2026, gamblers will be able to deduct only 90% of their gambling losses against their winnings on federal taxes. (That’s a shift from the previous policy that allowed a full 100% deduction of gambling losses, against/but not to exceed winnings .)

Office Snacks Under the New Tax Law - Not Deductible

Under the current law, employer-provided snacks and drinks (e.g. coffee, chips, granola bars) currently qualify as de minimis fringe benefits , and are 50% tax-deductible under IRC §132(e) and §274 rules, provided they’re available broadly (not just to select staff) and support productivity.

Starting in 2026, the new law fully eliminates the deduction for employer-provided snacks, coffee, and operating onsite cafeterias. That means no deduction at all for these employee food perks unless you're in an industry with specific exceptions.

Interest Deductions on Auto Loans Under the New Tax Law

Another new tax law is the interest deduction on auto loans.

New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)

Maximum annual deduction is $10,000.

Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:

originated after December 31, 2024,
used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),
for a personal use vehicle (not for business or commercial use), and
secured by a lien on the vehicle.

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified Vehicle Requirements:

Types: Car, minivan, van, SUV, pick-up truck, or motorcycle.
Weight: Gross vehicle weight rating (GVWR) less than 14,000 pounds.
Origin: Must have undergone final assembly in the United States

Final assembly in the United States: The location of final assembly will be listed on the vehicle information label attached to each vehicle on a dealer's premises. Alternatively, taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN) to determine whether a vehicle has undergone final assembly in the United States.

The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) provides plant of manufacture information. Taxpayers can follow the instructions on that website to determine if the vehicle’s plant of manufacture was located in the United States.

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.

The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.

Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.

Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.

What This Means for you:

These changes may have wide-reaching effects on your personal and business tax strategies. Whether you're a gambler, a business owner providing office perks, or planning to buy a new vehicle in 2025, it's critical to stay ahead of the curve.

Need help navigating these updates? Our tax and accounting experts at GrowthLab are here to guide you through the changes and identify opportunities. Contact us today to stay compliant and maximize your deductions.

Ready to Meet Your New Tax Team?

Frequently Asked Questions

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Other Blogs Related to Tax

Things We Learned Doing FP&A for a Viral Skincare Brand

Thu, 31 Jul 2025 15:24:32 GMT

5 Things We Learned Doing FP&A for a Viral Skincare Brand

What happens when your product explodes on social media, orders skyrocket overnight, and your team is forced to scale in real time? That’s exactly what we experienced while providing FP&A (Financial Planning & Analysis) support for a skincare brand that went viral.

This wasn’t a slow, steady climb. It was flash growth, driven by influencers, TikTok trends, and major retail interest. And while top-line revenue was soaring, the real challenge was building the financial infrastructure to support sustainable, profitable growth.

1. Cash Flow Management Is the Lifeline Behind the Hype

Going viral feels great, until you realize your inventory orders, vendor payments, and ad spend are outpacing your cash. As orders poured in, we saw firsthand how critical it is to have weekly cash flow forecasts and access to working capital.

What we learned:

Viral growth often creates a mismatch between sales and actual cash inflow.
13-week cash flow models are essential to stay ahead of supplier payments and operating expenses.
Strong vendor relationships and flexible credit lines can bridge cash gaps while waiting on payouts from marketplaces or retailers.

Download Our 13 Week Cash Flow Template

Cash flow isn’t just an accounting exercise—it’s your ability to keep delivering product while the world is watching.

2. Inventory Planning Can Make or Break You

Our skincare client faced a tough reality: too much inventory drains cash; too little kills momentum. In viral scenarios, inventory decisions must be tightly aligned with demand data and lead times.

What we prioritized:

FP&A partnered with operations to model inventory levels based on real-time sales data and restock cycles.
We built dynamic inventory plans using vendor lead times, historical sales velocity, and promotional calendars.
When demand spikes, you need fast answers to questions like “How much can we sell before we run out?” and “What happens if shipping delays by 2 weeks?”

Financial visibility into inventory turns and cash conversion cycles is a must at this scale.

3. Real-Time Data Is Non-Negotiable

In fast-paced DTC environments, waiting until month-end to review performance just doesn’t cut it. During key moments—like product drops or influencer campaigns—we needed real-time dashboards to guide decisions on spend, pricing, and fulfillment.

Key metrics we tracked:

Contribution margin by SKU
ROAS (Return on Ad Spend)
Daily inventory velocity
Fulfillment cost trends

We helped build systems where marketing, ops, and finance could act fast—because a delayed decision in a viral moment is a missed opportunity.

Agility requires data. Your dashboards should move as fast as your customers.

4. Marketing Spend Must Be Anchored to Unit Economics

The brand was pouring money into TikTok, Meta, influencer campaigns and it was working. But not all growth is good growth if it doesn’t support the bottom line. We helped dissect every marketing dollar to ensure long-term profitability.

What we emphasized:

Measuring true CAC (Customer Acquisition Cost), not just blended averages.
Forecasting LTV (Lifetime Value) by cohort and channel.
Aligning spend to contribution margin—not just top-line sales lifts.

Growth without a unit economics lens can lead to expensive customer churn and cash burn.

5. Scenario Planning Was Our Insurance Policy

When you’re managing a fast-scaling brand, you can’t afford to be reactive. We built scenario models to help leadership navigate questions like:

What happens if a major influencer campaign underperforms?
What if a new 3PL can’t meet our volume expectations?
How much inventory can we afford to front-load?

We created best-case, base-case, and worst-case forecasts that allowed the team to stay calm, focused, and prepared—even when TikTok took things to the next level (again).

You can’t control the algorithm, but you can control your response with thoughtful modeling—like indirect cash flow forecasting .

FP&A is the Backbone of Sustainable Growth

Going viral is exciting. Staying profitable is strategic. For this skincare brand, the difference-maker was having a finance function that didn’t just report on the past but helped shape the future. Read or case study.

Excellent Experience with GrowthLab and Controller Robin Brown

We’ve been working with Robin Brown, Controller at GrowthLab, for Clean Skin LLC, and we couldn’t be happier with her services. Robin is one of the best controllers I’ve ever worked with — highly organized, detail-oriented, and a great problem solver. Every report she prepares is clear, accurate, and fully supported, which shows her strong accounting expertise.

She’s also a thoughtful mentor and an outstanding leader. Together with her amazing team — Angie Lawler and Kata Strong — she’s made a huge positive difference in our company’s financial operations.

I highly recommend Robin Brown and the GrowthLab team to any business looking for dependable and professional financial management support.

— Vera Silarova, Clean Skin LLC

Ryan Clifford

Frequently Asked Questions

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What The Big Beautiful Bill Means for Your HR & Payroll Practices

Thu, 17 Jul 2025 17:08:51 GMT

What The Big Beautiful Bill Means for Your HR & Payroll Practices

If you've been keeping an eye on legislation lately, you may have heard about the recent FY 2025 federal budget reconciliation legislation, aka The Big Beautiful Bill . Although it’s packed with a lot of things only tax nerds get excited about, there are some very real HR and payroll implications that businesses need to pay attention to, especially as we look ahead to 2026 and beyond.

Below is a breakdown of the current interpretations of the most relevant changes, along with a few thoughts on how to prepare.

Topics Covered:

New Reporting Requirements for Tips & Overtime
Expanded Fringe Benefits & Tax-Advantaged Programs
Executive Compensation Changes (Heads Up, Nonprofits & Public Cos)
HSA Eligibility: Easier Access, More Options
Changes You Shouldn’t Miss

New Reporting Requirements for Tips & Overtime

Starting with tax year 2025, employers must separately report tips and overtime on Form W-2. These changes support new temporary federal income tax deductions, which will sunset on December 31, 2028, b ased on the following limits:

Tips: Maximum deduction of $25,000; phase-out begins at a modified adjusted gross income (MAGI) of $150,000 (single) / $300,000 (joint)
Overtime: Maximum deduction of $12,500; phase-out begins at a modified adjusted gross income (MAGI) of $150,000 (single) / $300,000 (joint)

While the deductions themselves apply at the individual level, the new reporting requirements apply to all employers regardless of industry, as long as they have employees who receive tips or qualify for federal overtime under the Fair Labor Standards Act (FLSA). That said, if you’re in an industry where tipping is not customary or where employees are exempt from FLSA overtime rules , these changes may not apply to your workforce. It's worth reviewing your employee classifications and pay structures to be sure.

What this means for you:

Although payroll providers (think ADP , Paychex , Rippling , Gusto , etc.) will be responsible for preparing Form W-2 for each employee, employers are still responsible for reviewing those forms for accuracy.
Tips and overtime will need to be broken out as separate line items on the 2025 Form W-2 (due in early 2026).
For tips, the employee’s occupation must also be reported.
Although the Treasury may allow some flexibility in how amounts are approximated for 2025, it's important to understand what changes your payroll provider is making to support these new requirements. That awareness will help you conduct a more accurate review of W-2s once they’re generated.

Expanded Fringe Benefits & Tax-Advantaged Programs

There’s good news for employers trying to offer competitive benefits on a budget:

Dependent Care FSAs : The pre-tax contribution limit is rising from $5,000 to $7,500 starting in 2026.
Student Loan Repayment : Employers can now permanently exclude up to $5,250/year of student loan payments from employee taxable income.
Employer Childcare Credit : The tax credit for employer-provided childcare increases to 40% (or 50% for small businesses) of qualified costs, with a max credit of $500,000–$600,000.
Paid Family & Medical Leave Credit : This credit is now permanent and more accessible. Employers can now count state-mandated leave toward eligibility (even though it doesn’t count for the credit amount itself), and you can choose whether to apply the credit to wages or insurance premiums (not both).

What this means for you:

If you’ve been hesitant to roll out benefits like student loan repayment or childcare subsidies, this might be the sign you’ve been waiting for. And if you already offer these programs, it’s time to revisit your tracking and tax credit strategy to make the most of the updated rules.

Executive Compensation Changes (Heads Up, Nonprofits & Public Cos)

The Bill makes two significant changes to executive pay that HR teams should flag now:

For publicly held corporations : The $1M compensation deduction cap will now apply across all related entities, based on aggregation rules under IRC 414. This affects how you track and allocate executive comp in multi-entity structures.
For tax-exempt organizations : The definition of a "covered employee" for excise tax purposes now includes anyone who ever earned over $1M since 2017. That means more execs may trigger the 21% excise tax going forward.

Ready to Meet Your Fractional HR Team?

What this means for you:

More detailed tracking and historical compensation audits may be needed. HR and payroll teams should review past comp data and flag potential compliance issues now.

HSA Eligibility: Easier Access, More Options

Three big HSA-friendly changes in the bill:

Telehealth : Pre-deductible telehealth is now permanently allowed for HSA-eligible plans.
Direct Primary Care (DPC) : Coverage under a DPC arrangement (≤ $150/month) no longer disqualifies individuals from HSA contributions.
Bronze & Catastrophic Plans : These are now considered high-deductible health plans, making them eligible for HSA pairing.

What this means for you:

If you offer a High Deductible Health Plan with HSA, these changes may give employees more flexibility and increase enrollment. It's also a good time to refresh your benefits communications around HSA eligibility.

A Few Fringe Changes You Shouldn’t Miss

Bicycle commuting reimbursement is now taxable again (starting in 2026). If you offer this benefit, it’ll need to be treated as taxable income.
Moving expense reimbursements remain non-deductible and taxable, unless the move is military or related to the intelligence community (yes, really).

ERC Claims Tightened

If you’re still dealing with Employee Retention Credit (ERC) claims, be aware that the law disallows refunds for Q3 and Q4 2021 unless those claims were filed before January 31, 2024.

Key Takeaways

New W-2 Reporting: Starting in 2025, employers must separately report tips and overtime to support new federal tax deductions.
Benefit Limit Increases: Dependent Care FSA limits rise to $7,500 in 2026, and the $5,250 student loan repayment exclusion is now permanent.
HSA Updates: Telehealth is now permanently allowed pre-deductible, and Direct Primary Care (DPC) arrangements no longer disqualify HSA eligibility.
Executive Tax Exposure: Public companies face stricter compensation aggregation rules, while nonprofits see an expanded definition of “covered employees” for excise taxes.

There’s a lot packed into The Big Beautiful Bill, and while some changes will require updates to payroll systems, benefit plan documents, and how you report compensation, they also create new opportunities to better support your team.

If you're a GrowthLab customer and want help sorting through how these changes might affect your people strategy, let's talk!

Frequently Asked Questions

Abigail Church

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Navigating Payroll, Benefits & Employee Classifications

Mon, 14 Jul 2025 14:00:58 GMT

Navigating Payroll, Benefits & Employee Classifications: Is Your Business on Track?

Payroll and benefits are the backbone of your business’s operations but managing them can feel like a full-time job. Add to that the complexities of employee classifications (W-2 versus 1099) and suddenly, things can get a little overwhelming. If you're encountering challenges in any of these areas, you're not alone. These are common pain points that can lead to confusion and, if left unchecked, potential compliance issues.

Managing payroll isn’t just about issuing paychecks on time; it’s about doing it in a way that aligns with federal and state regulations, ensures fairness, and supports your team. Throw benefits into the mix, with their variety of options and constantly changing rules, and it's easy to see why many businesses struggle to keep up. When it comes to employee classifications, the lines between W-2 employees and 1099 contractors can get blurry, but misclassification can be costly in terms of penalties and taxes.

If you're finding that these areas are causing you stress, it might be time to take a closer look at your processes. Here's why these issues are worth addressing and how you can get back on track.

The Payroll Puzzle: Compliance & Execution Are Key

Payroll is one of the most critical aspects of business operations, and yet it’s often one of the most complicated. Are your payroll processes in compliance with ever-evolving federal and state regulations? Are your employees receiving the benefits they're entitled to?

When things aren’t running smoothly, it could mean discrepancies in tax withholdings, missed benefits contributions, or even wage errors—none of which are a good look for your company. Employees are entitled to know that their paychecks are correct, and businesses must be diligent in meeting tax and benefit obligations. However, keeping track of this alone can quickly become overwhelming, especially if you're handling payroll across multiple states or have a growing team with diverse needs.

If payroll challenges are stacking up, it might be time to assess your processes and consider outside help. A Fractional HR partner can help streamline your payroll practices, ensuring everything is in line with legal requirements. They'll also help manage benefits administration so that you can focus on what matters most: your business's growth.

The 1099 vs. W-2 Dilemma: Know the Difference & Stay Compliant

Classifying your employees correctly is vital to avoid costly fines and penalties. If you're not sure whether someone should be classified as a W-2 employee or a 1099 contractor, you're not alone. This is one of the trickiest areas of HR compliance , and the IRS has very specific guidelines that determine whether someone should be treated as an employee or an independent contractor.

The distinction is important because it determines things like tax withholding, eligibility for benefits, and compliance with labor laws. Misclassifying an employee can lead to serious issues including tax penalties, back wages, and even lawsuits.

If you're unsure where your employees or contractors fall on the classification spectrum, don’t wait until a problem arises. A Fractional HR expert can help clarify the rules and ensure you’re classifying your team members correctly, preventing costly mistakes down the road.

Ready to Meet Your Fractional HR Team?

Benefits: Are You Keeping Up with the Ever-Changing Landscape?

Benefits are another area where businesses often run into challenges. From health insurance to retirement savings, employee benefits can be complex and ever-changing, making it difficult to ensure that you're providing the right coverage at the right time. Whether it's complying with Affordable Care Act (ACA) regulations, handling employee enrollments, or keeping track of contributions, benefits administration requires attention to detail and knowledge of the latest laws.

If you're struggling with benefits management or feeling like your offerings aren’t aligned with what your employees need, this could be a sign that it’s time for a refresher. A Fractional HR partner can help assess your current benefits offering and make sure you’re providing the right options for your employees, while staying compliant with all regulations.

When It's Time to Call in a Fractional HR Expert

Navigating payroll, benefits, and employee classifications doesn’t have to be a headache. If you're feeling overwhelmed or unsure about your processes, bringing in a Fractional HR professional could be the solution you need. Not only can they handle the technicalities of payroll processing and benefits administration, but they can also ensure that your employee classifications are in full compliance with all relevant laws.

A Fractional HR partner offers a fresh perspective and an experienced hand to guide you through these complexities. They’ll ensure that your payroll runs smoothly, your benefits offerings are top-notch, and your employee classifications are correct, helping you stay ahead of the game and avoid costly mistakes. Read about how we helped this company (case study) .

If you’re experiencing payroll pain points, benefits confusion, or employee classification challenges, now is the perfect time to assess how you’re managing these areas. With the right support, you can eliminate uncertainty and feel confident that your HR practices are as strong as your business’s growth.

Abigail Church

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Planning Ahead for Payroll, and HR System Transitions

Mon, 07 Jul 2025 04:00:03 GMT

Planning Ahead for Payroll, Benefits, and HR System Transitions

One of the most common things I hear from small business owners is: “We want to add benefits, and we need them up and running in two weeks.” This desire for a quick turnaround comes from a good place. Whether you’re a business owner, Operations Manager, Office Manager, or someone else within your organization charged with this responsibility, I know you want to support your team, respond quickly to feedback, and do the right thing. You care about your people, and when they bring something to your attention, you want to act fast.

Topics Covered in this Blog:

Why rushing HR changes can backfire
How to plan payroll, benefits, and system transitions
Choosing the right benefits for your team and budget
Setting up payroll with compliance and cash flow in mind
Managing smooth payroll or HR system migrations

That instinct is a good one, but it can also be a double-edged sword. Acting too quickly without a solid plan can lead to rushed decisions, costly mistakes, and solutions that don’t actually fit your team’s needs or your business model.

The truth is two weeks just isn’t enough time to make thoughtful, strategic decisions that will actually work for your business in the long run.

I see this same timeline assumption pop up when companies are adding payroll for the first time or switching to a new payroll or HR system . These kinds of changes feel like they should be simple, but they’re not. Behind every “easy” setup is a lot of important decision-making: about how your company operates, what matters to your team, what you can afford, and what kind of experience you want to create for your employees.

Whether you’re launching something new or transitioning away from something old, the success of these changes really depends on how much time and thought you give to planning. A solid rule of thumb? Start the conversation at least six months in advance.

Benefits Should Fit, Not Just Be Fast

Choosing benefits isn’t just about checking a box. It’s about creating offerings that align with your company culture, make sense for your team, and stay within budget. You want benefits that actually benefit your employees. Not just options that were fast to set up.

With a rushed timeline, you're forced to go with what's available right now , which often means limited choices and missed opportunities. Taking the time to evaluate your goals, compare plans, and gather employee feedback helps you land on benefits that are meaningful, sustainable, and actually valued by your team.

Adding Payroll Is a Strategic Move, Not Just a Checkbox

When you’re adding payroll for the first time, it’s not just a technical task. Payroll impacts everything from how employees get paid, to how taxes are managed, to how professional your operations feel.

A six-month lead time gives you the breathing room to:

Select a provider that fits your budget and future growth plans
Understand compliance responsibilities
Set up proper workflows
Align your payroll cadence with your cash flow cycle
Communicate clearly with your team about what to expect

Skipping this planning period can lead to late payments, tax errors, and a lot of stress on both sides.

Ready to Meet Your Fractional HR Team?

Switching Systems? It’s a Whole Project, So Treat It Like One

If you’re moving from one payroll or HRIS platform to another, it doesn’t happen at the flip of a switch; it’s a full-scale project. And like any good project, it deserves a plan.

That means:

Outlining key dates and responsibilities
Making sure data is transferred accurately
Ensuring the new system is configured correctly
Giving your team time to learn the new system
Running a test payroll before the real one goes out

The goal is a seamless transition, not a scramble. The last thing you want is to process your first payroll in a new system without double-checking that tax info transferred correctly or that your team understands how to access their pay stubs.

Plan Now, Stress Less Later

I get it; six months feels like a long time when you’re eager to support your team. But good planning protects you from rework, confusion, and financial surprises. It also gives you time to make choices that reflect your values and priorities, not just what was quick to implement.

If you’re thinking about any kind of change to your people operations, like payroll, benefits, or systems, start the conversation now. Future You will be so glad you did.

Frequently Asked Questions

Abigail Church

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Mid-Year HR Check-In: What’s Changing July 1, 2025

Mon, 30 Jun 2025 16:14:48 GMT

Mid-Year HR Check-In

What’s Changing in the Second Half of 2025

Summer is here! While most of us are thinking about long weekends, vacations, and trying to beat the heat, July 1 is bringing a wave of new employment law changes that business owners and HR teams need to know about.

Whether you're operating in multiple states or hiring remote team members across the country, now is the time to double-check that your policies and practices align with new state laws taking effect.

Here’s a brief summary of what’s changing and where, and how we can help you stay ahead of it all.

Topics Covered:

Minimum Wage Increases
Paid Sick Leave Requirements
Non-Compete Changes
Pay Transparency Requirements

Minimum Wage Increases

Several cities and states are raising their minimum wage. If you have employees in these areas, you may need to update their pay rates:

Los Angeles County, CA: $17.81/hour
Montgomery County, MD: $15.50 to $17.65/hour based on company size
District of Columbia: $17.95/hour
St. Paul, MN: Up to $15.97/hour
Burien, Everett, and Renton, WA: Up to $21.16/hour depending on business size

New Paid Sick Leave Requirements

Alaska has enacted a statewide paid sick leave law, requiring accrual starting July 1. Usage thresholds vary based on company size.
Washington now allows employees to use paid sick leave for immigration-related proceedings.

Non-Compete and Restrictive Covenant Changes

If your business uses non-compete or non-solicitation agreements, take note of these updates:

Maryland and Illinois will prohibit physician non-competes, unless narrow exceptions are met.
Wyoming will prohibit new non-competes for employees who are not in executive or management roles.
Virginia has revised the definition of "low-wage employee," which affects who can be subject to a non-compete.
Kansas now considers non-solicitation agreements generally enforceable but requires clarity and specificity in the language.

Ready to Meet Your Fractional HR Team?

Pay Transparency Requirements

Vermont now requires pay ranges in all job postings for roles based in Vermont or performed remotely for a Vermont location.
Washington is enforcing job posting transparency, allowing a five-day grace period to correct missing pay range information until July 2027.

Additional Compliance Reminders

New Hampshire requires lactation accommodation policies for employers with six or more employees.
Indiana now requires unpaid school leave for truancy-related conferences.
Oregon has released updated required workplace posters for all employers.
Washington has introduced new WARN Act requirements, including 60 days' advance notice before mass layoffs for employers with 50 or more full-time employees.

How we can help:

If you're unsure how these updates may impact your business, or you need help making changes, we can support you with:

Employee Handbook Reviews & Updates

Compensation Audits & Pay Rate Verification

Compliance-ready Job Descriptions & Postings

Employment Agreement & Offer Letter Updates

We’re here to make compliance simpler and more manageable so you can stay focused on running your business.

If you’d like to talk through any of the above or get a second set of eyes on your current practices, feel free to reach out. We’re always happy to help.

Abigail Church

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Yearly HR Compliance Every Business Should Know

Thu, 12 Jun 2025 15:12:46 GMT

Yearly HR Compliance Checklist

Let’s be honest, compliance isn’t the flashiest part of HR, but it is one of the most important. Staying on top of your annual requirements isn’t just about checking boxes; it’s how you keep your team supported, your risk low, and your business running smoothly.

If you’ve ever felt like HR compliance sneaks up on you, this one’s for you. I’m walking you through GrowthLab’s annual HR Calendar to help you identify how to stay one step ahead in your own business. Whether you’re building out your first internal process or just need a sanity check against what you’re already doing, this breakdown can give you a clear, organized path forward without the scramble.

Q1 HR Compliance Tasks

January

Distribute W-2s and 1095-Cs to employees.
Send 1099s to contractors.
Launch the updated employee handbook (if changes were made).
Send out annual compliance trainings.
Annual NDAs and non-competes signed where applicable.
Kick off annual performance review season and monthly employee surveys.

February

Start conducting face-to-face review meetings.
Prep for ACA compliance filings if you’re a qualifying employer.
Begin payout of any performance-based bonuses from the prior year.

March

Time for Q1 conversation forms and face-to-face reviews to wrap up.
Activate approved pay increases.
Conduct a Q1 payroll and compliance audit—think I-9s, EEO reporting, etc.
Refresh your training materials.

Q2 HR Compliance Tasks

April

Hold Q1 quarterly conversation meetings.
Review time-off trends before summer.

May

Complete Q2 payroll and benefit audit.
Plan for upcoming headcount shifts and workforce updates.
Check for any expiring licenses or certifications.

June

Wrap up review meetings if they’re still lingering.
File 1094-C and 1095-C with the IRS (if required).
Review and update workforce planning.
Review insurance policy renewals.

Q3 HR Compliance Tasks

July

Kick off open enrollment planning.
Run compliance spot-checks.
Audit employee files.

August

Run manager training refreshers.
Do compensation benchmarking.
Revisit job descriptions and career pathing documents.

September

Finalize open enrollment materials and timelines.
Submit Q4 strategic goals (“rocks”) to operations.
Review and prep performance evaluation process updates.

Ready to Meet Your Fractional HR Team?

Q4 HR Compliance Tasks

October

Launch open enrollment (Oct 1–15).
Conduct Q3 payroll and benefits audit.
Run annual harassment prevention training.
Start planning compensation adjustments for the new year.

November

Confirm new benefit elections are ready in payroll.
Prep year-end communication (holiday schedules, deadlines, etc.).
Review any legal/regulatory changes that will impact next year.

December

Set pay increases budgets.
Process final payroll and bonus runs.
Outline HR priorities for the new year.
And yes, make room for the White Elephant gift exchange.

Staying compliant doesn’t mean you need to scramble; it just means building systems and rhythms that work. This kind of calendar can turn HR from reactive to proactive, which is where the magic really happens.

Need help building this out for your business or your clients? That’s what we’re here for.

Abigail Church

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CFO vs CPA: What’s the Real Difference—And Which One Does Your Business Need?

Mon, 12 May 2025 12:00:03 GMT

What is the Difference Between a CFO and a CPA?

Running a growing company means surrounding yourself with the right finance talent. Two acronyms dominate that conversation- CFO (Chief Financial Officer) and CPA (Certified Public Accountant) - y et their roles, skills, and price tags are very different. This guide breaks down everything you need to know so you can hire (or outsource) the expertise that will actually move your business forward.

Snapshot Comparison

What Exactly Does a CPA Do?

A CPA is a licensed accounting professional who:

Prepares and signs corporate and personal tax returns
Designs and oversees financial‑statement audits
Keeps your ledgers GAAP‑compliant
Advises on complex tax regulations (state, federal, international)
Acts as an expert witness in financial litigation

A CPA’s super‑power is deep technical mastery of tax codes and accounting standards. They protect you from penalties, optimize deductions, and give investors confidence that your numbers are clean.

Licensing note: Every CPA must pass the Uniform CPA Exam and satisfy state experience requirements—meaning you’re hiring verified expertise.

What a CFO Brings to the Table

A Chief Financial Officer sits in the C‑suite, steering your entire financial strategy. Key responsibilities include:

Strategic planning & forecasting- building 12‑, 24‑, and 36‑month models
Cash‑flow management- ensuring the company never runs out of runway
Unit‑economics analysis- gross‑margin optimization and scenario modeling
Capital markets- raising debt & equity, investor relations
Risk management- hedging FX, insuring key exposures
Leadership- mentoring finance staff and aligning departments to financial goals

Unlike a CPA, the CFO’s job is proactive and future‑focused; they make sure your business model works tomorrow, not just that last quarter’s books add up. A CPA can become a CFO, but many world‑class CFOs have MBAs or CMAs instead of a CPA license.

Do You Need Both?

For most scaling companies the answer is yes—but not necessarily full‑time.

When to Start With a CPA First

You only need annual tax returns (no complex financing plans yet)
Tight cash flow—books are messy and tax penalties would be disastrous
Industry‑specific compliance (e.g., construction WIP, nonprofit Form 990s)

Signals You’re Ready for a CFO

Revenue growth >30 % annually but no rolling forecast
You’re asking, “Can we afford that hire six months from now?”
Investors are demanding a formal finance leader
Multiple product lines with different gross‑margin profiles

Cost Breakdown: CPA vs CFO vs Controller

Case Study:

From 12 Weeks of Runway to a $10 Million Series A

Industry

Cryptocurrency / FinTech

Stage

Venture‑backed

Seed → Series A

Engagement

Fractional CFO + Accounting + FP&A (all‑in service stack)

Monthly Cost

≈ $20,000

 Takeaway: Even in high‑volatility sectors like crypto, a fractional CFO engagement- bundled with accounting and FP&A- can create immediate runway, strategic clarity, and investor confidence at a fraction of the cost of a full‑time C‑suite hire

Frequently Asked Questions About CFOs & CPAs

Ready to Level‑Up Your Finance Function?

If you’re unsure whether a fractional CFO, a CPA, or both will give you the best ROI, let’s talk. GrowthLab has helped 400 + founders go from reactive bookkeeping to proactive financial leadership—without blowing the budget.

Dan Gertrudes

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Scaling an Accounting Firm Margin Elasticity Lessons Learned

dan@growthlabfinancial.com (Dan Gertrudes) — Thu, 10 Apr 2025 20:41:19 GMT

Scaling an Accounting Firm: Margin Elasticity

When you're launching a startup, bookkeeping is probably the last thing on your mind. You're focused on building your product, landing customers, and maybe even raising capital. But after more than a decade of working with startups, I can tell you—ignore your financials at your own risk.

When I started GrowthLab, I wasn't thinking about accounting either and frankly, I did not offer bookkeeping or tax to my CFO customers. Then, I realized I couldn't advise customers effectively without solid and timely accounting. Therefore, how could management teams and founders understand their financial position?

Contribution Margin: What It Is and Why It Matters

In college, I learned about contribution margin , but didn’t give it much thought like most of us. In simple terms, contribution margin is the revenue left over after paying the variable costs associated with delivering your service.

For an accounting firm like mine, I always saw variable costs as mostly the direct labor – the salaries (or hours) of my accounting and analyst staff working on customer accounts – and any other expenses that increase as we serve more customers. After covering those costs, the remaining dollars "contribute" to covering fixed costs like:

Office rent
Corporate and marketing SaaS subscriptions
My operations team
Shareholder salaries
Profit

Why is contribution margin so relevant to professional services?

Contribution margin tells you how scalable each dollar of revenue is. In a traditional firm, if I bill $1,000 per month to a customer and it costs me $700 in staff time to deliver the work, my contribution margin is $300 (or 30%). Those $300 go towards paying for overhead and profit.

Healthy contribution margin: As revenue grows, more remains to cover new investments or generate profit.

Unhealthy contribution margin: You’re barely covering the cost of delivering service, leaving little to fund growth.

I often remind my customer management teams: pay attention to your margins. If you’re seeing only, say, 10% left after paying your direct labor, it’s a warning sign.

Either:

Pricing is too low
Volume isn’t hitting scale
Productivity is too low

In our industry, a gross margin (a similar concept) of around 55%-65% is considered strong (or at least until 2023!). In 2024 and 2024, many aim for something like the mid-40% range for contribution margin to sustain the business.

Knowing your number gives you the fuel gauge for growth.

Elastic Margins: Why Small Changes Have Big Impact

One surprising lesson I learned in 2024 was how elastic our margins can be—how sensitive profits are to small changes in revenue and costs.

In an accounting business like mine, labor is the main variable cost . This creates a unique dynamic:

Adding revenue without immediately hiring staff sends most of that money straight to profit.
Losing a customer suddenly doesn’t reduce staff costs right away, which can shrink margins quickly.

In other words, our contribution margin can stretch or shrink rapidly with relatively small swings in revenue.

This concept is called margin elasticity , which is essentially a measure of operating leverage.

In product businesses with high fixed costs, extra sales after breakeven can yield huge profits.
In service businesses, costs are more proportional to work, but not perfectly.

For example:

If the team is at 90% capacity and a new customer comes on, we may absorb the work with existing staff. The margin on that revenue could be ~55%, since no new costs are immediately incurred.
If we slightly over-hire or a customer leaves, underutilized staff eat into margins.

I’ve seen months where:

A small uptick in revenue made profit jump.

Losing one engagement caused profitability to tumble- especially in Q1 and Q2 2024. Elastic margins mean you have to be agile and constantly forecast. I learned to watch our gross margin closely and adjust staffing proactively. As I once noted on an Ignition write-up ( ignitionapp.com ), it’s become “virtually impossible to find the right people at the right price, where you can justify your gross margin targets without raising your prices” .

This is a reminder that even salary changes or pricing decisions instantly ripple through our margins. For firm owners, the lesson is to build some buffer in your model and not run at 100% capacity at all times. Small changes can have outsized effects and in an industry that is moving towards upfront fixed monthly fees, forecasting short-term cash flow is about survival.

Bumping into Overhead: My 12–15 Employee Story

GrowthLab’s journey taught me about step costs, and this concept has a huge impact in the professional services business. These are those big jumps in cost structure that come when you scale past a certain point, such as new hire wages. I vividly remember when we hit around 15 employees (and most were still part-time hourly and hourly billings, therefore, many might experience this much sooner if you have mostly salaried employees). Up until then, I was wearing many hats: owner, salesperson, maybe even supporting customer work or admin. Our team was lean, and almost everyone was in a billable role, contributing to revenue. Hitting a dozen staff was a turning point:

Coordination became harder.
Customer onboarding started getting chaotic.
Employees needed HR support.
I couldn’t personally review every invoice or manage everything at once.

In other words, we needed to layer in some non-revenue-generating roles – the very roles that don’t directly bill customers but are essential for growth.

Most businesses take the next step by hiring:

An Operations Manager to streamline processes
An HR Coordinator to manage recruiting, reviews, and other HR tasks

I chose to bring on team members who could meet the long-term needs of the business and potentially become future shareholders.

At the time, I was an ambitious 40-year-old and believed these hires were strategically necessary to build a strong finance-as-a-service company. This preserved my cash in the early years but cost me long-term value. However, it's about balancing fast growth with a step-by-step approach that protects long-term value over short-term cash.

For many firms that take a linear hiring approach to preserve equity, there’s a common challenge: suddenly covering a salary with little immediate revenue contribution. This is a classic example of adding fixed costs .

As a shareholder, the contribution margin drops , because the same revenue must cover more expenses.

I like to compare it to climbing a staircase :

You climb steadily, adding revenue with existing resources
Then… step … you raise expenses in one jump to prepare for the next climb

In our case, we had to absorb that step while continuing to grow.

Emotionally, it wasn’t easy. As a numbers guy, watching profit margins fall after new hires was nerve-wracking.

But I reminded myself and my shareholders that this was an investment in scaling . For GrowthLab, we were building infrastructure for a larger business.

Many firm owners face this around the 10–15 employee mark :

You need managers, HR, Customer Experience, Marketing, and Sales
None of these roles directly bill customers
Avoiding these hires might maintain margins short-term but risks burnout or hitting a growth ceiling

If you embrace them:

Profit takes a temporary hit
You enable future growth and scaling

I chose the latter, and in hindsight, it was the right decision- but it set the stage for a few roller-coaster years .

From $1M to $5M: A Roller Coaster Ride

Growing an accounting firm from the first million in revenue to about $5 million is a wild ride – both financially and emotionally. I refer to this phase as the $1.5M–$5M gauntlet (the first $1M is the Grind). In that range, you’re no longer a tiny practice, but you’re not yet an “established” mid-size firm with stable departments. You’re big enough to have problems (complex customers, need for policies, larger payrolls) but not big enough to have abundant resources.

For GrowthLab, this phase was marked by volatility .

One quarter, we’d land a big customer, hire staff to support them, and feel on top of the world as revenue climbed.
The next quarter, a couple of startups in our portfolio might go under or leave, leaving us overstaffed and scrambling to reassign team members.

Revenue fluctuated, and because of our cost structure, profits swung even more .

I recall many sleepless nights stress-testing cash flow for the next month- or even six- wondering if I’d hired too quickly.

Emotionally, it was draining . As CEO, I was personally responsible for cash flow, and every bump felt personal.

At times, I developed a neurotic relationship with growth :

Excited by every new opportunity
Equally anxious about potential setbacks

One challenge at this stage is slow ROI in a high-velocity cash-flow environment .

Here’s what I mean:

Our firm bills customers monthly and runs weekly payroll- money moves fast.
If a payment bounces or a project scope changes, it immediately affects our bank balance and my stress level.
Big decisions, like launching a new workflow system, hiring a senior manager, or investing in technology, take months or years to pay off.

For example:

I invested in a new FP&A platform , more process automation, and an EOS management system .
Upfront costs were high, and rollout took nearly a year.
During that year, the benefits were small, but cash flow was impacted every month by subscription fees and lost billable hours .
Only later did these investments improve efficiency and margins .

This mismatch- spending now, hoping to reap later- can lead to sleepless nights. I often felt like I was:

Racing at high speed to manage urgent cash flow needs (especially in summer 2024)
Steering the business toward long-term improvements that moved very slowly

If you’re in this $1M–$5M growth phase, know that the volatility is normal. It’s like airplane turbulence; it’s unpleasant but usually a sign you’re moving somewhere. The key is to keep your nerve and make calculated and right decisions. I reminded myself constantly of a mantra: what got us here won’t get us there . We had to accept short-term margin dips for long-term gains, and maintain faith that the investments would pay off. It helped that I had a supportive team and mentors to talk me through tough moments. Financially , we instituted weekly cash and margin reviews and contingency plans; emotionally , I learned to celebrate small wins and not sweat every bad month. Over time, the swings smooth out as you approach that next stage of scale.

How Hiring Hits Your Margins (a Simple Example)

Let’s break down a hypothetical scenario that reflects what many firms experience. (Numbers simplified for clarity.) Imagine you have an accounting practice doing $1,000,000 in annual revenue with a 25% profit margin. That means after paying all your staff and direct costs, you have $250,000 profit (25% of $1M). Now, you’re considering hiring an Operations Manager to help you scale. This person will cost $60,000 a year and, at least initially, won’t directly bring in new revenue.

What happens if you hire them and nothing else changes?

Costs go up by $60K
Profit drops from $250K to $190K
On the same $1M revenue, margin falls from 25% to 19%

That’s a significant hit- but the goal isn’t “nothing else changes.” The ops manager is hired to enable more growth.

To maintain the original 25% margin:

Annual fixed costs rose by $60K
If each dollar of revenue still yields a 25% margin, you need about $240K in new revenue (because 25% of $240K = $60K)
In reality, this new revenue may require extra staff or expenses, so the actual number could be higher

Example:

A company with a 30% margin needed $111K in additional revenue per new $65K hire just to keep margins steady

The point is: hiring comes with an expectation of future revenue.

Now, let’s say you do grow revenue by $240K over the next year (a 24% growth, not easy but feasible). You’d now have ~$1.24M revenue. With the higher cost base, your 25% margin yields ~$310K profit – you’ve more than covered the hire and even increased profit in absolute terms. But until you hit that new revenue level, you’re under water on that hire from a purely financial standpoint.

This example illustrates the timing gap. There’s an upfront dip in margin and profit, followed by a catch-up later if growth occurs. As the owner, you have to plan for this dip. This is where ROI can feel slow – you might only truly “get your money’s worth” from that ops manager after 12-18 months once their impact translates into new business or improved retention.

One more scenario: what if you don’t quickly add revenue after hiring? Perhaps growth is slower than expected, and a year later you’re only at $1.1M revenue. In that case, you might be looking at, say, $1.1M revenue against ~$850K costs (including that new hire and some other increases), leaving $250K profit – which is about a 22.7% margin, still lower than your original. You’re better off than without any growth, but you haven’t fully regained efficiency. This happens often, and it’s not a failure per se; it just means your ROI timeline extended. You might need another big customer or efficiency gain to get the margin back up.

Let’s walk through the actual elasticity calculation . So we want to calculate the elasticity of profit margin with respect to revenue, using the formula:

1. Example: From Base Case to Higher Revenue Case

Base Case (Before Hiring Ops Manager):

Revenue: $1,000,000
Profit: $250,000
Profit Margin: 25%

Scenario: Revenue increases to $1,133,458 after hiring Ops Manager

Revenue: $1,133,458
Profit: $329,411
Profit Margin: 29.1%

2. Step-by-Step Calculation

3. Interpretation

An elasticity of 1.23 means that for every 1% increase in revenue , your profit margin increases by 1.23% . This reflects positive and elastic behavior : margins are sensitive (and improve) as revenue scales due to better absorption of fixed costs.

4. Flip Side: No Revenue Growth, Just Added Costs

If you only added the $60K Ops Manager with no revenue change, your profit margin drops from 25% to 19%, or:

% Change in Margin: (19%−25%)/25% = −24%
% Change in Revenue: 0%
Elasticity = undefined / infinite (this is the danger zone where fixed cost growth isn't backed by revenue)

5. Takeaway

This is why contribution margin is said to be highly elastic in service businesses. The calculus shows that small, strategic increases in revenue (especially with good contribution margins) can rapidly expand profitability , but adding fixed costs without a revenue plan causes the model to break.

I share this to emphasize the importance of forecasting before you hire. We now run scenarios like the above for every significant hire or expense:

How much new business do we need to justify this cost?
How long do we project it will take?

This insight gives peace of mind (or sometimes, a reality check that we need to adjust plans). It also ties back to lifestyle vs. growth choices – which leads to the final point.

Lifestyle Business or Scalable Enterprise? Choosing Your Path

Through all these experiences, one fundamental question kept arising: What kind of business am I building? Do I want a lifestyle business – one that stays relatively small, provides a comfortable income, and lets me (the owner) maintain a great work-life balance? Or am I aiming for a scalable company – a firm that could grow to a much larger size, possibly run without me in every detail, and maybe even be sold someday as a suitable company?

In a lifestyle firm:

Y ou might not hire an extra ops manager
You accept a bit of chaos to keep margins high and stress lower
The goal is steady income and flexibility, not maximum growth

Many accounting practitioners deliberately stop taking new clients once they reach a comfortable size. They prioritize:

Personal time
Stable profits
Serving a manageable customer base

If this is your goal, you’ll handle elasticity and margins differently:

Focus on maximizing profit now
Accept that future growth potential may be limited

In a scalable business , you’re willing to endure short-term pain for long-term gain. Work-life balance might take a backseat for a while as you push to grow. At the time, my shareholders and I chose the scalable route for GrowthLab. I had a vision of building something bigger than myself 12 years ago. That meant reinvesting profits into the team and infrastructure continuously. It meant some years I paid myself less so we could afford a new hire that would pay off later. It also meant thinking about leverage : I wanted to create a company that could operate as a machine, not just a collection of customer relationships tied to me in Providence, RI (I couldn’t go to a cocktail party without hearing someone stretching the truth about their business 10 years ago!). Plus, a scalable firm is easier to sell one day, because it’s built to run with solid systems, teams, and a growth engine in place, something that many firm owners don’t understand. Being part of your local business development networking breakfasts doesn’t translate into a sustainable growth engine. But it comes with risk and sacrifice and not every bet pays off, and you will work hard for possibly lower personal and shareholder earnings in the early years compared to a lifestyle practice.

My advice to other firm owners is to be intentional about this choice. If you find yourself constantly stressed by the demands of scaling (and it’s truly hammering your life and family dynamics), there’s no shame in dialing back growth, enjoying a lifestyle business, or leaving a scaling business.

On the other hand, if you have big ambitions, communicate that to your spouse and team, and make sure everyone knows the road will be bumpy and lack clarity. Neither path is easy, but the challenges are different. I briefly tried to have it both ways and realized I needed to pick a lane in 2023. For me, the thrill of building a scalable business – creating jobs, taking risks, and seeing our services reach more and more businesses – was worth the turbulence (family still thinks I am crazy at times, but my kids talk about it with their friends and my wife appreciates our efforts and employees want the rising tides). Yet I respect peers who decide that, for them, a leaner operation with higher immediate margins is the way to go.

Final Reflections

Looking back, scaling an accounting firm taught me as much about corporate finance as it did about leadership and resilience. I often say running a professional services company is a constant balancing act between people and numbers and you can’t ignore either side. Understanding concepts like contribution margin gave me a framework to make decisions: when to hire, how to price, and when to invest in overhead. But it’s the elasticity of those margins and the emotional fortitude that tested me and made GrowthLab what it is today.

If you’re on this journey, here are my key takeaways:

Know your margins inside and out; expect them to wobble as you grow.
Plan for step-costs like new hires or technology – they will temporarily hit profits, so have a cash cushion.
Accept the roller coaster of the $1M–$5M phase; it eventually smooths out if you keep improving.
Run the numbers on any big decision (like my simple hiring case study) so you go in with eyes open.
Decide what kind of business you want . That will guide your choices on reinvestment versus taking profits, on pushing growth versus holding steady.

There are other lessons focusing on ensuring the right people in the right seats, the 4 virtues of life and leadership, and innovation which today is focused on AI Automation, GTM 2.0, and the contra-AI Value Proposition: Deeper Human-in-the-Loop.

Scaling an accounting firm isn’t easy, but with clarity on these financial dynamics and your own goals, it can be a rewarding adventure. Speaking as that once anxious entrepreneur who took the leap, I can say: the view after those hard climbs is absolutely worth it. Keep learning, stay flexible, and you’ll find the right balance between margin and growth for your firm’s success.

Daniel Gertrudes

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The Startup’s Guide to Bookkeeping

dan@growthlabfinancial.com (Dan Gertrudes) — Mon, 24 Feb 2025 14:30:00 GMT

The Startup’s Guide to Bookkeeping: Daniel Gertrudes and a Decade in the Trenches

The First Rule: Keep Personal and Business Finances Separate

I see it all the time. Founders mix personal and business expenses because, honestly, it’s just easier. Who wants to spend time at a bank opening up an account when there are a million other things to do? But today, there are plenty of online banking platforms that cater specifically to startups, making it super easy to get that business checking account and credit card set up.

Credit cards are a big culprit here. Let’s be honest—how many times have you been at a coffee shop, forgotten your business card, and just used your personal one instead? It happens. But over time, those little mix-ups add up, making it harder to understand your true financial picture. And don’t even get me started on business owners justifying personal expenses as business ones because they talked shop over dinner with friends. Buyer beware.

The Danger of Mixing Finances: It’ll Cost You

If you mix personal and business expenses, it’s going to come back to bite you. First, it skews your understanding of how much it actually costs to run your business. If you think you’re operating on $200K in expenses but some of those were actually personal, your numbers are way off.

Second, when it’s time to clean it all up, you’ll end up paying your accountant extra just to untangle the mess. Worst case? They’ll need to go through your personal finances line by line, asking you to identify business expenses. That’s not only expensive—it’s a waste of your time. And if you ever get audited? Well, let’s just say you don’t want to be the one explaining your financials to the IRS when they have AI tools scanning tax returns for inconsistencies.

Picking the Right Bookkeeping System

I’m not here to debate cash vs. accrual accounting—most founders do just fine with cash basis early on. But choosing the right bookkeeping setup from day one saves you headaches down the road.

A lot of startups spend money on systems that are overkill for their size. If you’re in the early stages, keep it simple. The first step? Find a good accountant to help close the books at least quarterly. Check out our post on Bookkeeping Basics for Small Business Owners for more insights.

Next, pick a bookkeeping software that you’re comfortable with. QuickBooks Online and Xero are the go-to choices, but newer AI-native general ledgers are popping up, promising to automate bookkeeping (though they’re not quite there yet). The real game-changer is having a trusted advisor—a controller, financial analyst, or fractional CFO —to help interpret the numbers.

Another pro tip: set up at least two bank accounts—one for operating expenses and another for payroll. This adds a layer of protection so if something goes wrong with payroll withdrawals, you’re not jeopardizing your entire cash flow. And get a credit card for recurring business expenses—trust me, it’ll save you time.

The Monthly Habit That Separates Thriving Startups from Struggling Ones

The best founders I know have their finger on the pulse of their financials. The ones who don’t? They’re flying blind.

Reviewing your financials every month might sound like a drag, but it’s a game-changer. If you’ve read Atomic Habits, you know small, consistent habits add up over time. Spending 30-60 minutes a month reviewing your numbers is one of those habits. Once you start tracking actuals vs. budget, you’ll uncover insights that help you make smarter business decisions. It’s like checking your speed and GPS while driving—without it, you’re just hoping you’ll get to the right destination. Learn more about how our FP&A Services can help you stay on track.

Cash Flow: The Lifeline of Your Business

Here’s the reality: if you don’t have visibility into your future cash position (plus or minus 20% over the next 12 months), you’re setting yourself up for trouble.

Early on, most founders manage cash flow by checking their bank balance daily. Eventually, they move to tracking financials through their general ledger. But when they switch to accrual accounting, that’s when things get confusing.

One of the most frustrating moments for a founder is seeing a $300K profit on their income statement but realizing their bank account is down $50K. That’s when you need an FP&A team or fractional CFO to help you bridge the gap between accounting profits and actual cash flow.

Tracking Expenses Before They Spiral Out of Control

Just like in our personal lives, business expenses have a way of creeping up. By the end of the month, you’ve forgotten what you spent at the beginning. Worse, those recurring software subscriptions start piling up.

This is where an expense management platform comes in. Not only do they help track spending, but they also issue credit cards to employees, keeping expenses in check. Some founders resist because they love their Amex points, but trust me—control over your cash is way more valuable than credit card rewards.

Taxes: The Silent Killer (If You’re Not Careful)

If you’re a venture-backed startup, taxes might not seem like a big deal at first. But that doesn’t mean you can ignore them.

For LLCs and S-corps, what happens in the business flows through to the owner’s personal taxes. One mistake I see often? Founders paying down loans without accounting for tax liability. If you made $150K in profit last year but paid off $50K in loans, you’ve only got $100K in the bank—but you owe taxes on the full $150K. I call this “phantom profit,” and it’s a nasty surprise if you’re not prepared.

When to Bring in Professional Help

I always get asked: When should I bring in professional accounting help? The answer? It depends. If you’ve got the financial acumen and can dedicate 4-5 hours a month to managing your books, you might be fine in the early days. The good news with accounting is that you can always go back and clean up past mistakes.

But once your balance sheet starts getting complicated and you don’t have room for errors, it’s time to call in the pros. And no, bookkeeping alone isn’t enough. You need an accounting , FP&A, and tax team that work together—so there are no surprises at year-end.

HR is another area that gets overlooked but is just as strategic. Getting an HR partner early can save you from costly compliance mistakes down the road.

So, when’s the right time to bring in help? Simple: when you can’t afford not to.

Daniel Gertrudes

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How to Read a P&L

Mon, 17 Feb 2025 14:00:06 GMT

How to Read a P&L

A Profit & Loss (P&L) statement, also known as an income statement, is one of the most essential financial documents for any business. It provides a snapshot of your company’s revenues, costs, and expenses over a specific period, helping you gauge profitability and financial health. But if you’re not an accountant, reading a P&L can feel like deciphering another language.

At GrowthLab, we work with business owners and finance teams every day to help them make sense of their numbers. In this guide, we’ll break down how to read a P&L statement like a pro so you can make informed decisions that drive business growth.

Understanding the Key Sections of a P&L Statement

A well-structured P&L statement typically consists of the following sections:

1. Revenue (Top Line)

This is the total income your business generates before any expenses are deducted. Revenue can come from various sources, such as product sales, service fees, or subscriptions. Be sure to check whether your revenue is reported on a cash or accrual basis, as this impacts how income is recognized.This is also called Gross Receipts or Gross Revenues.

2. Cost of Goods Sold (COGS)

COGS includes all the direct costs associated with producing goods or delivering services. For example:

A bakery’s COGS would include flour, sugar, and labor costs.
A consulting firm’s COGS might include contractor payments.

Understanding your COGS helps determine your gross profit margin , which is a critical profitability metric. Overhead expenses, such as Office supplies, would not be part of COGS, only direct expenses as stated above. For more tips on small business bookkeeping and tracking expenses, read our guide on Bookkeeping Basics for Small Business Owners.

3. Gross Profit

Calculated as: Revenue - COGS = Gross Profit

This tells you how much money is left after covering direct costs. A strong gross profit margin indicates efficient cost management and pricing strategy.

4. Operating Expenses (OPEX)

These are indirect costs incurred in running your business, including:

Rent & utilities
Marketing & advertising
Payroll & benefits
Software subscriptions

Monitoring OPEX is crucial for maintaining a healthy profit margin.

Pro Tip: If your operating expenses are creeping up, it might be time to reassess spending and identify cost-cutting opportunities. You can see this by looking at a month to month P&L report.

5. Operating Profit (EBITDA)

Gross Profit - Operating Expenses = Operating Profit

Also known as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), this metric gives a clearer picture of operational efficiency before financial and accounting adjustments.

Further Reading: How to Calculate EBITDA

6. Net Profit (Bottom Line)

Operating Profit - Taxes, Interest, Depreciation = Net Profit

This is the final profitability figure, showing what’s left after all expenses are deducted. If your net profit is consistently low or negative, it’s time to revisit your revenue strategy and cost structure.

Further Reading: What Does a Small Business CFO Really Do?

Tips for Analyzing Your P&L Like a CFO

Look for Trends: Compare your P&L across multiple periods to identify revenue patterns, expense trends, and seasonality effects.
Benchmark Against Industry Averages: Tools like IBISWorld or BizMiner can help you understand where your business stands.
Calculate Key Ratios: Gross Margin, Operating Margin, and Net Profit Margin provide valuable insights into financial efficiency.
Tie It Back to Strategy: A P&L should guide decision-making. If margins are shrinking, you may need to adjust pricing, renegotiate supplier costs, or optimize operations.

Understanding your P&L statement isn’t just about reading numbers—it’s about gaining insights that drive smarter business decisions. If you need help making sense of your finances, GrowthLab is here to help. Let’s turn your P&L into a tool for business growth!

Daniel Gertrudes

Frequently Asked Questions

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The 5 Most Common Cash Flow Mistakes (And How to Fix Them)

Mon, 10 Feb 2025 17:13:10 GMT

The 5 Most Common Cash Flow Mistakes

Cash flow is the lifeblood of any business. Yet, many business owners and finance teams unknowingly make critical mistakes that put their companies at risk. While profitability is important, even profitable businesses can struggle, or fail, due to cash flow mismanagement.

At GrowthLab, we’ve worked with hundreds of businesses to optimize their financial operations. Below are five of the most common cash flow mistakes we see and practical ways to fix them.

1. Not Having a Cash Flow Plan

A cash flow plan isn’t just a “nice-to-have”, it’s a necessity. Many businesses operate without a clear strategy for managing cash inflows and outflows, leading to unexpected shortfalls.

How to Fix It:

Use a 13-Week Cash Flow Forecast – This short-term planning tool helps predict upcoming cash needs. Learn how to build one here.
Align Cash Flow with Business Goals – Budget for major expenses, tax payments, and seasonal fluctuations in revenue.
Review & Adjust Regularly – A static cash flow plan won’t help. Update your forecasts weekly or monthly to stay ahead of surprises.

Pro Tip: Even small adjustments, like negotiating payment terms with vendors or invoicing clients faster, can make a big difference in your cash flow.

2. Overestimating Cash In / Underestimating Cash Out

It’s easy to be overly optimistic about incoming revenue, but failing to account for delays in payment, slow sales periods, or unforeseen expenses can lead to serious cash shortages.

How to Fix It:

Use Conservative Revenue Projections – Base forecasts on historical data, not just best-case scenarios.
Overestimate Expenses – Add a buffer (5-10%) to your expected costs to prevent under-budgeting.
Track Payment Timelines – Understand your customers’ payment behaviors to avoid cash flow bottlenecks.

For a more in-depth approach, read our guide on How to Budget for Employee Benefits.

3. Not Maintaining a Cash Reserve

Many businesses operate with little to no cash cushion. When unexpected expenses arise—like a late-paying client, equipment failure, or an economic downturn—they struggle to stay afloat.

How to Fix It:

Set a Cash Reserve Goal – Aim to keep 3-6 months’ worth of operating expenses in a reserve account.
Automate Savings – Set up an automatic transfer to a separate business savings account each month.
Plan for Worst-Case Scenarios – Identify potential financial risks and create a backup plan.

Why It Matters: Businesses that maintain a cash reserve have a significantly higher survival rate during economic downturns.

4. Poor Accounts Receivable Management

Slow-paying customers can cripple your cash flow. Many businesses fail to establish strong invoicing policies, leading to delays in collecting payments.

How to Fix It:

Invoice Promptly & Clearly – Send invoices immediately after work is completed. Use automated invoicing software to streamline the process.
Follow Up Consistently – Implement a structured follow-up system for late payments.
Offer Early Payment Incentives – Provide discounts for customers who pay before the due date.

Check out our 5 Tips to Managing Your Accounts Receivable for a deeper dive into AR best practices.

5. Confusing Profit with Net Cash Flow

A business can be profitable on paper but still run out of cash. Profit is what’s left after expenses, while cash flow reflects the actual movement of money in and out of the business.

How to Fix It:

Use the Cash Flow Statement – This report provides a clearer picture of available cash. Learn how to read a statement of cash flows here.
Track Operating, Investing, & Financing Activities – Understanding these three components helps clarify cash flow trends.
Implement Strong Financial Reporting – Work with a CFO or financial expert to regularly review your cash position.

Key Takeaways

Forecast Regularly: Use a 13-week cash flow forecast to predict and prepare for upcoming financial needs.
Build a Buffer: Aim for a cash reserve covering 3-6 months of operating expenses to survive unexpected downturns.
Optimize Collections: Improve cash inflows by invoicing immediately and implementing structured follow-ups for late payments.
Profit ≠ Cash: Understand that a profitable balance sheet does not guarantee available liquid cash.
Be Conservative: Underestimate revenue and overestimate expenses by 5-10% to prevent budget shortfalls.

Avoiding these common cash flow mistakes requires a proactive approach. By implementing better forecasting, maintaining a reserve, and improving collections, you can strengthen your business’s financial health.

Need help optimizing your cash flow? GrowthLab specializes in Finance-as-a-Service (FaaS), providing fractional CFO services, FP&A, and accounting to help businesses manage and improve their financial operations. Get in touch with our team today!

Frequently Asked Questions About Cash Flow Management

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What Is An Accounting Calendar & How Do I Create One?

Sun, 02 Feb 2025 14:49:07 GMT

Why Every Business Owner Needs an Accounting Calendar to Stay on Top of Their Numbers

Business owners who deeply understand their numbers have a massive competitive edge. Your financials aren’t just a static report of your business’s health; they reveal patterns, expose inefficiencies, and guide strategic decision-making. Whether you're trying to improve cash flow, increase profitability, or secure funding, knowing your numbers is non-negotiable.

Key Takeaways

Prevent Missed Deadlines: An accounting calendar centralizes tax filings, statement closings, and reporting dates to avoid penalties.
Streamline Operations: Aligning credit card statement dates to the first week of the month simplifies the reconciliation process.
Drive Accountability: Regular month-end close dates ensure leadership and finance teams remain disciplined in reviewing performance.
Support Growth: Consistent tracking of metrics like CAC and LTV allows for data-driven decisions rather than guesswork.

Think about any episode of Shark Tank or The Profit. Investors consistently pass on entrepreneurs who don’t have a firm grasp of their numbers—not just revenue and profit, but key financial metrics like:

Customer acquisition cost (CAC): How much does it cost to acquire a new customer?
Customer lifetime value (LTV): How much does a customer typically spend over time?
Cost of goods sold (COGS) or service delivery costs: What does it cost to create your product or deliver your service?

Having access to this data allows you to make informed decisions about marketing, financing, and growth strategies. But staying on top of your numbers isn’t just about reviewing financial reports—it’s about proactively managing your financial calendar. That’s where an accounting calendar comes in.

Download Accounting Calendar Template

The Power of an Accounting Calendar

An accounting calendar helps you track important financial dates, ensuring nothing falls through the cracks. It organizes key accounting periods and material deadlines across your fiscal year. Here are some critical dates to include:

Credit card closing dates
Month-end financial reviews
Tax filing deadlines (Need help navigating tax deadlines? Check out our guide on small business tax planning )
Board meetings and investor reporting deadlines

While you might remember some of these dates offhand, visualizing them in one place creates a structured system. More importantly, it fosters accountability among your team and stakeholders.

How to Create an Accounting Calendar in 6 Steps

1. Download a Template

Don’t start from scratch. Use an existing accounting calendar template to get a baseline structure. Our template includes a standard fiscal calendar and highlights key financial checkpoints based on common reporting cycles.

2. Identify Your Tax Deadlines

Tax planning is essential to avoid cash flow surprises. Consider:

What type of entity are you (LLC, S-Corp, C-Corp)?
Do you need to pay sales tax, payroll tax, or estimated quarterly taxes?
When are federal and state tax filings due?

By mapping out these dates in advance, you ensure you're prepared for tax season instead of scrambling last minute. (Need more tax tips? Read our tax deadline list .)

3. Align Bank and Credit Card Statement Dates

One of the trickiest parts of closing your books is aligning statement dates. We recommend adjusting credit card closing dates to the first week of the month, giving your team enough time to reconcile expenses and close the books efficiently.

4. Set Month-End Close Dates

Consistency is key when managing financials. Schedule a specific day each month to close your books and meet with your accounting and finance team. Consider:

When will your leadership team review financials?
When will department heads receive their reports?

5. Organize Everything Into One Calendar

Compile all your dates into a single, easy-to-read calendar. Use a digital tool like Google Calendar, Asana, or Excel to keep it accessible and shareable.

6. Review and Adjust as Needed

Financial schedules evolve. Revisit your accounting calendar periodically to ensure deadlines align with your business’s cash flow needs and operational cadence.

For example:

Do you have enough time between closing the books and sending reports?
Are credit card and loan payment dates clustered too close together, straining cash flow?

Stay Accountable to Your Numbers

At GrowthLab, one of the first things we implement with new clients is an accounting calendar—because we know that staying organized is key to financial success.

If you don’t have a system in place, now is the time to build one. The question is: Are you and your team accountable for knowing your numbers? If not, it’s time to create your accounting calendar and take control of your financial future.

Dan Gertrudes

Frequently Asked Questions About Accounting Calendars

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What Does a Small Business CFO Really Do?

Sat, 01 Feb 2025 14:04:52 GMT

What Do Small Business CFOs Really Do?

If you’d like your small business to thrive, a Chief Financial Officer or CFO is an invaluable resource. Contrary to popular belief, a CFO is not a bookkeeper or accountant. Essentially, they use their deep financial expertise to analyze data and develop solid strategies that can help you meet (or even exceed) your goals. You can think of them as your own personal financial consultant.

Unlike bookkeepers and accountants who focus on recording transactions and preparing financial documents, CFOs analyze the numbers. They look at the big picture to make it easy for you to understand how your business is financially so you can continuously improve.

A Small Business CFO is Within Reach

You may be surprised to learn that a small business CFO won’t cost you an arm and a leg, as long as you outsource them. With GrowthLab, you can enjoy a CFO along with accountants, bookkeepers, and other pros all for the price of a single full-time employee. You can enjoy a full-stack finance team and don’t have to worry about paying an in-house sky-high salary and benefits.

Benefits of a Small Business CFO

Here are several of the many ways a small business CFO can benefit your small business.

Financial Intelligence

While you focus your time and effort on running your business, they can dive deep into pricing, performance data, and achieving realistic revenue and profitability goals. Their financial intelligence may be just what you need to steer your business toward unparalleled growth and success.

Forecasting

Forecasting refers to an estimate of the future financial outcomes for your business. A CFO can perform forecasting on your behalf so you allocate your resources accordingly. Without forecasting, you’ll find it difficult to gain valuable insights into your past performance and establish realistic goals.

Expert Advice

In a perfect world, your small business would never face financial challenges. Since this is very unlikely, a CFO is a wise investment. They can provide the expert advice you need to overcome poor cash flow and profitability, high overhead, overwhelming debt, high client churn, and so much more.

Scaling

When it comes time to scale your business, a CFO may guide you toward the right direction. They can ensure that your financial infrastructure is good to go. You can also trust them to apply for multi-state registrations, figure out the most cost-efficient tax structure, and find capital from the right lenders and investors.

Succession Planning

Succession planning can identify the future leaders of your company and create a program that will prepare them for their new roles. If you’d like your business to continue for years to come, succession planning is a necessity rather than simply an option. You can turn to a CFO to help you decide your company’s management needs in the future.

Do You Need a CFO? Here’s How to Tell

Here are signs your business is ready for CFO-level support:

Cash flow is unpredictable – You’re constantly worried about making payroll
Your business is growing fast – Revenue is up, but so are expenses
You need funding – You’re preparing for an investment round or loan application
Financial reports confuse you – You don’t know how profitable your business really is
You’re making decisions reactively – Without data-driven planning

CFO Pricing

We bring world-class people and process to your management team. Our team's focus is 100% on helping you define and execute on your business goals.

At a lower price-point, we add greater value than an individual fractional CFO because we leverage our full-stack finance and accounting - all under one roof.

Key Takeaways

Strategic Focus: Unlike bookkeepers, CFOs use data to develop long-term growth strategies and financial intelligence.
Cost Efficiency: Outsourced or fractional CFOs provide executive-level expertise at a fraction of the cost of a full-time hire.
Core Benefits: CFOs assist with cash flow forecasting, scaling infrastructure, and succession planning.
Readiness Indicators: Rapid growth, unpredictable cash flow, and the need for funding are key signs your business needs a CFO.
Fractional Model: Small businesses can access "full-stack" finance teams (CFO + accounting) through integrated service providers.

At GrowthLab, we help small businesses like yours succeed. We can pair you with a CFO team that serves as a valuable extension of your management team. Since we don’t believe in one-size-fits-all solutions, we’ll take the time to get to know your particular needs and design the ideal CFO strategy for your unique business.

More CFO & Finance Resources:

�� What is a Fractional CFO?
�� How a CFO Can Optimize Your Cash Flow
�� Scaling FP&A: How to Productize Financial Advisory

Dan Gertrudes

Frequently Asked Questions

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Unlocking Growth: Why GrowthLab Adopted EOS

Wed, 11 Dec 2024 16:01:02 GMT

Unlocking Growth: Why did GrowthLab Adopted EOS?

At GrowthLab, we believe that every business needs a strong foundation to grow and thrive. Over the past 12 months, we embarked on a transformative journey with the Entrepreneurial Operating System (EOS), a decision that has reshaped how we work and achieve our goals. Here’s why we chose EOS and how it’s helping us build a scalable and efficient operating system.

The Need for Change

Before implementing EOS, we had an operating system in place. But as our business grew, it became clear that our existing system wasn’t scalable or robust enough to support the next phase of our journey. One of the biggest challenges we faced was measurement—or the lack thereof. Without clear metrics, accountability, and alignment, we were missing opportunities to optimize performance and create a truly world-class team.

That’s where EOS came in. Based on the principles laid out in the book Traction by Gino Wickman, EOS offers a structured framework to help businesses achieve clarity, accountability, and sustainable growth.

Starting with Core Values

Our journey began with a deep dive into our core values. These aren’t just words on a wall; they’re the principles that guide how we work, who we hire, and how we serve our clients. Here are the core values that define GrowthLab:

Intellectual Curiosity : We have an insatiable desire to learn, explore, and understand the world around us. This mindset drives innovation and helps us stay ahead in a competitive landscape.
Continuous Improvement : About a year and a half ago, we formed team groups to identify and implement continuous improvement opportunities. Incremental changes, when applied consistently, drive significant value over time. It’s not about grand gestures but small, consistent steps forward.
Ownership and Initiative : In the accounting world, taking ownership is non-negotiable. Whether it’s responding to a client’s email promptly or going the extra mile to solve a problem, this value ensures our team is always proactive and accountable.
Agility and Dealing with Ambiguity : Accounting might seem black and white, but there’s plenty of gray. Our team embraces uncertainty, using tools like Carbon and Ignition to bring clarity while staying adaptable to evolving needs.
Trustworthiness, Enthusiasm, and Empathy : Trust is the foundation of all relationships. Coupled with genuine enthusiasm and empathy, it helps us foster a deliberate and positive culture. Whether it’s a challenging Monday morning or a tough client situation, we bring our best selves to the table.

Looking for a Finance-as-a-Service partner?

The EOS Framework in Action

EOS is more than just a set of values; it’s a comprehensive system for running a business. Over the next few months, we’ll be diving into key EOS concepts, including:

L10 Meetings : Regular, focused meetings to drive alignment and execution.
Scorecards : Simple yet powerful tools for tracking critical metrics.
Rocks : Prioritized goals to keep everyone on the same page.
Accountability Charts : Clear roles and responsibilities to ensure the right people are in the right seats.

At GrowthLab, our journey with EOS is about more than operational efficiency. It’s about creating a legacy. By aligning our team around shared values and measurable goals, we’re building a culture that not only delivers results but also enriches the lives of everyone involved—from our clients to our team members.

If you’re curious about how EOS could transform your business, feel free to reach out. We’ve experienced firsthand the power of this system and would love to help you unlock your business’s full potential.

Daniel Gertrudes

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Let's Elevate Your Financial Strategy with Virtual CFO Services

dan@growthlabfinancial.com (Dan Gertrudes) — Tue, 26 Nov 2024 15:15:46 GMT

Elevate Your Financial Strategy with Virtual CFO Services

Key Highlights

A fractional CFO provides expert financial leadership on a part-time or project basis.
Ideal for startups, SMEs, and businesses seeking strategic financial guidance without hiring a full-time CFO.
Expertise in financial planning and analysis, cash flow management, fundraising, and investor relations.
Proven track record of driving profitability, improving financial systems, and supporting business growth.
A cost-effective way to access high-level financial expertise and enhance your company's financial health.

Introduction

2024 was a tough year for businesses and 2025 could be the beginning of the new norm, and having a strong financial strategy is very important for your financial success. Many small businesses and startups often struggle to pay for a full-time CFO. This is where a fractional CFO or GrowthLab Virtual CFO services help especially with our GL CFO Suite of services. A fractional CFO offers expert financial guidance in a flexible way. This can change the game for companies that want to improve their financial management and grow sustainably.

Understanding the Role of a Fractional CFO

A fractional CFO is a skilled financial expert. They provide different financial management services to businesses part-time or on a contract. Unlike a full-time CFO, a fractional CFO handles multiple clients. They offer special skills and knowledge to meet specific business needs.

An experienced fractional CFO is a key partner for business owners and CEOs. They give valuable insights and support to help deal with financial challenges. They help businesses take advantage of opportunities to reach their goals. Their skills cover many areas like cash flow, financial planning, fundraising, and dealing with investors.

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Key Responsibilities and Skills

Fractional CFOs have a lot of financial expertise. They act as trusted advisors to the management team. They are good at strategic planning, financial modeling, and analysis. They give data-driven insights to help the team make informed choices.

They also play a crucial role in improving financial processes. They set up strong financial systems and create key performance indicators (KPIs) to track progress and to measure success.

More than their technical skills, fractional CFOs are great at communication and teamwork. They work well with the finance team and other departments. This ensures everyone is on the same page and helps boost financial awareness throughout the company.

The Strategic Advantage in Financial Planning and Analysis

Financial planning and analysi s (FP&A) are key for good financial management. Fractional CFOs are skilled at creating clear financial plans. This includes budgeting, forecasting, and looking at different scenarios.

They also do very well in cash flow management. This helps businesses stay financially stable, so they can handle daily costs and seize chances to grow. By using smart cash flow forecasting and strategies to improve working capital, fractional CFOs help businesses face financial challenges confidently.

In addition, they are great at financial modeling. This skill lets them check investment chances, look at risks, and back important plans with strong financial analysis.

Understanding the Role of a Fractional CFO

Fractional CFOs help many types of businesses. They are especially useful for startups, small and medium-sized companies, and businesses that are growing fast or facing financial problems. Any business that wants better financial management without hiring a full-time CFO can use their help.

They can assist a startup with its first funding rounds or help a more established company manage tough financial situations. Fractional CFOs have the skills needed to make smart financial choices and reach lasting success.

How Startups Benefit from Financial Expertise

Startups often deal with special money problems when starting their business. A fractional CFO can help them tackle these issues. They provide support in making a business plan, creating financial models, and finding funding.

With their knowledge of equity funding, venture capital, and debt financing, fractional CFOs are important for startups that need money to grow. They can assist business owners in making strong pitch decks, working out good deals with investors, and setting up solid financial reporting systems.

By focusing on important financial areas from the beginning, a fractional CFO helps startups build a strong base for ongoing growth and long-term success.

Supporting SMEs in Scaling and Growth

As small businesses grow, their money needs get more complicated. They may want to enter new markets, handle more cash flow, and run their operations better. This requires skilled financial leadership. Fractional CFOs are great at helping small and medium-sized enterprises (SMEs) during this growth.

They can create smart growth plans, set up strong financial systems, and make financial reports better. By giving advice on finance and how to operate, fractional CFOs help SMEs grow without hurting their financial health.

Also, they are very important in getting more money by negotiating good terms with lenders and investors. They make sure that the business has enough money to support its plans for growth.

Solutions for Fast-Growing Companies and Those in Financial Distress

Rapid growth can put a lot of pressure on a company’s money and structure. Fractional CFOs have the skills and knowledge to handle this growth well. They can help set up financial processes that can grow, improve cash flow management, and find funding needed for expansion.

On the other hand, if a business is in financial trouble, quick action is necessary to get back on track. In these cases, a fractional CFO can help as a turnaround expert. They can spot areas that need fixing, set up ways to save money, and negotiate with creditors. Their background in financial restructuring and crisis management is very useful during tough times.

Whether a company is growing fast or struggling financially, a fractional CFO offers objective insights, smart guidance, and hands-on support. This helps companies deal with challenges and leads them towards a stable financial future.

Enhancing Your Financial Leadership with a Fractional CFO

Hiring a fractional CFO can greatly improve a company's financial leadership. They provide a clear vision and have a strong grasp of financial management. This helps businesses make smart and forward-thinking choices.

This team-based style of financial leadership goes beyond just regular accounting and reporting. Fractional CFOs serve as trusted advisors. They assist companies in understanding the reasons behind the financial figures and promote a culture of financial awareness within the entire organization.

Oversight on Accounting Practices

Fractional CFOs usually do not handle daily accounting work. However, they play an important role in checking the accuracy of financial information. They cooperate with the in-house accounting team or outside accounting services. They review financial statements and make sure everything follows the rules.

They also help make financial processes smoother. They set up internal controls and create best practices to improve efficiency and reduce risks. Their commitment to accuracy and transparency in financial reports builds trust with important people like investors, lenders, and board members.

Additionally, fractional CFOs can prepare detailed financial reports and presentations for board meetings. They provide clear insights into how the company is doing financially.

Elevating Financial Planning, Analysis, and Reporting

Fractional CFOs are great at improving financial planning, analysis, and reporting. They do more than just crunch numbers. They look beyond past data to create insights for the future. They can spot trends and predict challenges. This helps with strategic financial planning.

They set up and monitor key performance indicators (KPIs). This gives businesses a clear picture of their financial health. Using data this way helps companies make changes when needed. It also helps them take advantage of chances and check their progress toward goals.

Additionally, fractional CFOs make financial reporting better. They explain complex information in a simple way. They show key insights and trends that aid in making good decisions.

The Process of Hiring a Fractional CFO

The process of hiring a fractional CFO is quite simple. First, you need to clearly define what work needs to be done and what your specific needs are. Some businesses may need part-time support regularly, while others might need help with a certain project.

After you know your needs, think about reaching out to fractional CFO companies or reliable financial professionals. Ask for proposals, check their experience and qualifications, and have interviews to find the right person for you. The agreement is usually made on a contractual basis. It should clearly state the services to be provided, the fees, and what you expect to receive.

Identifying the Need and Scope of Services

Before you hire a fractional CFO, it is important to know what you need for financial management. Think about the areas where you need help. This could be things like cash flow, financial planning, or financial reporting. Clearly define the services you want.

Also, consider how long you will need support. Do you want short-term help for something specific, like setting up a new financial system or raising funds? Or do you need part-time help for an ongoing project?

If your need is temporary, such as filling a gap during a leadership change or managing a certain task, you could look at hiring an interim CFO. After you decide what you need, you can share your requirements with potential candidates or fractional CFO companies.

Criteria for Selecting the Right Fractional CFO

Selecting the right fractional CFO is crucial for a successful engagement. Look for candidates with proven experience as a CFO, preferably in your industry or a similar field. Assess their professional experience, considering their track record in delivering tangible results.

Ensure the chosen fractional CFO possesses excellent communication and interpersonal skills, as they will interact with various stakeholders, including the management team, investors, and board members. Cultural fit is vital for effective collaboration; therefore choose someone who aligns with your company's values and work ethic.

Conclusion

A Fractional CFO can change the way you manage your money. They offer expert advice that fits your needs as a business. They help new companies make financial decisions and assist small and medium-sized enterprises as they grow. Their help is key for lasting success. A Fractional CFO improves financial leadership through smart planning and careful analysis. This can take your business to the next level. If you want to improve your financial management and earn more, think about adding a Fractional CFO to your team. Make this smart choice today for a better future.

Daniel Gertrudes

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SAFE Note vs. Convertible Note: The Differences

Thu, 24 Oct 2024 17:57:50 GMT

SAFE Note and Convertible Note: The Differences

As a startup, you have several options for raising capital. Two of them include SAFE notes and convertible notes, both of which are good options for businesses that are in early stage development.

Both of these allow you to push the company valuation of your business to a later date so that you can grow the business (and support a higher valuation) before setting the valuation on which to sell equity. This, of course, helps you sell less equity because you increase the value per share before selling shares.

While SAFE notes and Convertible notes are similar in nature, several differences between them are important to understand. So how do SAFE notes and convertible notes work and which one is right for your business? Keep reading to find out.

What is a SAFE Note?

SAFEs or Simple Agreement for Future Equity notes were initially created in 2013 by Silicon Valley startup accelerator, Y Combinator (ADD BACKLINK). While SAFE notes have gained popularity in recent years and are designed to be converted to equity at a later date, they are not considered loans or debt instruments. Therefore, they don’t have an interest rate or predetermined maturity date. As a result, there is no pressure for your business to convert a SAFE note into equity at a particular date or during a round of fundraising.

You can think of SAFE notes as agreements or warranties, instead of traditional loans. They’re simplified versions of convertible notes (which we’ll discuss below) that don't include the interest and maturity components.

Types of SAFE Notes

SAFE notes fall into four categories based on whether the note includes or excludes two key factors: discount rate and valuation cap. The four types are as follows:

Discount Included; Valuation Cap Included: This version is one of the more frequently used types because it offers two incentives for the SAFE investors. The investors are guaranteed to get extra value when the SAFE converts to equity. If the SAFE converts above the valuation cap, the SAFE investors buy in at the lower dollar per share established by the valuation cap. If the SAFE converts below the valuation cap or if the discount provides a better price, the SAFE investors buy in at the lower dollar per share established by the discount.
No Discount; Valuation Cap Included: This version makes sense if you want to provide your investors with the benefit of a valuation cap, but do not want to include a discount option (which is used if the SAFE converts below the valuation cap).
Discount Included; No Valuation Cap: This version of the SAFE note removes the valuation cap, but provide SAFE investors with a discount upon conversion. This is another way to guarantee that your SAFE investors get extra value upon conversion.
No Valuation Cap; No Discount: This version is rare as it offers no incentive for investors and is, therefore, harder to sell. However, it is the best fit for the purpose of minimizing dilution.

Convertible notes may also include a valuation cap which sets the ceiling on the valuation of the company for purposes of conversion. Said another way, these investors set an upper limit on the price they are willing to pay for each share of the company.

SAFE Note vs Convertible Note

Similarities Between SAFEs and Convertible Notes

SAFE notes and convertible notes are designed to help early-stage businesses raise capital. These tools promise investors that they’ll receive additional shares of preferred stock down the road (unless you use a no cap, no discount SAFE). Eventually, both SAFE notes and conversion notes can be converted to equity and offer a discount and/or valuation cap.

Here’s a brief overview of how they both work: An investor agrees to give your business a certain amount of money today as an initial investment. In exchange, they receive the right to convert those funds into shares of your company. Typically, the monies convert at a better rate (aka, better dollar per share) than the new equity being sold.

Differences Between SAFEs and Convertible Notes

While SAFEs and convertible notes have similar functions, there are several noteworthy differences between them, including:

Debt Classification: SAFE notes are not classified as debt instruments whereas convertible notes are. Put simply, convertible notes are loans that must be repaid through cash or company shares.
Interest: Just like most debts, convertible notes come with interest charges. Your business will need to repay the principal plus interest. SAFE notes, however, don’t carry interest because they serve as agreements or warranties rather than debts.
Timelines: Unlike SAFE notes, convertible notes have a maturity date. After about 18 to 24 months, a convertible note usually converts automatically or must be repaid. If your business doesn’t continue to raise money, SAFE notes can be held.
Documentation: Compared to convertible notes, SAFE notes are usually shorter and more straightforward. This is because there are less terms and contingencies for your business and investors to agree on. In addition, convertible notes almost always require a separate note purchase agreement (to sign before monies are exchanged) while SAFEs do not typically require such pre-documentation.
Flexibility: SAFEs are based on standardized templates you can find on Y Combinator’s website. Since convertible notes are not as standardized, they may allow for greater flexibility for your business and investors, but they also require more legal support to produce.

Legal and Tax Considerations for SAFE and Convertible Notes

Legal and tax aspects play vital roles in SAFE and convertible notes. Understanding the implications for both parties is crucial. Tax liabilities may differ based on the instrument and State. Legal fees could vary due to complexity. Conversion terms and triggering events impact tax implications. SAFE notes may have simpler tax treatments than convertible notes due to their nature. Always consult legal and tax professionals for guidance. These considerations are pivotal for financial planning and compliance.

Startup and Investor Perspectives on Financing Options

From a startup perspective, choosing between SAFE notes and convertible notes hinges on factors like risk tolerance and control concerns. Investors often favor SAFE notes for their simplicity and future equity potential. Conversely, convertible notes provide more security with their debt-like features. Understanding these differences can significantly impact the decision-making process for both parties involved in equity rounds. In Silicon Valley and beyond, the choice between these financial instruments can shape the trajectory of a startup's growth and investor returns.

Are SAFES Better than Convertible Notes?

These days, many entrepreneurs and small business owners agree that SAFE notes are the ideal choice due to their ease and simplicity. But the right option depends on your unique business, goals, and preferences.

Also, keep in mind that some investors may only be willing to invest using convertible notes. To make it easier for you to decide whether to opt for SAFEs or convertible notes, we’ve created this handy comparison chart.

Market Trends and Future Outlook of Financing Instruments

As the startup ecosystem evolves, the use of innovative financing instruments like SAFE notes and convertible notes is on the rise. With a focus on future equity and flexibility, these instruments cater to the dynamic needs of early-stage companies and investors. Understanding the key differences and benefits can provide valuable insights for maximizing funding opportunities and navigating the complexities of equity financing in the ever-changing market landscape.

Ryan Clifford

Frequently Asked Questions About SAFES and Convertible Notes

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What is a Fractional CFO?

Mon, 07 Oct 2024 12:00:03 GMT

Decoding the Fractional CFO: Financial Storytelling

Imagine this: Your small business is growing quickly, but your finances feel messy. Or maybe your small company has a lot of potential, but managing money is causing you stress. You don’t need a full-time CFO. What you really want is smart help with your finances and reliable accounting services that won’t break the bank, especially in terms of the hourly rate. A fractional CFO can provide this support with the right level of expertise.

What is a Fractional CFO?

A Fractional CFO, or an outsourced CFO, is a financial expert with a diverse skill set. This person works part-time or on a project basis. A Fractional CFO has the same skills as a full-time chief financial officer. They can manage finances, plan strategies, and solve money problems. They also create better financial systems to help your business grow without the expense of a full-time hire. If you are a business owner looking for help as you grow, an outsourced CFO can give you the financial guidance you need for sustainable growth.

Why Should You Consider a Fractional CFO?

Growing your business is exciting, but it can be tricky to manage your financial operations. A Fractional CFO is like a partner who helps with your financial management and finances. They assist you in making smart choices by improving cash flow, managing risks, and planning for profit. You can think of them as both a financial planner and a GPS. They guide you towards your goals while keeping the overall picture in mind. A Controller looks at daily transactions. In contrast, a Fractional CFO ensures that every financial action aligns with your main business goals and supports your key business decisions.

A Story of Transformation: From the Brink of Bankruptcy to Financial Stability

I want to share a story about a manufacturing company that nearly went under. They had a lot of debt and struggled with cash flow management. They didn't have any financial planning in place. Then, a fractional CFO, who is a senior executive, came in to help. This person did more than just handle the finances; they changed the whole business.

Talking with Banks: The CFO spoke with the bank about the company's debt. This resulted in better repayment plans and a better cash flow.
Improving Operations: By tightening the invoicing and payment processes, payments arrived faster. This made it easier to understand the finances.
Using FP&A Tools: With improved budgeting, forecasting, and analysis, the business could make smart choices. They used real-time data instead of making guesses.

These actions were very important. They helped the company stay away from bankruptcy. They also created a strong financial base. This base supports sustainable growth and helps the stakeholders feel confident again.

When Is It Time to Hire a Fractional CFO?

Experiencing Rapid Growth: Growing quickly is great. But, it can cause cash flow problems. A Fractional CFO can help you plan smartly to manage this growth.
Facing Financial Challenges: If you find it hard to make money or have low cash, a Fractional CFO can check your finances. They can assist you in finding ways to save money and create a plan for better financial health.
Establishing FP&A Processes: Good Financial Planning & Analysis (FP&A) is important for making wise choices. A Fractional CFO can help you set up budgets, forecasts, and reports. These tools will help you understand your finances better and increase profits.

Fractional, Full-Time, and Interim CFOs – What’s the Difference?

Fractional CFO: A part-time expert who helps with financial challenges or plans for certain projects.
Full-Time CFO: A full-time executive who leads finances and makes long-term plans.
Interim CFO: A person who takes charge for a short time, usually during changes or crises. He provides stability and strategic guidance.

The role of a CFO can vary for each company. It depends on the size of your business, the financial needs you have, and the stage of growth you are at.

What’s the Cost of Hiring a Fractional CFO?

Hiring an experienced CFO part-time has several advantages, including the key benefits of flexibility and cost savings. You can enjoy strong financial leadership from these finance professionals when you need it, but at a much lower cost than having a full-time CFO. Fractional CFOs have worked in different industries, which helps improve your financial story. It is more than just numbers; it’s about creating a better financial story for your business.

Monthly Package

starting at

$3,000 /mo

Ad-Hoc Projects

starting at

$350 /hr

Should You Hire a Fractional CFO?

If you face growth problems, money issues, or want to earn more profits, a fractional CFO can help a lot. They do more than just manage your money; they also check everything carefully with due diligence. A fractional CFO works closely with your finance team to stay on track with industry trends while joining you on your journey to optimize financial functions. They explore options for equity funding and venture capital. They share new ideas, financial advice, and a long-term plan to help you succeed.

At GrowthLab, our FP&A team has Fractional CFOs who specialize in corporate finance. They adapt their methods for your specific needs. They can help you with strategic planning, taxes, and getting funds. Our expert CFOs are reliable advisors. They want to help you achieve your business goals. Together, we can build a successful and lasting future.

Key Areas of CFO Services

409A Valuations: Make sure the prices for stocks and stock options reflect their true value. This keeps you compliant and ready for growth.
Accessing Capital: Find funding from the right places, like banks, VCs, or private equity. This helps your business grow.
Employee Compensation: Create plans that link pay to business success and support employee development.
M&A Transaction Advisory: Seek expert assistance when buying or selling a business. This can boost your company’s value.
Bank Restructuring: Build a strong relationship with your bank. This can help you overcome financial challenges.

A Fractional CFO is more than just a part-time finance expert. They help your business grow and stay strong. If you need clear financial guidance, contact us anytime.

Dan Gertrudes

Frequently Asked Questions About Fractional CFOs

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How to Calculate Cash Burn Rate

Wed, 02 Oct 2024 15:34:34 GMT

Master Cash Burn: Calculate Cash Burn Rate and Cash Out Date

In 2023, one of our customers, a Series A startup, faced a tough situation. The VC market was getting harder, and knowing their cash burn rate was very important to get through this time. GrowthLab’s Financial Planning and Analysis team came in to help.

As a startup founder, your cash burn rate is not just a finance term; it’s key to your survival. You need to know how fast you are spending cash and what your Cash Out Date is to stay ahead. But it is not only about the numbers; it is about how to manage them. As a small business owner, it’s essential to understand your cash burn rate. At its core, it is the rate at which your company uses up its cash reserves. It’s a good way to measure your net negative cash flow.

How to Calculate Cash Burn Rate

It’s essential to understand your cash burn rate. At its core, it is the rate at which your company uses up its cash reserves. It’s a good way to measure your net negative cash flow. Here’s the calculation to calculate your cash burn rate:

Monthly Burn Rate = (Beginning Cash Balance - Ending Cash Balance) / Number of Months

Let’s say your company wants to calculate the rate for the first quarter of the year. Your cash balance on January 1st is $150,000. On March 31st (the last day of the quarter), it’s $90,000.

You’ll subtract $90,000 from $150,000 to get $60,000. Since we're looking at three months (January, February, and March), you’ll divide $60,000 by 3 and end up with a cash burn rate of$20,000.

What is Cash Burn and Why Does it Matter?

The cash burn rate shows how fast (in months) you use up your cash. Gross burn refers to all your monthly costs, while net burn takes away any money you make. Knowing these numbers helps you see how many months you can keep going. This is very important when deciding if you should raise more capital, apply for a loan, cut costs, or change your growth plans.

How does cash burn differ from profit and revenue in assessing a company's financial health?

Cash burn is the rate at which a company uses up its cash reserves to fund operating expenses. Unlike profit and revenue, cash burn shows the actual cash outflow, offering a more immediate view of financial health by indicating how long a company can sustain its operations before needing additional funding.

The Cash Out Date

The Cash Out Date is the expected day when your cash balance will hit zero. This date affects important choices about how long your business can remain solvent. You should pay attention to it. Knowing this date can help you avoid unanticipated reactions. It helps you stay in the driver's seat.

Is there an acceptable level of cash burn in a startup?

Yes and no because every startup and their investors are different. The acceptable level of cash burn varies depending on the stage and industry of the business. However, a commonly used benchmark is to have at least 12-18 months of runway, meaning the cash burn rate should allow the company to operate for that period without additional funding and have some margin to manage through risks and opportunities.

Managing Cash Burn: Key Strategies

With a solid understanding of the startup’s cash situation, we can explore opportunities to stretch their capital:

Focus on projects with high returns: Work on tasks that give quick and important benefits. Other projects? Wait for now.
Negotiate Terms: Work with suppliers to lengthen payment terms. This will help keep cash flow steady and give you more time to use your resources.
Optimize Hiring & Payroll: Look over your hiring plans and payroll costs. A small, efficient team can provide the value you need without using up cash too fast.
Smart and Cost-Effective Marketing Spending: Use affordable marketing channels that you can measure to grow your business without spending too much of your money.
Change Fixed Costs to Flexible: Use pay-as-you-go services instead of long-term contracts. This will help you match your costs better with what your business needs.
Speed Up Payments & Collections: Make sure customers pay on time. This will help keep a good cash flow.
Improve Inventory and Operations: Reduce inventory and simplify processes to make operations smoother and faster.

Putting Burn Rate on Your Dashboard

Keeping track of how much money you spend is not just about managing finances—it's a vital tool for making decisions. For our customers, knowing how much cash they had helped them take steps to manage their spending, change their growth plans, and make their money last longer.

GrowthLab's FP&A services gave our customer clear insights that helped them get through the capital shortage of 2023. By regularly including burn rate and cash out forecasts in financial planning, they changed these numbers from problems into tools for smart and steady growth.

Frequently Asked Questions

Ryan Clifford

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How to Extend Your QBO Lifespan with Integrated Automations

marketing@growthlabfinancial.com (Korey Cournoyer) — Mon, 09 Sep 2024 13:36:27 GMT

Extend Your QBO Lifespan with Integrated Automations

In the world of accounting, we hear it all the time from customers… should I move to NetSuite? What often ensues is a conversation around value. What will NetSuite provide them that Quickbooks cannot? Oftentimes this is a result of customers seeing an ad that promises them the world. Or maybe it’s due to NetSuite's integrated sales management and CRM tool. Whatever the trigger for the discussion is, they are valid concerns and thoughts. But… what if…. Just if… you could stay on Quickbooks Online (QBO), retain the team that knows and love Quickbooks, integrate your sales and marketing function without giving access to sensitive financial data… and not have to flip the accounting function upside down.

The Power of the QuickBooks Online API

One of the most significant advantages of QBO is its extremely versatile API, which allows seamless integration with various platforms. Accountants do not commonly know APIs… nor should they! In short, the API is code that allows you to connect two different platforms and sync (or move) data seamlessly. By leveraging the QBO API, businesses can create custom automations that enhance functionality and improve efficiency without the need to switch to more expensive systems like NetSuite.

Let’s take Hubspot, for example. It is one of the top CRM and Sales Management tools for small—to medium-sized businesses.

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Integrating QuickBooks and HubSpot

Access Controls

Sales teams and accounting teams aren’t perfectly in sync. While we wish they were, this is the reality for most businesses. Business leaders don’t want sales teams in the financials due to controls and sensitive information, and they also don’t want the accounting teams in the sales platforms because, well, it’s not where they should be. Leveraging the API of Quickbooks Online and your sales platforms allows businesses to automate data into QBO based on events within the sales pipeline, without any human intervention. Imagine your sales team closes a new deal, and invoices are automatically created. No need to change Pipeline tools, no need to flip over the accounting tools.

Expanding Customer Insights

Connecting HubSpot with QuickBooks gives your team a comprehensive view of all customer activities, interactions, and payments in one cohesive place. Forget the days of having to go to three different systems to get the data you need. While using the QBO API, you can sync the metrics or data points where you need it, and when you need it, so that you, the sales team, and finance teams all have the data they need at their fingerprints.

Automated Actions

Even with so-called “all-in-one” ERP systems, your workflows aren't automated or optimized. Often, these systems are built with a modular architecture, meaning the sales platform is still disconnected from the finance function, and it feels like you need a PHD in software development to connect the dots. With the leverage of custom integrations, you can actually automate more of your current workflows. For example, payments are received on an invoice in Quickbooks, and you automatically inform the sales team and update their pipeline tools with the data they need. Or, perhaps the payment is outstanding, imagine automatically notifying the sales rep that they need to follow up with the customer.

Addressing the Key Pain Points of Switching from QBO to NetSuite

Costs

Transitioning to NetSuite can be cost-prohibitive, often ten times (if not more) the expense of QBO. Beyond the initial investment, ongoing management and maintenance costs can strain resources. These migrations can not only be painful but also time-consuming and detract from where business owners' focus should be… growing their business!

Talent Acquisition and Retention

QBO is widely known and used in the accounting community, making it easier and more cost-effective to find talent that has used it, or can pick it up very easily. In contrast, the specialized knowledge required for NetSuite can make hiring and training a drag. With fewer people familiar with NetSuite, businesses can expect much more difficult recruiting processes and longer training times if they find someone without historical training. All in all… increasing risk where it isn’t necessary.

How To Integrate Your CRM & HubSpot

Now, I know you’re reading this thinking… This is all great, but I’m not a developer. The good news is you don’t need that background. There are a few ways firms and businesses can accomplish these automations and integrations.

The first would be a DIY approach, leveraging tools such as Zapier . While this is the easiest and quickest way to accomplish what you’re looking for, it will also require some time in testing and creating the integration. Know that no automation is truly one-and-done. They will all require monitoring, because the last thing you want to do is forget to invoice a customer! Below is an example of a simple and easy automation with Zapier to connect HubSpot and QBO using Zapier.

The second way to accomplish this is using an outside organization that will build and manage these integrations for you. And before you think of the cost, most of these outsourced developers will do this for a lot less than what it would cost to stand up and train on NetSuite! GrowthLab has partnered with STRMS.io to build and manage these integrations across all our customers!

In Conclusion

By leveraging the QBO API for custom automations , accounting firms can provide their clients with extended use of QuickBooks , avoiding the high costs, complexity, and talent risk of switching to NetSuite. This approach not only saves money but also allows business owners to work on their business instead of in it. And for us accountants out there, we get to continue supporting the customer where they need it most… being their trusted advisor.

This is a paid partnership with Intuit.

Korey Cournoyer

As Director of Corporate Development & Strategy at GrowthLab Finance-as-a-Service, Korey works across the organization to drive transformation across teams, technology, and processes. From developing and implementing long-term business strategies to overseeing various departments at GrowthLab, Korey is a business and functional expert. Korey is also the CEO of STRMS.io , which builds automated workflows for accounting firms, allowing them to spend more time with clients, ensure high-quality deliverables, and drive additional revenue.

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How to Calculate Total Revenue

Sat, 20 Jul 2024 13:00:03 GMT

Calculating Total Revenue

Calculating total revenue is a fundamental aspect of managing any business, yet it is often overlooked or miscalculated. Total revenue, which is the starting point for determining the success of your business, is crucial for understanding the financial health of your business, evaluating the performance of your products or services, and planning for long-term success. In this guide, we will explain the calculation of total revenue, provide practical examples, and discuss the relationship between the income statement and the company’s profitability.

If you don’t know your total revenue, it can be quite difficult to manage your product/service offerings, and quite difficult to plan for long-term success.

Total Revenue Formula and Example

Fortunately, the total revenue formula is fairly straightforward. Here it is:

Quantity Sold x Price = Total Revenue

Example: Imagine you sell t-shirts and each one costs $75. If the number of units sold was 100 t-shirts per month, your total revenue for that month would be $7,500. (100 X $75 = $7,500).

You can use this same formula to figure out how many more t-shirts you’d need to sell to make the same amount of money before you offer a discount. The difference is that now, you’ll need to divide your previous total revenue figure by your discounted price.

If your discounted price is $70, then your calculation will be $7,500/$70. Your answer will be 107.14 t-shirts. This means, you’ll have to have at least 107 units sold of t-shirts to earn the same revenue you made before the discount.

How does the Income Statement relate to Total Revenue?

The income statement, which is a history of how your business has performed over a certain time period will list your total revenue, including any non-operating income such as lawsuit proceeds or sale of an asset. You’ll find that the income statement is easy to read and understand, especially when you compare it to other financial statements.

It will contain the following sections:

Total Revenue: All the money you’re business earned during the period.

Cost of Good Sold: How much it cost to produce what you sold during the period.

Operating Expenses: How much you spent to run your business, including rent, payroll, marketing costs, etc.

Total revenue is a critical metric for financial health. Here is how it is categorized and used:

Terminology: Often called the "top line," "gross income," or "gross sales."
Definition: Total money generated from sales before deducting expenses.
Utility: Used to forecast growth, allocate resources, and evaluate product performance.
Context: It serves as the starting point for calculating net income (the "bottom line").

The Importance of Total Revenue in Financial Planning

When it comes to financial planning , understanding your total revenue is a game-changer. It’s not just about knowing how much money you’re making; it’s about using that information to drive your business forward. Here’s why total revenue matters and how it can help you optimize your business strategies.

Example: If your revenue has been increasing steadily by 10% each quarter, you can reasonably expect a similar increase in the coming quarters. This insight allows you to plan for additional inventory, hire more staff, or expand your marketing efforts to sustain that growth.

Allocate Resources Effectively

Knowing which products or services are your big money-makers lets you focus your resources where they’ll have the most impact. This means better investment in marketing, production, and development of those high-revenue items.

Make Informed Decisions

Accurate total revenue data is like having a detailed map when you’re making business decisions. It helps you make smarter choices about pricing, marketing, and product development.

Example: Imagine you’re considering a price hike on your best-selling product. By analyzing your total revenue data, you can see how past price changes affected sales. If a previous increase led to higher revenue without a drop in sales, it’s a good indicator that another price adjustment could be beneficial.

Ready to Increase Your Revenue? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. You can trust us to calculate your total revenue and make recommendations on how you can use it to increase your revenue and meet (or even exceed) your business goals.

Key Takeaways

The Formula: Total Revenue = Quantity Sold × Price.
Top Line Metric: It represents the total money generated before any expenses are deducted.
Financial Planning: Tracking revenue trends helps businesses forecast growth and allocate resources effectively.
Revenue vs. Profit: Total revenue is the starting point on an income statement, not the final profit (bottom line).

Dan Gertrudes

Frequently Asked Questions About Total Revenue

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How to Read a Statement of Cash Flows

Sun, 14 Jul 2024 20:18:27 GMT

Reading a Statement of Cash Flows

Despite the cash flow statement being one of the most important financial statements, it’s too often overlooked. So what is a cash flow statement? Essentially, a cash flow statement informs you of how well your business is managing its cash flows. This is crucial as cash is the lifeblood of your business. It’s what allows you to pay your employees, vendors, and taxes so you can continue to operate. To us, “Cash is King”.

Note that cash flow is not the same as profit as profit is what you have left over after you’ve paid all your expenses. The difference comes down to whether or not your customers pay you, and whether or not you pay your vendors. For most, these are the only two factors that create a difference between profit and net cash flow. Let's take a closer look at what you’ll find on a cash flow statement and how to read one.

Benefits of a Cash Flow Statement

With a cash flow statement, you’ll know how much money you had at the start and end of a certain time period, along with the flows of cash in and out during that time. In addition, it can be a great indicator to the long-term viability of your business, especially when you look at the specific sources and uses of cash. As stated above, it’s not all about revenue. You may have great revenue, but if you generate all your revenue from a handful of customers who are late to pay - or don’t even end up paying - then you may as well not generate the revenue in the first place.

How to Calculate Cash Flow

There are two ways to calculate cash flow: the direct method and the indirect method. With the direct method, which offers a great deal of detail, you add up all of your payments and receipts so you can make informed financial decisions. The indirect method is when you take net income and adjust it by removing the costs of non-operating activities. Due to the way transactions are usually recorded, the indirect method is easier than the direct method.

Cash Flow Statement Example

Here’s an example of what a typical cash flow statement looks like.

Cash flows from operating activities:

Net income: $20,000

Adjustments to reconcile net income to net cash provided by operations:

Credit card: $1,000

Payroll liability: $3,000

Total adjustments: $4,000

Net cash provided by operating activities: $24,000

Cash flows from investing activities:

Buying equipment and software: -$10,000

Net cash provided by investing activities: -$10,000

Cash flows from financing activities:

Preferred stock: $6,000

Net cash provided by financing activities: $6,000

Net cash increase: $20,000

Cash at the beginning of the period: $100,000

Cash at the end of the period: $120,000

Components of a Cash Flow Statement

To read a cash flow statement correctly, it’s a good idea to familiarize yourself with its various components, which include:

Operating Activities

Operating activities show the money you received or spent to keep your business operating smoothly.

Common examples of operating activities include:

Purchase of raw materials
Building inventory
Vendor payments
Payroll and marketing expenses

If the indirect method was used to create the statement of cash flows , you’ll see the net income at the top of the operating activities statement. You’ll also notice adjustments to reconcile your net income to net cash. This will list non-cash revenue or expenses that haven't hit your bank account yet. Once the adjustments are factored in, the final figure will indicate net cash from operating activities.

Investing Activities

Also known as capital expenditures, investing activities record the cost of investments your business made. They can give you and potential investors a peek into the effect of your investments within a certain time period.

Investing activities typically involve:

Buying or selling physical assets (equipment, software)
Business acquisitions
Buying or selling stocks and bonds from other businesses

After these figures are added, you’ll have your net cash flows from investing activities.

Financing Activities

The last component of your cash flow statement is known as financing activities. It outlines transactions that other parties make in your business. These may be incurring or paying off debt, issuing or buying back equity, and paying dividends to shareholders.

The total number from this section shows your net cash flows from financing activities. It can help you as well as potential investors gauge your financial health and figure out whether you may sustain your funding model.

Keep Your Business Running Smoothly with a Cash Flow Statement

While an income statement relates to revenues, expenses, gains, and losses in operating and non-operating activities, it doesn’t involve cash. A cash flow statement is where you can clearly identify the cash coming in and out of your business as it relates to operating, investing, and financial activities during a certain time period.

Key Takeaways

Cash vs. Profit: Cash flow tracks actual money moving in and out, whereas profit is an accounting figure that may include unpaid invoices.
Two Calculation Methods: The Direct method lists all payments/receipts, while the Indirect method adjusts net income for non-cash items.
Three Core Components: A standard statement is divided into Operating, Investing, and Financing activities.
Financial Health: Monitoring cash flow helps ensure a business can cover payroll, taxes, and vendor payments to remain viable.

By learning how to read and make sense of your statement, you can ensure your organization always has enough cash on hand to cover important expenses and continue operations.

Ryan Clifford

Frequently Asked Questions

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What is Financial Leadership?

Thu, 11 Jul 2024 12:00:03 GMT

Financial Leadership

Financial leadership is becoming increasingly vital in the startup and small business world. Solid and experienced leadership, such as an FP&A Manager, Director of Finance, or Chief Financial Officer (CFO), can significantly enhance your organization's financial planning, performance outlook, risk management, and decision-making processes.

At GrowthLab, we believe that having a fractional or part-time accounting team or finance department can be more cost-effective while still providing substantial benefits.

The Backbone of an Organization

The finance team is the backbone of any organization, playing a crucial role in managing the company's financial health and success. Effective financial leadership involves inspiring and guiding the finance team to achieve set goals. They must value and involve their team members, fostering a positive work environment that will encourage:

Collaboration
Innovation
Workflow automation

By embodying these qualities, a strong finance team can be built to drive the organization forward.

Guiding Financial Strategy

Financial leadership means guiding an organization’s financial strategy and decisions.

Finance leaders:

Oversee financial operations
Manage risks
Drive growth

Effective leadership requires technical expertise, strategic thinking, and strong communication skills. Demonstrating sound financial judgment and inspiring confidence in stakeholders will significantly impact their organization's success.

Expanding Business Performance

Financial leadership allows businesses to

Enhance cash planning
Improve performance
Boost profitability

Accountants and bookkeepers agree that financial leadership and mentoring can take their careers to the next level. CEOs appreciate the support financial leadership provides in guiding and steering their organizations.

Clear and Effective Communication

Effective financial leaders communicate financial information to various stakeholders without relying on jargon. By simplifying complex concepts and using plain language, they ensure everyone understands the financial picture. This approach promotes transparency and makes financial leaders more approachable for guidance and support. Clear communication is key to developing strong financial leadership skills and collaboration among team members.

The Justification for Financial & Accounting Process, Cadence, and Control in 2024

Until recently, many companies enjoyed wide access to capital following the Great Recession of 2008. Over the past decade, low interest rates and steady growth led to a period of financial complacency. As my former Controller and Treasurer would say, many businesses became "cash-lazy," neglecting rigorous cash planning. However, the onset of COVID-19 in 2020 abruptly shifted priorities, with survival becoming the primary concern for many executives. The CARES Act, PPP loans, and EIDL loans provided temporary relief during this crisis.

Now, four years later, we find ourselves in a similar position to the end of the last decade: cash-strapped, facing slowed growth, and adapting to shifting consumer behavior and tastes. As we look to 2024 and 2025, the role of Finance Leaders is poised to regain prominence.

The Evolving Role of Finance Professionals

Finance professionals are integral to every organization. They offer strategic leadership and valuable insights. To excel in financial leadership positions, these professionals must have a diverse skill set that includes:

Collaboration
Data analysis
Strategic advisory

By leveraging tools like data visualization, finance professionals can effectively communicate complex financial information. Producing better decision-making across departments.

Key Areas of Focus for 2024

Rigorous Cash Planning: Given the current economic climate, cash planning is essential ( GrowthLab 13-week cash flow ). Organizations must develop robust cash flow forecasts and implement stringent cash management practices to navigate financial uncertainties.
Strategic Leadership: Finance leaders must provide strategic guidance to help organizations adapt to changing market conditions. This involves analyzing financial data to drive growth and reduce costs.
Data-Driven Decision Making: Utilizing data visualization and other analytical tools, finance professionals can present financial information in a more accessible manner.
Adapting to Shifts in Consumer Behavior: Understanding and responding to changes in consumer behavior is crucial. Finance leaders need to work closely with marketing and sales teams to adjust strategies that align with new consumer preferences.
Leveraging Technology: Automation, predictive analytics, and other innovations can improve efficiency and accuracy in financial operations.

2025 and Beyond

The financial landscape of 2024 and beyond will require finance professionals to step up as strategic leaders. They can help their organizations thrive amongst economic challenges by focusing on

Cash planning
Strategic guidance
Data-driven decision-making
Technology opportunities

The era of "cash-lazy" practices is over, and proactive financial leadership will be the key to success in the coming years.

What Does Financial Leadership Look Like in Small Businesses?

Financial leadership in small businesses places a strong emphasis on financial analytics. By leveraging financial analytics, your business can:

Improve visibility into your finances
Anticipate changing business needs
Gain a deeper understanding of your financial health
Forecast with greater accuracy

This approach can significantly improve your profitability and value.

Creating a Competitive Advantage

With excellent financial leadership, your CFO's primary goal is to create a competitive advantage. The CFO acts as a forward-thinking confidant, interpreting financial information from various perspectives and providing valuable insights. This role is crucial when seeking capital funding or planning for future expansion.

Importance of Financial Metrics

Financial metrics are essential for assessing a company's financial health and guiding strategic decision-making. CFOs play a critical role in developing and monitoring key financial metrics, including:

Revenue growth
Profit margins
Cash flow
Return on investment (ROI)

By analyzing these metrics, CFOs can provide insights that help organizations achieve their financial goals. Effective financial leadership requires a deep understanding of these metrics and the ability to communicate their significance to stakeholders across the organization.

Adapting to Change

Effective financial leadership requires the ability to adapt to unforeseen changes and uncertainties, especially in today's volatile economic environment. Scenario planning is a key tool used by financial leaders to anticipate potential deviations from the plan and prepare for various outcomes. By employing scenario planning, leaders can navigate challenges and develop contingency plans to ensure the organization's financial stability and success.

Role of Financial Reports

Financial reports play a crucial role in financial leadership, providing valuable insights into a company's financial health and performance. These reports help leaders to:

Make informed decisions
Set financial goals
Develop strategic plans for the future

Understanding and interpreting financial reports is essential for strong financial leadership. It helps leaders spot trends, uncover opportunities, and identify risks that could impact the organization’s financial stability.

Mastering Financial Modeling

As a financial leader, mastering financial modeling is essential for making informed decisions and driving business growth. Financial modeling involves creating mathematical representations of financial situations to analyze how different variables affect outcomes.

By sharpening financial modeling skills, leaders can:

Forecast future scenarios
Optimize resource allocation
Drive strategic planning initiatives
Communicate complex financial insights clearly across the organization

Using powerful tools like Finmark , financial leaders can streamline data, save time, and make smarter business decisions for long-term success.

Leveraging Predictive Analytics

Financial leadership is evolving rapidly with technology. Predictive analytics has become a key tool to make smarter decisions and support strategic growth.

By using predictive analytics, financial leaders can:

Analyze historical data to forecast future trends
Identify risks before they impact the business
Spot opportunities to drive growth
Improve operational efficiency and financial performance

This data-driven approach helps leaders navigate uncertainty and guide their organizations toward sustainable success in today’s dynamic business landscape.

How the CFO Role Has Transformed

Closer Collaboration with CEOs

Today, CFOs work more closely with CEOs than ever before. They possess a high level of financial insight, enabling them to assist CEOs, management teams, and boards of directors in making challenging business decisions confidently. CFOs with effective communication and leadership skills provide the management insight key stakeholders need to stay true to their vision and strategic goals.

Strategic Financial Guidance

Today’s CFOs play a crucial role in providing strategic financial guidance and support to:

The CEO
The advisory board
The management team

CFOs bring a high level of financial expertise, helping businesses navigate complex challenges. They are key to:

Managing financial risks
Achieving sustainable growth
Meeting the CEO’s expectations for financial performance

Navigating Advancements in Technology

Financial leaders today face new challenges due to rapid technological advancements. They play a crucial role in guiding organizations through digital transformations, making strategic investments, and managing costs effectively. Leveraging their operational intelligence and financial expertise, CFOs provide valuable insights when developing or implementing new technologies within the business. This positions them at the forefront of change initiatives, steering decision-making processes towards sustainable growth and innovation.

Leveraging Big Data

CFOs must leverage big data to gain insights into market trends and consumer behavior. By analyzing vast amounts of data, finance professionals can make informed decisions that drive innovation and growth within their organizations. Understanding how to extract valuable information from big data sets is crucial for staying competitive in today's rapidly evolving financial landscape.

Establishing Key Performance Indicators (KPIs)

Financial leaders need to establish clear and simple key performance indicators (KPIs) for each department to ensure the overall success of the company. Regularly reviewing these KPIs helps guide departments in achieving their goals and contributing to the organization’s performance. It is important for financial leadership to monitor these indicators closely to make informed decisions and steer the company in the right direction.

Interested in a Small Business CFO to Serve as Your Financial Leader?

What Do Financial Leaders Have in Common?

To excel as a financial leader, CFOs and other executives must possess the following key characteristics:

Organizational Agility: The ability to quickly adapt to changing market conditions and organizational needs is crucial. Financial leaders must be flexible and responsive to ensure their company remains competitive and resilient.
Strategic Vision: Effective financial leaders have a clear long-term vision for their organization. They are adept at setting strategic goals and aligning financial strategies to achieve them.
Professional Development and Mentoring: Continuous learning and development are vital. Financial leaders prioritize their growth and mentor their teams, fostering an environment of professional development.
Technology and Automation: Embracing technology and automation is essential for modern financial leadership. Leaders must leverage advanced tools and systems to streamline processes, improve efficiency, and enhance data analysis.
Collaboration and Communication: Strong interpersonal skills are necessary for collaborating across departments and communicating financial insights effectively. Financial leaders must build relationships and work closely with other leaders to drive the organization forward.
Financial Planning Skills: Proficiency in financial planning and analysis is a cornerstone of effective financial leadership. Leaders must be able to develop robust financial plans, forecast accurately, and manage budgets effectively.

Building a Strong Finance Function

As a financial leader, it is essential to build a strong finance function that works closely with:

Risk management
Compliance
Operations
Internal audit

In today’s rapidly changing global economy, having effective financial leadership and a well-organized finance team is crucial for business success and long-term sustainability.

Exploring New Collaborations

CFOs are also beginning to explore collaborations in areas like HR where they can make a significant impact. By enhancing the finance function's capabilities and forging strategic partnerships, financial leaders can navigate the challenges of the evolving business landscape with confidence and agility. At GrowthLab, our CFO Team and Accounting Team work closely with GL HR Service Team (PAS) .

Interested in Small Business CFO Services as Your Financial Leader?

Here's our Virtual CFO services page !

Key Takeaways

Fractional Advantage: Small businesses can achieve high-level financial oversight cost-effectively through fractional CFO or accounting teams.
Strategic Shift: The era of "cash-lazy" management is over; 2024 demands rigorous 13-week cash flow planning and data-driven agility.
CFO as Partner: The modern CFO role has evolved from a back-office reporter to a strategic confidant for the CEO, focusing on competitive advantage.
Technology Integration: Leveraging predictive analytics, automation, and big data is now a core requirement for effective financial leadership.
Communication: Top financial leaders translate complex jargon into actionable insights for non-finance stakeholders.

Dan Gertrudes

Frequently Asked Questions About Financial Leadership

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What is a Valuation Cap?

Mon, 01 Jul 2024 16:02:05 GMT

Understanding Valuation Caps

You often find Valuation Caps in Convertible Notes or SAFEs, which are commonly used in fundraising for startups.

In this article, we focu s on the valuation cap of a convertible note, which is the maximum price or valuation at which the note will convert into equity.

This protects investors from dilution if the startup achieves a very high valuation in its next round, ensuring that their investment is not disproportionately small compared to the company's value. While a valuation cap doesn't prevent the company's valuation from exceeding a threshold, it limits the amount used to determine the conversion of the note to stock.

However, valuation caps can have potential drawbacks. If a startup's value grows much faster than expected in subsequent rounds, it could eclipse the cap to the investor's disadvantage. To learn more about valuation caps for SAFEs and how they play a crucial role in fundraising, check out Y Combinator (They introduced the SAFE (a simple agreement for future equity) in late 2013.)

What Is a Convertible Note?

If you are considering convertible debt from potential investors, it is important to understand how convertible notes work. You should also consider how valuation caps can affect current shareholders, founders, and investors who buy in through the con vertible note.

A convertible note is a loan that converts to equity when a triggering event occurs. (Check out TechCrunch blog )

Typically, the trigger event is when the company completes the next round of financing, also known as a priced round (or an equity investment).

Here is how it works:

An investor lends money to a startup through a convertible note.
The loan accrues interest while it remains outstanding.
When a triggering event occurs (typically the next funding round), the loan converts into equity.
At conversion, the principal and accumulated interest are converted into shares based on the company’s valuation at the time of the trigger event.

This is an important factor to consider in a convertible note, as it can significantly affect the company's valuation and investors' potential returns.

Need help with your Cap Table?

Fill out the form to download our Cap Table GPT!

Why a Floor and Convertible Note Cap?

One of the main reasons early-stage companies use convertible notes to raise capital is that the company can obtain funding without establishing a specific valuation on the business (which is needed when selling equity directly). This is particularly beneficial for early-stage companies because it gives you the chance to mature the company before determining the enterprise value at which you will sell equity. This helps to reduce dilution and raise less money, giving you a shorter runway to focus on building your business and determining the company’s current value.

A valuation cap is used in a convertible note to give the noteholders a “ceiling” value at which their investment will convert, and, in turn, that gives them a “floor” in regard to their ownership. With a valuation cap, they know their money will convert from a loan to equity at or below a per-share price determined by the issuing company's maximum valuation. This ensures that the investors are protected and have the potential to receive a higher return on their investment, as the conversion price is limited by the valuation cap.

Example of a Valuation Cap

Here's a scenario with a convertible note example. Let’s say an investor invests in your company. They invest $1MM into the company via a convertible note that has a $10MM valuation cap. The cap table of the company is simple -- it has 10MM of common shares today held by two founders. Later, the company raises a Series SEED round of $3MM at a $15MM pre-money valuation, resulting in an increase in the number of shares and a potential dilution for the initial investor. This is where the terms of preferred stock, such as a valuation cap, come into play and can greatly impact the investor's return on investment.

The impact of a valuation cap on investor shares is significant:

Scenario A: No Valuation Cap
Conversion Price: $1.50 per share ($15MM valuation / 10MM shares)
Shares Purchased: 666,667
Scenario B: With $10MM Valuation Cap
Conversion Price: $1.00 per share ($10MM cap / 10MM shares)
Shares Purchased: 1,000,000

Investing in startups can be a complex process, but understanding terms like "valuation cap" is crucial for making informed investment decisions. On the flip side, founders need to understand the impact on their founder shares and the company. If you're still asking what is a convertible note, check out GrowthLab's Virtual CFO services and FP&A Team to help you navigate cap tables and capital raising, including the pros and cons of using convertible notes for new investors.

Benefits of Valuation Caps

You may be asking, “Why would I want to risk selling equity at a discount?” Well, you do this because many convertible note investors will require a valuation cap or discount rate in order for them to invest in the company via the note. This benefits both the company and the convertible note holder, as it allows for a lower purchase price for the shares at a subsequent equity financing. You also do this because you want to incentivize those early investors (noteholders) to bring their money in early and fast, as it can lead to potential benefits in future equity funding rounds.

Download our FREE Valuation Cap Template

Interested in Convertible Notes, SAFEs, & Caps?

At GrowthLab, we help early-stage companies like yours with cap tables, 409a , and capital raising, thoughtfully. If you’re a startup in search of investors, you can count on us to show you how to use a valuation cap to your advantage.

Our Small Business CFO Suite

Key Takeaways

Investor Protection: Valuation caps set a maximum conversion price, protecting early investors from excessive dilution during high-valuation future rounds.
Ownership Floor: While the cap acts as a "ceiling" for the share price, it effectively creates an ownership "floor" for the noteholder.
Founder Flexibility: Convertible notes allow startups to secure funding without immediately establishing a fixed company valuation.
Incentivization: Caps reward early-stage investors for taking higher risks by ensuring they receive a better equity rate than later participants.

Dan Gertrudes

Frequently Asked Questions

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What is the Purpose of a Balance Sheet?

Mon, 01 Jul 2024 13:03:08 GMT

What is the Purpose of the Balance Sheet?

A balance sheet is a financial document of the assets, liabilities, and equity of a business at the end of an accounting period. Business owners and investors use them on a regular basis to gauge the general financial health of their organizations. A company's balance sheet also give them a good idea of business liquidity, which is how quickly they can convert assets into cash.

Key Takeaways

Snapshot of Health: A balance sheet shows what a business owns and owes at a specific point in time, unlike an income statement, which covers a duration.
The Core Equation: Every balance sheet follows the fundamental formula: Assets = Liabilities + Equity.
Liquidity Indicator: It helps owners and investors understand how quickly a company can convert assets into cash to meet obligations.
Strategic Tool: Beyond reporting, it is used to manage debt levels, identify operational inefficiencies, and support long-term financial forecasting.

Balance Sheet Formula

Many financial documents indicate performance over a specified period of time. A balance sheet, however, shows what your business owns and owes at a specific time period.

Assets = Liabilities + Equity.

While the short term and long term assets explain everything that’s yours, the short term and long term liabilities state all the assets that are someone else’s… or everything your company owes. This allows you to view your company's financial position.

Components of a Balance Sheet

Assets: Resources owned by the business (e.g., cash, inventory, property). Listed in order of liquidity.
Liabilities: Debts and financial obligations (e.g., loans, accounts payable).
Equity: The remaining interest in the business after deducting liabilities from assets (Assets - Liabilities = Equity).

How to Use a Balance Sheet

Unlike an income statement, a balance sheet will not show how much money you made or lost. Instead, it’ll give you a quick glimpse of your business health at a specific moment in time. You can’t count on it to understand how you’ve changed over the long term, like you’d be able to with a financial statement or income statement.

What you can do, however, is compare your latest balance sheet to previous ones . This way you can get an idea of how your finances have improved or worsened and how far you’ve performed since you started your business.

Download our FREE Balance Sheet Template.

In addition, investors may use it to evaluate your short term financial health. Depending on what it looks like, it may convince them to invest in your business or turn to a competitor instead.

Example: Imagine running a lemonade stand and looking at a balance sheet to understand its financial health. You have $50 in cash, $30 worth of lemonade inventory (lemons, sugar, cups), and $20 in equipment (table, pitcher, signs), giving you total assets of $100. On the other side, you owe $20 to your parents, which are your liabilities. The difference between your assets and liabilities is your equity, which amounts to $80. So, the balance sheet shows that after paying off your $20 loan, your lemonade stand still has $80 in value, indicating a healthy financial position.

Why is the Balance Sheet Important?

Inform Investment Decisions

A well-maintained balance sheet helps you understand whether your business is in a position to invest in new opportunities. It shows you if you have enough assets to cover new investments without jeopardizing your financial stability. The balance sheet is more than just a financial statement—it's a snapshot of your business’s financial health at a specific point in time.

Manage Debt

The balance sheet provides insights into your business’s debt levels and repayment capacities. It helps you manage existing debts more effectively and make informed decisions about taking on new debt.

Enhance Operational Efficiency

By analyzing your balance sheet, you can identify inefficiencies in your asset management. This can lead to better utilization of resources and improved operational efficiency.

Example : If you notice that your inventory levels are consistently high compared to sales, it might indicate overstocking. Adjusting your inventory management practices can free up cash and reduce holding costs.

Support Financial Planning and Forecasting

Your balance sheet is an essential tool for financial planning and forecasting. It helps you set realistic financial goals and develop strategies to achieve them.

Need Help Navigating Your Balance Sheet? Contact GrowthLab Today

Still curious about what the purpose of a balance sheet is? At GrowthLab, we help small businesses like yours succeed. You can trust us to create accurate financials on your behalf and make recommendations on how you can use them to increase your revenue and meet (or even exceed) your business goals.

Dan Gertrudes

Frequently Asked Questions About Balance Sheets

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How to Create a Credit Memo in Quickbooks Online

dan@growthlabfinancial.com (Dan Gertrudes) — Wed, 12 Jun 2024 15:00:01 GMT

How do you Create a Credit Memo in Quickbooks Online

Step 1: Access the Customers Menu

Navigate to QBO . Log in to your QuickBooks Online account .
Select 'Sales' or 'Invoicing' from the left-hand menu. This will take you to the area where you can manage all sales-related activities.

Step 2: Create the Credit Memo

Click on the 'Customers' tab. Here, you will see a list of all your customers.
Choose the customer for whom you want to create a credit memo by clicking on their name.
Select 'New transaction' and choose 'Credit Memo' from the dropdown menu.

Step 3: Fill in the Credit Memo Details

Enter the Credit Memo Date. Choose the date when the credit memo is being issued.
Reference the Original Invoice (if applicable). If the credit memo is related to a specific invoice, include the invoice number for reference.
Add Products/Services. Enter the products or services for which the credit memo is being issued. Adjust quantities and rates as needed.
Adjust Amounts. If the credit memo is for a return or discount, adjust the amounts accordingly. QuickBooks will automatically calculate the new totals.

Step 4: Provide a Reason for the Credit Memo

Describe the Reason. It’s important for record-keeping to include a reason for the credit memo. Use the description field to detail why the credit memo is being issued, such as "returned goods" or "pricing adjustment."

Step 5: Review and Confirm

Review the Credit Memo. Ensure all information is accurate: customer details, products/services, amounts, and reasons.
Attach Any Relevant Documents. If you have related documents (e.g., return slips, emails agreeing to a discount), attach these to the credit memo record in QBO for future reference.

Step 6: Apply the Credit Memo to an Invoice or Refund

Apply to an Open Invoice. If the customer has other open invoices, you can apply the credit memo to those invoices directly from the credit memo screen. Choose “Apply to an invoice” and select the invoice you want to apply it to.
Issue a Refund. If there is no open invoice or you need to refund the customer, select “Refund” from the credit memo screen. You will need to enter additional details like the refund method and bank account used for the refund.

Step 7: Save and Send the Credit Memo

Save the Credit Memo. Once all details are confirmed, save the credit memo.
Send the Credit Memo to the Customer. You can email the credit memo directly from QBO to the customer for their records.

Step 8: Monitor the Credit Memo

Keep Track of Applied Credits. Monitor your customer’s account to ensure that the credit memo is applied correctly and that all balances reflect the latest transactions.
Review Financial Reports. Regularly check your financial reports to see how credit memos are affecting your overall financial situation.

By following these steps, you can effectively manage credit memos in QuickBooks Online, ensuring that your financial records are accurate and up-to-date. This will help maintain good customer relations and proper accounting practices.

Key Takeaways

Quick Access: Navigate to the 'Sales' menu and select 'Customers' to begin the process.
Transaction Type: Use the 'New transaction' dropdown on a specific customer profile to select 'Credit Memo.'
Essential Details: Ensure you include the original invoice reference, product/service details, and a clear reason for the credit.
Application: Credit memos can be applied directly to open invoices or processed as cash refunds.
Final Step: Always save and email the memo to the customer to maintain transparent financial records.

Daniel Gertrudes

Frequently Asked Questions About Credit Memos in QuickBooks Online

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What Finance as a Service Actually Means

Tue, 11 Jun 2024 19:06:31 GMT

What is Finance-as-a-Service?

Let’s Start by Identifying the Challenges FaaS Addresses.

Finance-as-a-Service (or FaaS) is more than outsourcing your non-core functions or your back office. Let's look at the big picture and examine the needs of a mid-sized business. These businesses today still need some level of insight, confidence, reliability, and timeliness of financial statements and performance feedback loops. The issue tends to be that this size organization can not afford the elevated capability nor do they have the capacity to recruit and build out a multifaceted finance and accounting team internally.

This is where FaaS providers come in, offering a solution to integrate financial, accounting, and business strategy value streams, addressing the challenges faced by small and medium-sized companies through the FaaS model. By outsourcing finance functions and accounting and bookkeeping tasks to specialized service providers, companies can benefit from increased efficiency, expertise, and cost savings through FaaS services and solutions, encompassing accounting, controllership, financial planning, business strategy, and tax filing and compliance.

Business owners still want everything they may have experienced in a larger organization, such as timely financials, accounting cadence ( Accounting Calendar ), elevated financial management, business intelligence, and the Strategic Business Cycle. And because they cannot afford to build out an entire accounting and finance team, they end up working in the business and not on the business.

Here's a great article by one of our co-founders on the GrowthLab way:

https://karbonhq.com/resources/start-offering-finance-as-a-service-to-your-clients/

What is Finance as a Service and How Does it Work?

Finance as a service (FaaS) is a cloud-based service that offers financial tools and capabilities on a monthly subscription basis. It allows businesses to access a range of finance-related services like bookkeeping, bill pay, FP&A, and accounting without the need for a large upfront investment in infrastructure or software.

Hiring a Virtual CFO or Remote Bookkeeping Firm?

Here is a great resource before you make a decision: 20 questions to ask when thinking of hiring a FaaS Firm

Advantages of Outsourced Bookkeeping from a FaaS Firm

Outsourcing bookkeeping services offers numerous advantages to businesses. Key benefits include:

Focus on Core Competencies: Free up leadership to work on the business rather than in the books.
Accuracy & Compliance: Ensure financial records are up-to-date and meet regulatory standards.
Cost Efficiency: Reduce expenses by leveraging the FaaS firm's existing technology and streamlined processes.
Scalability: Access financial operations that grow alongside your business requirements.

Finance-as-a-service has revolutionized the accounting services industry, making it more accessible and efficient for businesses of all sizes. By leveraging outsourced accounting services, companies can focus on their core operations while leaving the financial management to experts, such as financial experts and accountants from the largest startup-focused accounting firm in the United States. These services often include bookkeeping , controllership accounting, tax compliance , and tax planning services provided on a recurring monthly basis. This shift towards Client Accounting Services (CAS) by CPA firms has streamlined processes and allowed for more strategic financial planning and business growth opportunities.

A finance team is essential to the success of any business. They provide expertise in financial management, strategic planning, and budgeting to help companies thrive. With experienced professionals like former founders and corporate finance professionals on board, businesses can gain valuable insights and make informed decisions to optimize their financial performance. GrowthLab can offer not just outsourced accounting services but also take on an advisory role to help our customers achieve their goals. As your trusted bookkeeper and CFO , we also help you with due diligence to position you for success in your next round of fundraising.

Benefits of Finance-as-a-Service

Consolidation Under One Roof

FaaS companies offer value streams that are consolidated under one roof. Not only is this more convenient, but it also saves businesses on costs too.

Cohesive Internal Teams

FaaS also offers something like having multiple internal teams operating cohesively as one. This can lead to smoother processes and organized financial management.

Focus on Execution and Business Continuity

By adopting robust systems and standard operating procedures, FaaS companies achieve a focus on execution and business continuity. This gives businesses a competitive advantage in the market.

Real-time Customized Reporting and Dashboards

FaaS companies can easily tailor their services to your unique business situation. This includes providing real-time customized reporting and dashboards that help you monitor business performance, especially with our FP&A Service.

Leverage Technology

A Finance-as-a-Service company looks very different than your typical accounting, advisory, or finance firm. This is due to the fact that FaaS firms leverage new technology, scalable systems, and standard operating procedures to increase their agility and responsiveness, providing customized financial reporting and advisory services in real time. FaaS isn’t the same as traditional accounting, as it operates differently and utilizes new technologies to provide efficient and personalized services, including payroll management. With this being said, they are able to meet the needs of your unique business in real time, providing customized reporting and advisory services.

Flexible Pricing Options

Another key advantage of using FaaS companies is flexibility in pricing options. Many firms have dropped the billable hourly model and instead provide these services as recurring monthly fixed-fee contracts, giving businesses a single view of their operating costs. This allows you to manage cash easily and maintain high standards, giving your workforce greater freedom to focus on higher-value tasks and generate the insights the business needs to help chart the right path for growth. FaaS companies prioritize what accounts need the most attention while automating routine functions that are essential but painstaking to execute. With fixed fee pricing, businesses can avoid taking on costs for tedious back-office functions.

Key Takeaways

Definition: Finance-as-a-Service (FaaS) is a cloud-based, subscription model providing integrated accounting, CFO, and tax services.
Target Audience: Primarily mid-sized businesses that need high-level financial insights without the cost of a full in-house team.
Core Benefits: Offers real-time reporting, scalable technology, and consolidation of financial functions under one roof.
Pricing: Typically utilizes fixed-fee monthly contracts rather than traditional hourly billing.
Strategic Value: Enables business owners to focus on growth and execution rather than back-office administrative tasks.

WHY WE ARE THE BEST FIT

All the services you need, all in one place.

Business accounting is more than just basic bookkeeping , it is a core business function focused on the collection, compilation, and organization of operational and financial data.

GrowthLab has over 20 years of experience with start ups, small businesses, and larger companies. GrowthLab is built around helping companies understanding the following four challenges …

Insight into your cash flow
Determining where you are making and losing money
Marketing for profit
Paying for performance

Dan Gertrudes

Frequently Asked Questions About FaaS

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What is a Credit Memo?

dan@growthlabfinancial.com (Dan Gertrudes) — Mon, 10 Jun 2024 18:02:25 GMT

Credit Memos

Definition of a Credit Memo

A credit memo, short for "credit memorandum," is a document issued by a seller to a buyer. It reduces the amount that the buyer owes to the seller. This document is typically used when the buyer returns goods, there is a price dispute, or a previous invoice has overcharged the buyer. It serves as a way to correct financial discrepancies between trading partners and ensure accuracy in bookkeeping . Understanding what a credit memo is, why it is issued, and how it impacts financial statements is crucial for anyone involved in accounting or managing a business.

Reasons for Issuing a Credit Memo

Returns and Allowances: One of the most common reasons for issuing a credit memo is the return of goods. If a customer returns a product for a refund, the seller issues a credit memo to reduce the receivable from the buyer, essentially acknowledging that the buyer no longer owes the amount for the returned goods.
Pricing Discrepancies: Sometimes, errors may occur in the invoicing process, such as incorrect prices being charged. In such cases, a credit memo is issued to adjust the invoice amount to the correct value.
Quality Issues or Damage: I f goods delivered are damaged or fail to meet quality standards, the buyer might not return the goods but negotiate a reduced price. A credit memo is then issued by the seller to account for the reduction in price.
Overpayment: In situations where a buyer overpays an invoice, the seller can issue a credit memo for the overpaid amount, which can either be refunded or applied to future purchases.

Components of a Credit Memo

A typical credit memo includes several important elements to ensure clarity and accuracy:

Seller’s Details: Includes the name, address, and contact information of the seller.
Buyer’s Details: Similar details of the buyer.
Credit Memo Number: A unique identifier for the document.
Date: The date when the credit memo was issued.
Reference: The original invoice number related to the transaction.
Items Adjusted: A list of items that the credit memo covers, including quantities and reasons for the adjustment.
Total Amount Credited: The total amount that has been deducted from the buyer's balance.

Impact on Financial Statements

Credit memos affect several aspects of financial statements:

Income Statement: For the seller, returns or allowances represented by credit memos lower the total revenue, thus impacting the net income.
Balance Sheet: Reductions in accounts receivable (seller side) and accounts payable (buyer side) adjust the current assets and liabilities, respectively.

Example Scenario

Imagine a company, ABC Corp., sells goods worth $1,000 to XYZ Inc., but the goods delivered were damaged. XYZ Inc. agrees to keep the damaged goods for a discount of $300. ABC Corp. issues a credit memo of $300 to XYZ Inc., adjusting the original invoice amount. In ABC Corp.’s books, sales revenue and accounts receivable will be reduced by $300. In XYZ Inc.’s books, the accounts payable will be reduced by the same amount.

Accounting for Credit Memos

From an accounting perspective, a credit memo is recorded as a reduction in sales revenue by the seller and a reduction in accounts payable by the buyer. When a seller issues a credit memo, it must decrease its accounts receivable and its sales revenue figures. For the buyer, a credit memo means a reduction in accounts payable, as they now owe less money to the seller.

Key Takeaways

Definition: A credit memo is a seller-issued document that reduces the amount a buyer owes.
Common Uses: Issued for returns, pricing errors, damaged goods, or overpayments.
Essential Details: Must include the original invoice reference, items adjusted, and the total amount credited.
Financial Impact: It decreases Accounts Receivable for the seller and Accounts Payable for the buyer.
Revenue Adjustment: For sellers, it effectively lowers total sales revenue on the income statement.

Daniel Gertrudes

Frequently Asked Questions About Cash Flow Management

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GrowthLab 10 Step Approach to Business Modeling

Wed, 05 Jun 2024 19:05:47 GMT

Essential Financial Modeling Techniques for Startup Success

Understanding the financial landscape is critical for any startup. At GrowthLab, we've refined a comprehensive 10-step approach to financial modeling that not only supports your business's financial structure but also aligns with your strategic goals. This guide is tailor-made for startup founders and financial planners looking to navigate their business towards profitability and growth.

1. Identifying Your Market:

Begin with a clear definition of your addressable market. Analyze the demographics and purchasing power of potential customers. This foundational step ensures your business targets viable segments, enhancing marketing strategies and optimizing customer acquisition costs.

2. Calculating Customer Acquisition Cost (CAC):

Learn how to effectively calculate the CAC to maximize your marketing budget. This step involves understanding the costs associated with gaining a new customer through various channels, crucial for budgeting and financial planning in startups .

3. Developing a Pricing Strategy:

Establish a competitive pricing strategy by engaging with market and customer insights. This step is essential for determining how much your customers are willing to pay and aligns with your overall value proposition.

4. Outlining the Revenue Model:

Define your revenue streams by integrating your pricing strategy with customer acquisition insights. This model will guide you in forecasting sales and understanding key revenue drivers, pivotal for startup financial models.

5. Cost Analysis:

Dive into the cost structure of your products or services. This analysis includes direct and indirect costs and is fundamental for calculating gross margin, a critical metric for financial health.

6. Building a Capable Team:

Timing and team composition are vital as your startup grows. This step guides you in scaling your operations efficiently by hiring the right talent at the right time.

7. Managing Operating Expenses:

Focus on operating expenses that drive revenue and customer growth. Streamline costs that don't contribute to these goals, ensuring financial resources are used efficiently.

8. Timing Your Business Activities:

Strategically plan the timing of your business activities to sync with market demands and internal capabilities. Proper timing can significantly influence the success of your product launches and market entry.

9. Understanding Cash Burn:

Analyze your startup's cash burn rate to manage capital effectively. This insight is crucial for planning funding rounds and ensuring financial stability.

10. Iterative Review:

Regularly revisit each step to align your business model with current market conditions and internal growth. Continuous improvement is key to adapting and thriving in dynamic markets.

Our 10-step guide is not just about crafting financial statements but building a robust framework for sustainable business growth. Interested in tailored financial modeling advice for your startup? Reach out to GrowthLab for expert guidance and support.

Interested in learning more about business modeling? Fill out the form below for a free meeting with the GrowthLab team!

Frequently Asked Questions

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The Benefits and Importance of Advisory Shares

Tue, 28 May 2024 20:03:01 GMT

Benefits and Importance of Advisory Shares

Starting a new company is an exhilarating journey filled with opportunities and challenges. One critical factor that can significantly influence a startup's success is the presence of experienced advisors, particularly through the use of advisory shares.

Advisors bring a wealth of knowledge, industry insights, and strategic guidance that can help navigate the complex landscape of entrepreneurship. This blog explores the importance of advisors for startups and provides a guide on how to issue advisory shares to maximize their value.

The Importance of Advisors and Advisory Shares for Startups

1. Expertise and Experience

Advisors are often seasoned professionals with extensive experience in their respective fields. By offering advisory shares, startups can attract advisors whose insights help avoid common pitfalls and capitalize on industry trends, providing a strategic advantage.

2. Networking and Connections

Advisors typically have robust networks that can be leveraged for introductions to potential investors, partners, and clients. Advisory shares make it easier for startups to secure these valuable connections, accelerating business growth and opening doors that might otherwise remain closed.

3. Credibility and Trust

Having respected advisors on board, especially through the issuance of advisory shares, can enhance the credibility of a startup. This is particularly beneficial when attracting investors or entering into partnerships, as it signals that knowledgeable individuals believe in the venture's potential.

4. Objective Perspective

Advisors, compensated with advisory shares, provide an external viewpoint that is crucial for unbiased decision-making. They can challenge assumptions, offer new perspectives, and help refine business strategies.

What Are Advisory Shares?

Advisory shares are stock options given to company advisors instead of employees. These shares may replace cash repayment and involve granting options to buy shares rather than providing actual shares. Advisors share their insights in exchange for a percentage of the company.

Many early-stage startups lack substantial cash and often share equity to compensate advisors adequately. This exchange provides valuable lessons on growth but requires careful consideration. Equity should be distributed wisely.

Rule #1: Give Shares to Advisors Who Will Help Your Startup

If you have a strong network and help fellow entrepreneurs, you can get assistance without giving away shares. However, if you want a committed advisor who will consistently be involved, you may offer them 25 basis points (0.25% of the company). For advisors with extensive networks who can facilitate a funding round, you might extend the offer to 100 basis points (1%).

Beware of Unscrupulous "Advisors"

Some individuals prey on inexperienced entrepreneurs, taking significant chunks of advisor shares and over-promising their contributions. Be cautious of anyone who claims they can handle all your fundraising for a large equity stake. Genuine advisors should be invested in your company's success.

Choose Advisors Wisely

Look for mentors in the same domain or founders from similar fields who are a few years ahead. High-quality advisors can help your company in subtle ways. Document agreements with your lawyer and set up a vesting schedule to formalize these relationships.

Advisory shares are a valuable equity agreement for startups and business professionals. They allow you to attract and compensate advisors without affecting company operations while benefiting from their expertise and insights. By following a structured approach to issuing advisory shares, startups can build strong advisory relationships that drive growth and create lasting value. In summary, the strategic inclusion of advisors and the thoughtful issuance of advisory shares can provide startups with the support they need to thrive in a competitive market.

Daniel Gertrudes

Frequently Asked Questions About Advisory Shares

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How to File an 83(b) Election: A Step-by-Step Guide

Mon, 20 May 2024 14:46:43 GMT

Filling an 83(b) Election: A Step-by-Step Guide

Filing an 83(b) election is a critical process for employees who receive restricted stock as part of their compensation. This election allows you to pay taxes on the total fair market value of the stock at the time of granting rather than at the time of vesting, potentially leading to significant tax savings. In scenarios involving valuation caps , understanding the fair market value at the time of the grant is essential, as it directly impacts the potential tax benefits. Here's a detailed, step-by-step guide on how to file an 83(b) election, including necessary documentation and IRS submission guidelines.

Step 1: Understand the Requirements

Before filing an 83(b) election, it's essential to understand the specific requirements and implications:

Eligibility: You must receive restricted stock, not stock options or other types of equity compensation.
Timing: The election must be filed within 30 days of receiving the stock.
Tax Implications: You will pay income tax on the fair market value of the stock at the time of the grant, which could be beneficial if the stock's value increases significantly over time.

Step 2: Obtain the Necessary Forms

To file an 83(b) election, you will need the following documents:

83(b) Election Statement: This is a formal letter to the IRS stating your intention to make the election.
Cover Letter: While not required, a cover letter can provide additional context and ensure your election is processed correctly.
IRS Form 2848 (Power of Attorney and Declaration of Representative), if someone is filing on your behalf.

Step 3: Complete the 83(b) Election Statement

The 83(b) election statement must include specific information:

Taxpayer's Name, Address, and Social Security Number
Description of the Property: Detail the type and number of shares received.
Date of the Grant: Indicate the date you received the stock.
Fair Market Value: State the fair market value of the stock at the time of the grant.
Amount Paid: Specify the amount paid for the stock, if any.
Declaration: Include a statement declaring your intention to make the election under Section 83(b).

Step 4: Submit the 83(b) Election to the IRS

The completed 83(b) election statement must be submitted to the IRS within 30 days of the stock grant. Here’s how to submit it:

Mailing: Send the original statement to the IRS service center where you file your tax return.
Certified Mail: It's advisable to use certified mail with a return receipt requested to ensure the IRS receives your statement

Step 5: Provide a Copy to Your Employer

You must also provide a copy of the 83(b) election statement to your employer. This step is crucial because your employer needs to be aware of your election for their tax reporting purposes.

Step 6: Attach a Copy to Your Tax Return

When you file your income tax return for the year, attach a copy of the 83(b) election statement to your return. This ensures that the election is documented in your tax records.

Step 7: Retain Copies for Your Records

Keep copies of all documents for your personal records, including:

The original 83(b) election statement.
The IRS-certified mailing receipt.
Copies provided to your employer.
The copy is attached to your tax return.

Key Considerations and Risks

While the 83(b) election can provide significant tax advantages, it’s essential to consider the risks:

Non-Refundable Taxes: If the stock value decreases after the election, the taxes paid on the initial value are not refundable.
Employment Stability: If you leave the company before the stock vests, you may not realize the expected benefits.
Company Performance: The election is beneficial if the company performs well and the stock value increases significantly.

Strategic Decision-Making

The decision to make an 83(b) election should be made with a clear understanding of your financial situation, the company's potential for growth, and the associated risks. Consulting with financial advisors and tax professionals can provide personalized insights and help you make the best decision for your circumstances.

Filing an 83(b) election is a strategic financial decision that can lead to substantial tax savings, but it requires careful consideration and timely action. By following these detailed steps and understanding the necessary documentation and submission guidelines, you can navigate the process effectively. If you have any doubts or need personalized advice, consult with a financial advisor or tax professional to ensure you make the best decision for your financial situation.

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Frequently Asked Questions About 83b Elections

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Navigating the New Department of Labor Overtime Ruling in 2024

Wed, 15 May 2024 15:22:43 GMT

How to Navigate the New Department of Labor Overtime Ruling in 2024

The landscape of workforce management is continuously evolving, and staying updated with regulatory changes like the recent Department of Labor (DOL) overtime update is essential for maintaining legal compliance and organizational integrity. With the thresholds set to increase to $43,888 on July 1, 2024, and $58,656 on January 1, 2025, businesses face new challenges. Fractional CFOs and HR professionals are crucial in helping organizations navigate these changes efficiently.

Understanding the Ruling

The final rule by the DOL amends the Fair Labor Standards Act (FLSA) to increase the salary threshold for overtime eligibility. This change demands a deep dive into the specific implications for different industries and organizations of varying sizes and locations. Fractional CFOs and HR experts play an important role in producing compliance strategies tailored to these parameters.

Assessment of Current Overtime PracticesAssessment of Current Overtime Practices

The first step after the new DOL ruling is to review your current overtime policies and practices. Fractional CFOs and HR professionals :

Check employee classifications
Review pay structures
Examine record-keeping procedures

This helps identify any areas that do not comply with the new overtime rules.

Financial Impact Analysis

Once the ruling is understood, fractional CFOs perform a financial impact analysis. This helps businesses:

Forecast additional costs from changes in overtime eligibility
Plan for adjustments in employee compensation
Make informed financial decisions

Budgeting & Forecasting

Building upon the financial impact analysis, fractional CFOs collaborate in budgeting and forecasting efforts. By evaluating various scenarios and developing financial projections, they ensure that the organization remains financially viable while adapting to the new regulatory landscape.

Developing & Implementing Updated Overtime Policies

HR professionals, working with legal counsel, develop updated overtime policies that follow the DOL ruling. They also:

Implement the policies across the organization
Ensure policies are clear and easy to follow
Provide training for managers and employees

Employee Classification Review

A key part of compliance is reviewing employee classifications. Fractional CFOs and HR professionals:

Check each employee’s status against the DOL criteria
Make necessary adjustments to classifications
Update compensation structures as needed

Record-Keeping Compliance

Accurate records are crucial to show compliance. CFOs and HR professionals:

Maintain robust time-tracking systems
Conduct regular audits of record-keeping practices
Ensure all documentation meets regulatory standards

Risk Management

Identifying and mitigating risks associated with non-compliance is imperative. Fractional CFOs and HR professionals proactively develop risk mitigation strategies, which may include obtaining insurance coverage or seeking legal guidance to minimize potential liabilities and reputational damage.

Ongoing Monitoring & Compliance Audits

Establishing processes for ongoing monitoring of overtime compliance is essential. Fractional CFOs and HR professionals conduct regular audits to identify deviations from established policies and procedures, facilitating timely corrective action to prevent violations.

Navigating Change

Fractional CFOs and HR professionals play indispensable roles in navigating the complexities of the recent DOL ruling on overtime. By leveraging their expertise in finance, human resources, and compliance, they help organizations ensure adherence to regulatory requirements, minimize risks, and optimize financial performance in an ever-evolving regulatory landscape.

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Frequently Asked Questions About the New Department of Labor Overtime Ruling in 2024

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Navigating the New FTC Non-Compete Regulations

dan@growthlabfinancial.com (Dan Gertrudes) — Wed, 01 May 2024 13:55:20 GMT

How to Navigate the New FTC Non-Compete Regulations

In the dynamic business landscape, adaptability is key. The recent ruling by the Federal Trade Commission (FTC) on non-compete agreements heralds a significant shift, particularly impacting startups and medium-sized businesses. As someone who has experienced the constraints of such agreements firsthand, I recognize the need for change. This blog delves into the implications of the FTC ruling and explores how fractional CFO and HR services , such as those offered at GrowthLab FaaS, can facilitate a smooth transition, ensuring compliance while preserving competitive advantages.

Understanding the FTC Rule: Nuances and Implications

The FTC ruling, effective from late August, introduces nuances that every business leader must grasp. While senior executives are still subject to non-compete agreements under certain conditions, the definition of "policy-making" roles is pivotal. Moreover, the FTC advocates for alternative measures like nondisclosure agreements (NDAs) to safeguard sensitive information without impeding professional mobility.

Understanding these nuances is essential for navigating the evolving legal landscape:

Senior Executives

Non-competes are permissible for senior executives who:

earn over $151,164 annually
are involved directly in policy-making.

Policy-Making Defined

This includes individuals with:

the title of the business entity’s president, chief executive officer, or the equivalent
the final decision-making authority over significant business aspects.

Alternatives to Non-Competes

The FTC encourages less restrictive measures like nondisclosure agreements (NDAs) to protect sensitive information without limiting professional mobility.

Good News

The final rule allows existing non-compete agreements with Senior Executives to stand while banning new non-compete agreements after the effective date.

The Role of Fractional CFOs & HR Professionals

Fractional CFOs and HR professionals emerge as indispensable allies in this regulatory transition.

Their expertise includes:

Strategic planning
Compliance
Financial management
Intellectual property protection

By leveraging their insights, businesses can adapt to the new rules while fortifying their competitive position.

Here is how they can add value to your organization:

Strategic Planning and Risk Assessment

Helping businesses understand the financial and operational impacts of the non-compete ban, guiding them through strategic planning and risk management.

Compliance and Legal Strategy

Assisting in reviewing and revising:

Current employment agreements
Contractual agreements

This ensures compliance with the new rule while still protecting business interests.

Financial Forecasting and Management

With potential shifts in workforce dynamics, providing forecasting and budgeting guidance can help manage financial outcomes effectively.

Protecting Intellectual Property and Business Secrets

Despite the non-compete ban, businesses can still protect their intellectual property through other legal means. Fractional CFOs and HR Professionals can guide the establishment of non-disclosure agreements that comply with the new rules yet effectively safeguard business secrets.

Navigating Uncertainty and Legal Challenges

As legal challenges to the FTC rule unfold, providing ongoing advice on potential impacts and strategic responses to ensure businesses remain adaptable and informed.

Strategies for Success: Practical Steps for Businesses

Contractual Revisions

Startups and medium-sized businesses need to revise their contractual frameworks. This involves identifying positions that qualify as policy-making under the new rule and adjusting partnerships and employment agreements accordingly.

Robust NDAs and Non-Solicitation Agreements

Create NDAs that clearly define what constitutes confidential information and detail the responsibilities of employees in protecting these assets. Similarly, non-solicitation agreements can be structured to prevent the poaching of clients and colleagues without hindering overall industry competition.

Cultural Shifts

Embracing a culture that values transparency and fairness can enhance employee loyalty and corporate reputation. Fractional HR Professionals can promote policies that balance employee freedoms with business needs.

Ongoing Legal Monitoring

Given that legal interpretations and regulations may evolve, having a fractional service provider on board ensures that the company remains abreast of changes and prepared to adapt swiftly.

Key Takeaways

New Ban: The FTC rule bans most new non-compete agreements starting in late August.

Senior Executive Exception: Existing non-competes for senior executives earning over $151,164 and serving in true policy-making roles may remain enforceable.

Alternative Protections: Businesses should shift to strong non-disclosure agreements (NDAs) and non-solicitation clauses to protect intellectual property and confidential information.

Strategic Compliance: Fractional CFOs and HR professionals play a key role in reviewing contracts, ensuring compliance, and managing the financial risks associated with workforce mobility.

Embracing Change: A Personal Perspective

Reflecting on my tenure as a sales executive in the fiber optics industry, the restrictive nature of non-compete agreements was palpable. These constraints stifled innovation and hindered the fluidity of talent within the industry. Now, with the FTC introducing new regulations, there's promise for liberation from these shackles. By banning most non-compete agreements, the FTC aims to foster a more dynamic and equitable business environment, albeit with exceptions for senior executives.

Navigating Change with GrowthLab

The FTC's ruling on non-compete agreements signifies a paradigm shift towards greater mobility and fairness in the business world. GrowthLab stands ready to assist startups and medium-sized businesses in this journey. By harnessing strategic financial leadership and compliance expertise, GrowthLab enables businesses to adapt effectively and ethically. Together, we can embrace change and forge a path towards a more dynamic and equitable future.

Daniel Gertrudes

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Navigating Change with GrowthLab

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The Benefits of Integrated FP&A, Tax, and Accounting Services

Thu, 18 Apr 2024 18:36:52 GMT

Benefits of Integrated FP&A, Tax, and Accounting Services

In today's complex financial landscape, achieving fiscal responsibility while strategically positioning for growth is crucial. The end of the tax season brought with it unexpected tax burdens for many companies, highlighting the critical need for integrated financial planning services. At GrowthLab, we specialize in harmonizing Financial Planning & Analysis ( FP&A ), tax compliance, and accounting services, providing a comprehensive solution that ensures financial clarity and strategic foresight.

Leveraging FP&A for Enhanced Tax Strategy

Financial Planning & Analysis (FP&A) is central to effective business management, allowing companies to meet financial goals and optimize tax outcomes through strategic tax planning. This approach not only maps a route toward financial stability but also integrates cash flow management to effectively navigate tax obligations.

Effective tax planning is integral to this strategy, providing critical insights into the cash flow impacts of tax liabilities. This is essential for maintaining financial fluidity through various fiscal periods. By synchronizing FP&A with strategic tax planning, businesses gain a transparent view of their financial future, facilitating smarter, strategic decisions.

GrowthLab's Integrate Financial Services

At GrowthLab, we champion the integration of accounting , tax compliance , and FP&A services to offer a holistic view of your financial landscape. This triad of services ensures alignment across all financial operations, enhancing financial performance optimization and regulatory tax compliance.

Comprehensive Financial Oversight

Combining these services, provides detailed insights into your financial status, helping understand the implications of business decisions on taxes and financial health.

Proactive Tax Management

Our expert tax services ensure compliance and leverage tax efficiencies. Our forward-thinking tax strategies are tailored to align with your operational goals, minimizing surprises and maximizing profitability.

Strategic Financial Planning

Beyond traditional management, our FP&A services deliver strategic insights to prepare for future business challenges and opportunities, driving sustainable growth and building on your Long-range Plan ( LRP ), Annual Operating Plan ( AOP ), and Rolling-12 month Cash Forecast.

Enhance Your Financial Strategy

Recognizing the value of integrated financial services, GrowthLab is thrilled to present a special promotion for new and existing clients. For a limited time, enjoy a free month of FP&A and Accounting services when you enroll in our comprehensive package—a perfect opportunity to experience the benefits of a unified financial strategy.

Why Partner with GrowthLab?

Expert Guidance

Our team of seasoned financial professionals offers customized, industry-leading advice in tax, accounting, and FP&A.

Tailored Financial Solutions

We provide adaptable solutions designed to meet your business's unique challenges and goals.

Advanced Tech-stack Tools

Utilizing cutting-edge financial apps, GrowthLab delivers real-time financial insights and analytics, empowering rapid, informed decision-making.

Navigating financial management and tax compliance demands a strategic, integrated approach. GrowthLab is your dedicated partner in this journey, ensuring your business not only meets its current financial obligations but is also primed for future success.

Frequently Asked Questions About FP&A

Dan Gertrudes

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Business Tax Filing Deadlines | Free Tax Deadline Calendar

Wed, 10 Apr 2024 21:15:55 GMT

Business Tax Filing Deadlines 2026

Taxes are an unavoidable aspect of running a business, and staying on top of tax deadlines is crucial to avoid penalties and maintain compliance with the law.

Tax landscape can be complex, with different deadlines for various business entities and types. Whether you're a sole proprietor, a partnership, a corporation, or another type of business entity, understanding your tax obligations and deadlines is essential.

Tax Deadlines for Sole Proprietorship:

April 15: Sole proprietors typically file their personal income tax returns by April 15 each year, using Schedule C ( Form 1040 ) to report business income and expenses. This deadline also is the Q1 estimated payment due date.

January 15: If you make estimated quarterly tax payments, the final payment for the previous tax year is due by January 15 of the following year.

Tax Deadlines for Partnerships:

March 16: Partnerships (including multi-member LLCs taxed as partnerships) must file their annual tax return using Form 1065 by March 16. This deadline also applies to providing Schedule K-1 to each partner.

Partnerships can request a six-month extension, pushing the deadline to September 15, by filing t he applicable extension form by March 16.

Tax Deadlines for Corporations:

March 16: S-corporations (including LLCs taxed as S-corporations) must file their annual tax return using Form 1120-S by March 16. This deadline also applies to providing Schedule K-1 to each shareholder.

S-corporations can request a six-month extension, pushing the deadline to September 15 by filing the applicable extension form by the original due date of their tax return.

April 15: C-corporations (including LLCs taxed as C-corporations) must file their annual tax return using Form 1120 by April 15.

C-corporations can request a six-month extension, pushing the deadline to October 15 by filing t he applicable extension form by the original due date of their tax return.

Tax Deadlines for Limited Liability Companies (LLCs):

Dependent on Tax Classification: The tax deadlines for LLCs depend on how they're classified for tax purposes. An LLC can be taxed as a sole proprietorship, a partnership, an S-corporation, or a C-corporation, and its tax deadlines will align with the respective entity's deadlines mentioned above.

Quarterly Estimated Tax Payments:

Estimated Quarterly Payments are due on April 15, June 15, September 15, and January 15 for individuals.

For businesses that expect to owe $1,000 or more in taxes when their annual return is filed, quarterly estimated tax payments are generally due on April 15, June 15, September 15, and December 15 of the following year. This applies to C-corporations.

*It's important to note that tax deadlines may vary slightly from year to year , so it's advisable to double-check with the IRS or consult with a tax professional to ensure compliance with the latest requirements. Additionally, certain circumstances, such as weekends or holidays, can affect deadlines, potentially pushing them to the next business day.

This is not tax advice. Reach out to your tax advisor about any specific questions you may have about your taxes.

If you have questions for us, book a time to meet with our team HERE .

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Frequently Asked Questions About Business Taxes

Looking for guidance around tax planning?

At GrowthLab, we transcend traditional tax filing and virtual tax preparation to deliver a holistic, strategic, and customer-centric tax management service, meticulously designed to cater to your unique needs and financial objectives.

Other Blogs Related to Tax

Zapier for Accountants and Bookkeepers

Mon, 01 Apr 2024 19:03:48 GMT

Zapier for Accountants

You may have noticed that everyone has been talking A LOT about Zapier lately, and you’re probably wondering, what is all the buzz about?

Imagine this: you send a new client a Google Form to gather their information. They complete and submit the form and the following tasks occur automatically :

The client is added as a new Client in Ignition
A new channel is created in Slack
A new folder is created in Sharefile, Google Drive or DropBox
A new card is created in Trello
A notification is sent to someone in your organization to let them know that the client has completed the form and the tasks above have been completed

Sounds incredible, doesn’t it? You can save countless hours each month using Zapier to automate many of your recurring tasks. Accounting firms are now offering Zapier consulting as part of their firm service offerings and bring the power of self-serve automation to their clients and community.

What is Zapier?

Zapier is a web-based application designed for non-techies that allows you to create automated workflows between other web-based apps that you probably already use, like Gmail, Trello, QuickBooks, Xero and over 1,000 other supported apps. Some exciting recent additions to their platform include awesome accountant-specific apps like Ignition.

How does Zapier work?

A Zap starts with a Trigger, which means that something happens in an app that you’re using, this could be that you receive a new email in Gmail, or create a new invoice in QuickBooks, or an event is added to your Google Calendar. When that Trigger occurs, Zapier sends an Action instruction to another app to do something in another app.

Zapier Example:

I created a Zap that I use in my own firm that automatically sends a blank Form W-9 to my service vendors via an email when I add the vendor to my QuickBooks Online company. I call this my W-9 collection Zap!

Here’s the way the workflow in Zapier works:

3 Steps to Creating a Zap:

Step 1: Define the Trigger

The first step is to define the Trigger for the Zap. The Trigger in this workflow is that a new Vendor is created in my QuickBooks Online Company. But not all of my vendors should receive a 1099, only the vendors that provide a service to me. This brings me to Step 2.

Step 2: Add a Filter

Zapier has built-in apps to help you supercharge your Zaps by filtering for specific data, transforming data from one app to a format that can be read by another app, or completing more complex functions like parsing data from an email. This all sounds very technical but it really isn’t that complicated once you learn the rules and best practices for building Zaps. In my W-9 collection Zap, the filter will be to look to see if the “Track payments for 1099” box is checked when the Vendor is created and only run the Zap if that condition is true. Now that we’ve set up our Trigger and told Zapier exactly what to look for, our next step is to tell Zapier what to do by creating an Action.

Step 3: Add an Action

In this workflow, the Action is to create an email that will be sent to the vendor with a blank W-9 attached to it, along with a link to upload the completed W-9 to a folder in my Sharefile account.

Optimizing Cash Flow: A CFO's Guide to R&D Tax Credit Benefits

Fri, 22 Mar 2024 19:19:54 GMT

Optimizing Cash Flow: CFO Guide to R&D Tax Credit Benefits

As a small business or startup we understand the challenges you face in managing cash flow while striving for growth. It requires careful planning, monitoring, and sometimes creative solutions.

As we've highlighted in our past blog post , "The Importance of Cash Flow & Tax Planning," effective cash flow management and strategic tax planning are essential for sustainable growth. We highlight 6 strategies to help with cash flow; Evaluate all expenses, plan for state taxes, reduce accounts receivables, manage your accounts payables, choose the right accounting method for your business, and explore tax credits. In this blog we are going to touch on tax credits, specifically Research & Development ( R&D) Tax Credits .

Understanding R&D Tax Credits

Research & Development Tax Credits are incentives provided by governments to encourage businesses to invest in innovation. If your business is developing new products, processes, or technologies, you could be eligible for these credits. Many small businesses and startups overlook this opportunity simply because they're unaware of their eligibility or the benefits they can bring.

Benefits of R&D Tax Credits

Cash Flow Boost

One of the most significant advantages of R&D Tax Credits is their impact on your cash flow. These credits can either reduce your tax liability or provide a cash refund for your business.

Funding Innovation

By incentivizing innovation, R&D Tax Credits enable you to allocate more resources towards research and development projects. This can lead to the creation of new products or services, giving your business a competitive edge in the market.

Cost Reduction

Developing new technologies or improving existing processes often comes with significant expenses. R&D Tax Credits help offset these costs, making innovation more affordable for small businesses and startups.

Applying for R&D

Navigating the application process can be daunting. That's where TaxTaker comes in. They have a team of experts who specialize in helping small businesses and startups maximize their R&D tax credit while minimizing the administrative burden.

Eligibility Criteria

To qualify for R&D Tax Credits, your business must engage in activities that meet certain criteria. To determine if your business is eligible, you can ask yourself the following questions:

Do you make something? If you’re developing or improving upon technology or products, odds are you probably are entitled to some money back from the IRS!
Does your product change over time? Businesses rarely make their products the exact same way year after year. So, if your company invests resources to make its own products, software, or processes cleaner, greener, quicker, or cheaper, you most likely qualify for the credit!

Interested in Learning More?

R&D involves doing creative and planned work to increase knowledge and come up with new ways to use what we already know. In particular, R&D usually focuses on making or improving how well a part of the business works. This could be anything from a product, a way of doing things, software, a method, a recipe, or an invention. This work often requires some trial and error to find the best design or solution. Startups that can claim the credit come from a variety of industries.

Some of these industries include but are not limited to:

Artificial intelligence
Consumer packaged goods
Software (SaaS)
Manufacturing
Aerospace
Textiles
Life Sciences

‍ What expenses can be claimed?

There are four buckets of expenses you can pull from when calculating R&D credit savings. These include:

Filing for R&D

Navigating the intricacies of R&D tax credits can be difficult when it comes to filing your business tax returns. As part of this process, you need to identify qualifying expenses and provide adequate documentation that shows how certain requirements are met.

Some things to keep in mind:

The documentation should be from the time the R&D was done
It should prove that the work occurred in the fiscal year you are claiming
It should highlight the technical challenges to substantiate the R&D that was done and who was involved.

Some examples of what you can provide are:

Technical documents
Emails
Whiteboard or product roadmaps
Timesheets for technical staff
Development/engineering notes

Keep in mind, a well-documented report should always be included with your R&D credit calculations for tax filing.

Once the credit amount is calculated, the team will notify you of the credit amount and file the R&D form 6765 with the tax return. You can then elect to take your R&D credit against your employer payroll taxes. To do this, the IRS requires that you file a form 8974 the quarter after your R&D credit is filed.

If you want to use the R&D Credit to offset payroll taxes, eligible organizations must have under $5 million of gross receipts in the current year, and cannot have more than 5 years generating gross receipts (including the current year). Otherwise, the organization can use the R&D Credit to offset federal income taxes for the life of the business!

R&D Tax Credits offer small businesses and startups a valuable opportunity to optimize their cash flow and fuel innovation. By partnering with GrowthLab and TaxTaker, you can leverage these credits to unlock growth opportunities and stay ahead of the competition.

What We Do

Accounting

CFO Services

Financial Planning & Analysis

Virtual Tax Manager Services

And much more...

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

Frequently Asked Questions

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How We Use Automation to Close Books Effectively

Thu, 07 Mar 2024 20:23:28 GMT

How to Use Automation to Close Books Effectively

We know the demands of bookkeeping and accounting for small and medium-sized businesses. Our commitment to accuracy, efficiency, and seamless financial management has driven us to embrace automation for effective book closings. Selecting the right accounting software with robust automation features is crucial for modernization. Tools like QuickBooks, Xero, STRMS, and Xenett are instrumental in automating various book closure tasks, from data entry to report generation.

Establishing Standardized Workflows

Our approach involves more than just using software; we've established standardized workflows for closing books. Documenting step-by-step procedures ensures all team members understand and follow these processes, providing a clear framework for automation implementation. STRMS helped us do this by creating a process map to visually represent the step-by-step sequence of activities - including which people, tools, software, and/or documents are involved. They taught us that before automating a process (like the tasks associated with closing a business book), it's crucial to understand it thoroughly. Process maps provide a clear blueprint for automating those repetitive tasks.

Here are some examples of STRMS Process Mapping:

Leveraging Xenett for Enhanced Book Closing

Enhanced

Book Closing:

Refers to the optimization of book closing procedures through the use of advanced tools and technologies to improve accuracy and efficiency.

Xenett , in particular, plays a pivotal role in our workflow, offering features that significantly enhance our book-closing process. For instance, we leverage Xenett to easily reclassify entries, streamlining the reclassification process. The platform allows us to view the last time accounts were reconciled and their balances, providing instant insights for efficient tracking.

Moreover, Xenett's ability to point out unreconciled entries and entries without essential details (such as customers, vendors, or classes) ensures thorough reconciliation and accuracy. The platform makes it easy for us to find new entities, facilitating comprehensive financial oversight.

One noteworthy feature is the capability to add comments directly to transactions, promoting clarity and seamless communication within the team. Additionally, Xenett's game-changing functionality allows us to add customers and classes to transactions in bulk, a significant time-saver compared to manual processes.

Efficiency and Precision in the Closing Process

The integration of Xenett into our bookkeeping and accounting practices has streamlined our operations, allowing us to achieve a level of efficiency and precision previously unattainable. By automating repetitive tasks and utilizing its error-detection capabilities, we've been able to focus more on strategic analysis and providing valuable financial insights to our clients.

Interested in Learning More?

Xenett pinpoints if coding is not consistent. It helps elevate our bookkeepers by showing them their errors and being able to fix them. Growing and continuous learning is an essential part of GrowthLab. It gives the leads more confidence in the work knowing Xenett was used in the reviewing process.

We're committed to staying at the forefront of technological advancements in the accounting industry. Automation isn't just a buzzword for us; it's a transformative tool that enables us to deliver exceptional services, ensuring our clients' financial health and success.

Dan Gertrudes

5 Accounting Tips for Manufacturing Businesses

Wed, 28 Feb 2024 15:43:39 GMT

5 Accounting Tips for Manufacturing Businesses

In the competitive landscape of manufacturing, understanding key accounting principles is essential for sustainable growth and profitability. In this article, we delve into five crucial accounting tips tailored specifically for manufacturers, drawing insights from industry expertise and practical wisdom.

1. Cost Accounting

Cost accounting lies at the heart of every manufacturing business. It involves meticulously tracking and analyzing all expenses associated with the production process. The 80/20 rule, also known as the Pareto Principle, can be particularly useful in this case. It suggests that roughly 80% of your costs are likely attributed to 20% of your inputs or activities. By identifying and focusing on this critical 20%, manufacturers can streamline operations, eliminate waste, and allocate resources more effectively, ultimately enhancing profitability.

2. Inventory Management

Effective inventory management is a cornerstone of manufacturing success. Striking the right balance between excess inventory and stockouts is crucial for meeting customer demand while minimizing carrying costs. Implementing inventory tracking systems, such as barcode scanning or RFID technology, can provide real-time visibility into stock levels, movement, and expiration dates. GrowthLab believes implementing journal entries at the beginning and every month makes a substantial difference as well.

Below is an example of what a journal entry can look like.

3. Labor Allocation & COGS

Labor allocation plays a pivotal role in accurately determining the Cost of Goods Sold (COGS) for manufactured products. Beyond direct labor costs, manufacturers must account for indirect labor expenses and allocate them appropriately to each product line. Utilizing modern payroll systems integrated with their general ledger enables precise tracking of labor costs and facilitates insightful analysis of production expenses. Knowing your production expenses is crucial.

4. Depreciation of Machinery and Equipment

In manufacturing environments, machinery and equipment are critical assets that depreciate over time due to wear and tear. Properly accounting for depreciation not only aligns with tax regulations but also reflects the true economic value of assets. By implementing depreciation schedules and leveraging tax incentives, manufacturers can optimize asset utilization, mitigate financial risks, and enhance long-term profitability.

5. Banking Relationships

Maintaining strong relationships with banking partners is paramount for manufacturers seeking financial stability and growth opportunities. Timely and accurate financial reporting not only instills confidence in lenders but also facilitates informed decision-making and strategic planning. Proactively engaging with banking partners and keeping financial records up-to-date fosters trust, transparency, and collaborative synergy in navigating the complexities of manufacturing finance. At GrowthLab our services can assist, especially on the CFO side one of our goals is to continuously build and maintain that relationship with your banking Partners.

Mastering the intricacies of accounting is essential for manufacturers striving to thrive in today's competitive marketplace. By implementing sound accounting practices, leveraging advanced technologies, and fostering strategic partnerships, manufacturers can unlock new avenues of profitability, efficiency, and sustainable growth.

We understand the unique challenges faced by manufacturing businesses. Our comprehensive accounting services and strategic financial guidance are tailored to empower manufacturers to achieve their business goals with confidence and clarity.

Key Takeaways

Optimize Costs: Use the 80/20 rule to identify and streamline the 20% of activities driving 80% of your manufacturing costs.
Modernize Inventory: Combine real-time tracking (RFID/Barcodes) with monthly journal entries to balance stock levels and minimize carrying costs.
Precise COGS: Integrate payroll with your general ledger to accurately allocate direct and indirect labor to your Cost of Goods Sold.
Asset Management: Use formal depreciation schedules and tax incentives to reflect the true economic value of machinery.
Banking Transparency: Maintain proactive relationships with lenders through timely, accurate financial reporting to secure growth capital.

Dan Gertrudes

Frequently Asked Questions

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How to Budget for Employee Benefits: A Comprehensive Guide for Small Business Owners

Thu, 22 Feb 2024 16:59:53 GMT

How to Budget for Employee Benefits

Employee benefits are a crucial component of any small business's compensation package. They not only attract top talent but also foster employee satisfaction and loyalty. Navigating the complexities of budgeting for employee benefits can be daunting, especially for small business owners with limited resources. Let’s break down the process of budgeting for employee benefits step-by-step, helping you create a comprehensive plan that aligns with your financial goals and the needs of your employees.

Before diving into budgeting for employee benefits, it's essential to assess your current financial situation. Review your revenue, expenses, and cash flow to determine how much you can allocate towards employee benefits without compromising your business's financial stability. Consider factors such as business growth projections, market trends, and potential regulatory changes that may impact your budget.

Best Practices for Budgeting for Employee Benefits

Know Your Employee Benefit Needs/Preferences

Every workforce is unique, and the benefits that appeal to one group of employees may not necessarily resonate with another. Take the time to understand your employees' needs, preferences, and demographics. To gather feedback on the types of benefits they value most, you can use:

short surveys
interviews
focus groups

Whether it's health insurance, retirement plans , flexible work arrangements, or professional development opportunities, knowing this prevents you from spending money on benefits nobody uses.

Need Help Budgeting?

Download our FREE Budget for Employee Benefits

Know Your Benefit Options

Once you have a clear understanding of your financial constraints and employee preferences, research different benefit options available to small businesses. When comparing providers, evaluate these key factors:

Cost: Total premiums and employer contribution requirements.
Coverage: The depth and breadth of the services provided.
Flexibility: How easily the plan can scale as your business grows.
Administration: The time and effort required to manage the plan internally.

We collaborate with top-tier providers like Human Interest to ensure comprehensive retirement benefits and efficient payroll management.

A 401(k) is the most-wanted benefit, after health insurance.

Prioritize Benefits

Not all benefits are created equal, and you may need to prioritize certain benefits over others based on your budget and employee needs. Focus on offering benefits that provide the most value to your employees while staying within your financial constraints. Health insurance and retirement plans are typically top priorities for many employees, but don't overlook other benefits like paid time off, wellness programs, or tuition reimbursement.

How to Create a Budget

With a clear understanding of your financial situation, employee needs, and benefit options, follow these steps to build your budget:

Allocate Funds: Assign specific dollar amounts to each benefit category based on your established priorities.
Account for Recurring Costs: Include ongoing expenses like monthly insurance premiums and employer 401(k) matches.
Factor in One-Time Fees: Don't forget implementation, setup, or annual enrollment fees.
Review Utilization: Track how many employees actually use the benefits to ensure your spend is effective.

Budgeting for employee benefits is not a one-time task but an ongoing process that requires regular monitoring and adjustment. Keep track of your expenses, employee utilization, and market trends to ensure your budget remains aligned with your business goals and employee needs. Be prepared to make changes as necessary, whether it's reallocating funds, negotiating with vendors, or revising benefit offerings to better meet evolving needs. Our Financial Planning & Analysis team created this simple plug and play budget for your business to use to help budget for employee benefits.

Download our FREE Budget for Employee Benefits

Conclusion

Budgeting for employee benefits is a critical aspect of managing a small business. By following the steps outlined in this guide, you can create a clean, comprehensive budget that provides valuable benefits to your employees while supporting your business's financial health and growth.

Remember to prioritize employee needs, seek available options, and remain flexible in your approach to budgeting. With careful planning and strategic decision-making, you can build a benefits package that attracts and retains top talent, driving success for your small business in the long run.

Frequently Asked Questions About Employee Benefits

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5 Reasons Small Business Owners Should Stop Using Excel for Bookkeeping

Mon, 19 Feb 2024 14:00:02 GMT

Why Small Business Owners Should Stop Using Excel for Bookkeeping

When it comes to bookkeeping, Microsoft Excel might seem like a go-to solution. It's familiar, offers a range of formulas, and even provides templates that make it easier to manage your finances. However, relying on Excel for bookkeeping can actually hinder your business in the long run. If Excel is your default choice, it's worth considering more robust alternatives.

Lack of Historical Data

Excel wasn’t designed to store extensive financial data over long periods. Using it for bookkeeping means you won’t have access to the financial history necessary to identify trends and patterns. Without these insights, forecasting, budgeting , and making informed business decisions become challenging. Moreover, a lack of comprehensive historical data can pose significant legal risks during an IRS audit.

Manual Entry and Errors

Excel requires manual data entry for bookkeeping, which is time-consuming and prone to errors. For small business owners, time is one of the most valuable resources. Spending hours managing Excel spreadsheets detracts from the time you could be using to grow your business. With more advanced bookkeeping software or GrowthLab’s support , you can reduce the time, cost, and error rate associated with manual bookkeeping.

No Integration with Other Tools

Most businesses use various tools that relate to finances, such as credit card and bank accounts, inventory tracking, online stores, and sales data. Unfortunately, Excel doesn’t integrate seamlessly with these tools. You’re forced to manually input data or download statements in Excel format to import them. This process is not only tedious but also increases the risk of errors, further complicating your bookkeeping efforts.

Check out our blog on the Benefits of a Virtual Bookkeeper .

Challenges in Scaling

While Excel might suffice when your business is just starting, it quickly becomes inadequate as your business grows. Adding new products or services, hiring more employees, adjusting prices, or securing additional financing all complicate your bookkeeping needs. Excel is not built to handle the complexities of a growing business, making it a poor choice for long-term bookkeeping solutions.

Inaccurate Cash Flow Projections

Managing cash flow is crucial for the survival of any small business. However, many who rely on Excel for bookkeeping struggle with accurate cash flow forecasting. Unlike more advanced bookkeeping platforms, Excel lacks reliable tools for cash flow projection. Poor cash flow management is one of the leading reasons small businesses fail, making this a significant drawback of using Excel.

For small business owners looking to streamline their bookkeeping and ensure accurate financial management, it’s time to move beyond Excel. Advanced bookkeeping software or professional services like those offered by GrowthLab can provide the tools and support needed to manage your finances effectively, allowing you to focus on growing your business.

Dan Gertrudes

Frequently Asked Questions About Excel for Accounting

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The Strategic Advantage of Custom Chart of Accounts Templates

Wed, 14 Feb 2024 20:28:07 GMT

Unlocking Financial Success: The Strategic Advantage of Custom Chart of Accounts Templates

In the world of small business and startup bookkeeping and accounting, setting up your QuickBooks Online (QBO) account effectively is crucial. One of the most significant steps in this process is creating a Chart of Accounts (CoA) that’s homogeneous to your niche practice, not to mention critical to the scaling of your advisory service offerings. While QuickBooks offers a generic CoA that can be used by any business, the real game-changer for many businesses is the utilization of custom CoA templates .

Why Does Having CoA Templates Matter?

Tailored Financial Tracking

Each industry has its unique financial nuances. Accounting for a restaurant , for instance, needs to track food costs and wastage, while a retail business must monitor inventory turnover. Industry-specific CoA templates are designed with these unique requirements in mind, ensuring that your financial tracking is relevant and comprehensive.

Enhanced Accuracy and Relevance

Generic CoA templates might not account for specific revenue streams or expenses unique to your industry. By using a customizable template, you ensure that every financial aspect of your business is accurately categorized. This leads to more relevant financial reports, aiding in better decision-making.

Interested in Learning More?

Time and Cost Efficiency

Setting up a CoA from scratch can be time-consuming and prone to errors, especially if you're not familiar with accounting nuances. Industry-specific templates provide a well-structured starting point, saving you time and potentially reducing the costs associated with hiring a professional to set up your accounting system.

Improved Financial Analysis and Reporting

With a tailored CoA, financial planning and analysis becomes more meaningful. You can easily compare your business's performance against industry benchmarks and gain insights into specific areas like cost management, revenue growth, and profitability. This level of analysis is crucial for strategic planning and securing investments or loans.

What is FP&A?

FP&A stands for "Financial Planning & Analysis". Financial planning bridges the gap between your accounting and your business strategy. It starts with your Long-range Plan and continues with your Annual Operating Plan.

Better Budgeting and Forecasting

When your CoA aligns with your industry's standards, budgeting and forecasting become more accurate. You can set realistic financial goals and create more effective strategies to achieve them, based on industry trends and benchmarks.

Simplified Tax Preparation

An industry-specific CoA ensures that all income and expenses are categorized correctly, simplifying the tax preparation process . It helps in identifying tax-deductible expenses specific to your industry, potentially lowering your tax liability. Certain industries have specific financial reporting and compliance requirements. An industry-specific CoA ensures that your accounting practices align with these regulations, reducing the risk of non-compliance.

Enhanced Scalability

As your business grows, your accounting needs will evolve. An industry-specific CoA is designed to scale with your business, accommodating new revenue streams, expense categories, and financial complexities without requiring a complete overhaul of your accounting system.

Streamlined Communication with Stakeholders

When your financial reports speak the language of your industry, it's easier for investors, lenders, and other stakeholders to understand a business's financial health. This can lead to increased confidence in your business and better opportunities for growth and investment.

Customization and Flexibility

While customized templates provide a solid foundation, they also offer the flexibility to be changed according to the specific business needs. This means you can tweak your CoA to reflect the unique aspects of your business while still maintaining industry relevance.

Using the standard product and service template available by Quickbooks can be customized. You can either select product-based business, service-based business or you can create a template from scratch.

Product and service based business templates have the most common parent accounts. You can change

the name, type, and details to fit your customers. Add + sub accounts, + new parent accounts, or even remove existing accounts. A template from scratch displays only the available account types with the name and details blank for you to fill in. After you have your template set up, you can apply it to your customers. learn how we helped this business with their chart of accounts.

Leveraging specific Chart of Accounts templates in QuickBooks Online is more than just a best practice; it's a strategic decision that can significantly impact your business's financial management and overall success. By providing tailored financial tracking, enhancing accuracy, saving time, and offering numerous other benefits, these specialized templates are an invaluable tool for any business looking to optimize its financial operations. Whether you're just starting out or looking to refine your existing accounting system, consider the power of a custom CoA to take your business to the next level.

Key Takeaways

Industry Precision: Custom Chart of Accounts (CoA) templates provide tailored tracking for specific niches like restaurants or retail.
Efficiency: Using templates reduces manual setup time and minimizes errors compared to building a CoA from scratch.
Strategic Insights: Aligned accounts improve Financial Planning & Analysis (FP&A), making it easier to benchmark against industry standards.
Tax & Compliance: Specialized templates simplify tax preparation and ensure compliance with industry-specific reporting regulations.

Dan Gertrudes

Frequently Asked Questions

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3 Common Accounting Problems in the SaaS Industry

Mon, 12 Feb 2024 17:05:36 GMT

3 Common Accounting Problems Within the SaaS Industry

If you’re running a SaaS business, you already know that accounting isn’t as simple as tracking revenue and expenses. Unlike traditional businesses, SaaS companies operate on recurring revenue models, which come with their own set of accounting headaches. And if you’re not managing these properly, you’re flying blind when it comes to financial clarity, valuation, and cash flow.

At GrowthLab, we’ve seen it all—SaaS businesses struggling with revenue recognition, mismanaging customer acquisition costs, and misunderstanding how churn impacts financial forecasting. Let’s break down three of the most common accounting problems in SaaS and how to get them under control.

What is SaaS?

SaaS stands for "Software as a Service," which is a cloud-based software delivery model where applications are hosted by a third-party provider and made accessible to users over the internet. This model offers scalability, flexibility, and cost-effectiveness as users typically pay for subscriptions on a monthly or yearly basis, and updates and maintenance are managed by the service provider, freeing users from the burden of managing software infrastructure.

1. Revenue Recognition: When Are You Actually Earning Revenue?

One of the biggest accounting challenges for SaaS companies is revenue recognition—when should you actually record revenue? Many founders think it’s when they receive payment, but that’s not how GAAP accounting (or investors) see it.

The Problem: SaaS businesses typically bill customers upfront for annual or monthly subscriptions, but under ASC 606, you can’t just book that payment as revenue right away. Instead, revenue needs to be recognized over the life of the contract. If you’re not following the rules here, you could be overstating revenue—something that will bite you during a funding round or due diligence process.

The Fix: Implement a strong deferred revenue process and leverage accounting software like QuickBooks Online, NetSuite, or SaaS-specific tools like Chargebee or Zuora. A clear revenue recognition policy will ensure your financials accurately reflect reality, keeping you in compliance and investor-ready.

2. Customer Churn and Revenue Forecasting: The Silent Killer of Growth

Growth is great, but what’s happening to the customers you already signed? Churn is one of the most overlooked financial risks in SaaS. If you’re not properly accounting for churn, your revenue projections are likely way off.

The Problem: You might be adding new customers, but if you’re losing just as many—or more—your top-line revenue won’t reflect real growth. Churn also impacts revenue recognition, since customers cancel before their full contract term. If your accounting doesn’t factor in churn, you’re building forecasts on shaky ground.

The Fix: Track churn diligently and bake it into your financial models. Your FP&A team should be monitoring churn rates and building conservative revenue forecasts that reflect customer retention realities. Tools like Stripe, ProfitWell, or ChartMogul can help you analyze churn trends and adjust accordingly.

3. CAC vs. LTV: Are You Spending More Than You’re Earning?

SaaS businesses love to scale, but aggressive growth can lead to financial blind spots. Are you spending too much to acquire customers (Customer Acquisition Cost, or CAC) compared to their Lifetime Value (LTV)?

The Problem: Many SaaS founders focus on growth at all costs, but if you’re paying $5,000 to acquire a customer who only brings in $4,000 in lifetime revenue, that’s not sustainable. And if you’re expensing all CAC immediately instead of properly amortizing costs, your financials could look worse than they actually are.

The Fix: Understand your CAC-to-LTV ratio and ensure it aligns with long-term profitability. Properly categorizing marketing and sales expenses (e.g., capitalizing certain costs instead of expensing them outright) can give you a more accurate picture of your margins. A strong CFO team will help balance growth with financial sustainability, ensuring you’re scaling the right way.

Key Takeaways

Revenue Recognition: SaaS companies must recognize revenue over the life of a contract (ASC 606) rather than at the time of payment.
Churn Management: Accurate financial forecasting requires factoring in customer churn to avoid overstating long-term growth.
Unit Economics: Monitoring the CAC-to-LTV ratio is essential to ensure customer acquisition costs don't exceed lifetime value.
Specialized Tools: Leveraging SaaS-specific platforms like Chargebee or ProfitWell helps automate complex accounting tasks.

The Bottom Line: Accounting for SaaS is Different—But It Doesn’t Have to Be a Mess

If you’re running a SaaS company, accounting can either be a strategic asset or a massive liability.

At GrowthLab, we help SaaS founders make sense of these numbers so they can focus on growth without nasty financial surprises. If these challenges sound familiar, let’s talk about how to build a financial system that supports your business—not one that holds it back.

Dan Gertrudes

Frequently Asked Questions

Other Blogs Related to Small Business Accounting

A Guide to Setting Up Payroll for Small Businesses

Tue, 23 Jan 2024 19:11:43 GMT

A Guide for Setting Up Payroll for Small Businesses

We understand the intricate needs of small and medium-sized businesses. Our People Advisory Services (PAS) are designed to instill confidence in your decision-making, protect and help your team, and effectively manage your organizational culture in a dynamic environment. Let’s dive into the crucial task of setting up payroll for small businesses, with insights on how PAS can guide you through the process.

Why Does Payroll Matter?

Efficient payroll management is the heartbeat of a successful business. It not only ensures your employees are compensated accurately and on time but also helps you stay compliant with various tax regulations and labor laws.

Payroll is a fundamental and multifaceted aspect of business operations that impacts the organization in several key ways:

Employee Satisfaction: Timely and accurate compensation fosters high morale and a positive work environment.
Legal Compliance: Proper management helps navigate complex labor laws and tax regulations to avoid penalties.
Financial Accuracy: Precise processing ensures the organization maintains a strong legal standing and accurate financial records.

Understanding the Basics of Payroll

Before you start, it’s important to understand payroll fundamentals. Payroll involves calculating and distributing employee compensation, including salaries, wages, bonuses, and deductions. Understanding payroll basics helps you stay compliant with tax regulations and labor laws. Here’s a breakdown of the key elements:

Employee Classification

Determine whether your workers are employees or independent contractors. Employee classification affects tax withholding, benefits eligibility, and legal obligations.

Gather Employee Information

Collect necessary information from employees, including:

personal details
tax forms (W-4 for federal taxes)
any state-specific forms

This data is crucial for accurate tax withholding.

Calculate Gross Pay

Calculate the total amount owed to employees before any deductions. This includes:

regular wages
overtime
bonuses
any other compensation

Deductions and Withholdings

Deduct federal and state income taxes, Social Security, and Medicare from employees' paychecks. Additionally, consider other deductions like health insurance, retirement contributions, and any wage garnishments.

Net Pay Calculation

The net pay is the amount employees receive after all deductions. Ensure accurate calculations to avoid discrepancies and keep employees payroll taxes up to date with Withholdings and State Mandated Regulations.

Payroll Schedule

Establish a regular payroll schedule, whether it's weekly, bi-weekly, or monthly. Consistency is crucial for employee financial planning.

Payroll Taxes

Small businesses are responsible for withholding and remitting various taxes. This includes:

federal income tax
Social Security tax
Medicare tax
applicable state and local taxes.

Record Keeping

Maintain thorough records of payroll transactions, including:

pay stubs
tax forms
evidence of tax payments

This documentation is essential for audits and compliance.

Compliance with Regulations

Stay informed about federal, state, and local labor laws to ensure compliance. Changes in regulations may impact minimum wage, overtime rules, and tax rates.

Utilize Payroll Software

Consider using payroll software, like Gusto, to streamline the process. These tools automate calculations, tax filings, and generate reports, saving time and reducing errors. As part of our commitment to providing comprehensive solutions, GrowthLab recommends Gusto – a user-friendly payroll platform. With Gusto, you can automate payroll processes, manage tax filings, and ensure compliance effortlessly. Our PAS integrates seamlessly with Gusto, offering you an easy experience in managing your payroll functions.

Employee Benefits Administration

If offering benefits, manage contributions, enrollments, and ensure compliance with regulations such as the Affordable Care Act (ACA).

Year-End Reporting

Prepare and submit required year-end reports, including W-2 forms for employees and 1099 forms for contractors.

Maximize Your Team's Potential.

Our People Advisory Services Can Help.

Payroll & Benefits Management

Compensation & Staff Planning

Regular, In-depth Advisory Consultations

Hassle-Free People Operations Technology

How GrowthLab's People Advisory Services can Help

Navigating through the intricacies of payroll setup can be daunting, but with GrowthLab's People Advisory Services, you have a trusted partner by your side. Our team of experts will guide you through each step, offering personalized assistance based on your business needs. From gathering necessary employee information to setting up a foolproof payroll system, we've got you covered. We understand that every business is unique.

We understand that every business is unique. That's why our People Advisory Services are tailored to meet the specific needs of your organization. Whether you're a startup or an established small business, our experts will work closely with you to create a payroll setup that aligns with your goals and ensures smooth operations.

Key Takeaways

Compliance is Critical: Proper payroll management ensures adherence to labor laws and tax regulations, preventing costly penalties.

Accuracy Drives Morale: Timely and correct compensation is a primary factor in employee satisfaction and workplace culture.

Essential Components: Setting up payroll requires careful employee classification, tax withholding calculations, and consistent record-keeping.

Automation Saves Time: Using platforms like Gusto streamlines tax filings and reduces manual calculation errors.

Expert Support: GrowthLab’s People Advisory Services (PAS) offers tailored guidance to align payroll systems with specific business goals.

Abigail Church

Frequently Asked Questions

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As a Small Business Should I Offer 401K for my Employees?

Wed, 10 Jan 2024 20:51:07 GMT

Should I Offer 401K for my Employees as a Small Business?

Navigating the landscape of employee benefits and payroll management is a significant challenge for small businesses. A critical decision in this journey is whether to offer a 401k plan. While not mandatory for all, offering a 401k can bring numerous advantages, including tax benefits and enhanced employee retention. This blog explores the benefits of offering a 401k plan for your small business and how GrowthLab’s People Advisory Services can support you in this endeavor, along with managing other aspects like payroll for small businesses.

What is a 401K?

A 401(k) is a type of retirement savings plan offered by employers in the United States, allowing employees to contribute a portion of their pre-tax earnings to an investment account. These contributions are deducted from their paycheck before taxes are applied, potentially reducing their current taxable income.

Benefits of a 401k

Tax Benefits

One of the most compelling reasons for a small business to offer a 401k plan is the tax advantages it provides. Employers can benefit from tax deductions on contributions made to the plan. For instance, if your business matches employee contributions, these contributions are typically tax-deductible, reducing your taxable income.

Additionally, small businesses can leverage the "Credit for Small Employer Pension Plan Startup Costs" to claim a tax credit for the costs of setting up a 401k plan. This credit can cover up to 50% of the costs, with a maximum of $500 per year, for the first three years of the plan. This incentive is designed to make it more affordable for small businesses to offer retirement benefits.

Employees also benefit as contributions to a 401k plan are made pre-tax. This reduces their taxable income, leading to potential tax savings. Furthermore, the funds in the 401k grow tax-deferred, meaning employees won't pay taxes on the earnings until they withdraw the money, typically during retirement when they may be in a lower tax bracket.

Things to consider when offering a 401K

Budget and Cost

While the benefits of offering a 401k are clear, small businesses must carefully consider their budget and the associated costs. The costs of administering a 401k plan can vary based on the provider and the specific features of the plan. It's important to compare different providers and plans to find one that aligns with your financial capabilities and business needs.

Providers like Human Interest offer a range of plans with varying levels of features and costs, allowing businesses to choose an option that fits their budget. When evaluating plans, consider factors like setup fees, annual fees, per-employee fees, and investment management fees. Some providers offer lower-cost options with automated features, which can be a cost-effective solution for small businesses.

Legality

Offering a 401k plan comes with legal obligations and compliance requirements. Small businesses must ensure that their plan adheres to the regulations set forth by the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Service (IRS).

Key compliance aspects include conducting non-discrimination tests to ensure the plan doesn't favor highly compensated employees, setting up a trust for the plan's assets, and providing plan information to participants. Failing to comply with these regulations can result in penalties and legal issues.

It's advisable to seek guidance from financial advisors or benefit consultants to navigate these legal complexities. They can assist in ensuring that your plan complies with all relevant laws and regulations, and help you understand your fiduciary responsibilities.

What is People Advisory?

GrowthLab's People Advisory gives you confidence while helping navigate through tough decisions, protecting and growing your team, and managing culture in a changing environment.

How GrowthLab can support you with offering a 401K

At GrowthLab, we understand the importance of choosing the right 401k provider and payroll management solutions for your unique needs. Our People Advisory Services Team is dedicated to guiding small businesses in making strategic decisions, continuously growing your team, and managing culture in a changing environment.

Connecting with the Right Providers

We collaborate with top-tier providers like Gusto , Human Interest , and Guideline to ensure comprehensive retirement benefits and efficient payroll management for small businesses. Our team brings expertise to facilitate a smooth transition and enrollment process in 401k plans and payroll setup.

Comprehensive Payroll Solutions

Understanding how to ru n payroll, how to pay employees in a small business, and how to do payroll yourself are crucial aspects of business management. Our services include guidance on how to set up payroll for small business and how to do payroll for small business, ensuring compliance and efficiency.

Offering a 401(k) plan and managing payroll effectively are strategic decisions for small businesses. They provide tax benefits, serve as recruitment tools, and demonstrate care and loyalty to your employees. While considerations such as budget and legality are important, GrowthLab is here to support you in navigating these complexities. We aim to empower your small business with the tools needed to secure a prosperous financial future for both you and your employees.

Maximize Your Team's Potential.

Our People Advisory Services Can Help.

Payroll & Benefits Management

Compensation & Staff Planning

Regular, In-depth Advisory Consultations

Hassle-Free People Operations Technology

Abigail Church

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Cash vs Accrual Accounting: Which is Better for Your Business?

Thu, 31 Aug 2023 18:54:08 GMT

Cash vs Accrual Accounting

Cash and accrual accounting are two types of financial reporting methods, and their difference lies mainly in how they recognize revenue and expenses. Cash accounting records revenue and expenses when a payment is made or received, while accrual accounting records them when they have been earned or incurred.

What is Accrual Basis Accounting?

Accrual accounting records revenues and expenses as they are incurred. This is important from a sales reporting perspective because as a client may not collect on all of their sales as they happen, and they can gain a history and reporting of their sales when they happened, as opposed to when their customer ends up paying. This approach provides a more comprehensive view of an organization's financial position by reflecting the complete financial picture, including transactions that have been initiated but not yet settled. Financial statements, such as the income statement and balance sheet, are based on accrual accounting and provide a comprehensive overview of an organization's operations and financial standing.

Pros of Accrual Accounting

At GrowthLab we recognize the many pros of accrual accounting and how they benefit our customers that partake in Accrual Accounting. Using accrual accounting insights, you can keep tabs on your business’ financial health and stay in forward motion. You can make predictions about the value, growth, and potential revenue of the business.

Accurate Financial Picture

Accrual accounting provides a more accurate representation of a company's financial health and performance. It shows the reality of transactions, showing income and expenses when they are earned or incurred, rather than when cash changes hands. This gives a better sense of a company's profitability and financial position.

Long-Term Financial Planning

Accrual accounting allows businesses to better plan for the long term. Since it captures both current and future obligations, it helps businesses anticipate upcoming expenses and liabilities. This aids in making informed decisions regarding investments, loans, and other financial commitments.

Cons of Accrual Accounting

Though we appreciate accrual accounting as anything it has some cons. It can be hard for some small business owners to use and has some other challenges that a business may come by.

Challenging to Understand

It can be challenging for some businesses to use accrual accounting because it is not as straightforward as cash accounting may have been for one's company considering there are more rules and operations to go along with. There is also more future planning that goes into accrual accounting.

Hard to Switch Over

Some may also find themselves having a hard time switching to accrual accounting after using cash or other forms accounting for a while, it can be especially hard when having cash flow issues from previous ways.

What is Cash Basis Accounting?

Many of our small business clients use cash accounting, where revenues and expenses are recorded as cash is exchanged. Cash accounting is more straightforward and works best for businesses with simpler operations Cash accounting records revenue and expenses when a payment is made or received, while accrual accounting records them when they have been earned or incurred. This can have significant implications for business finance and reporting.

Pros of Cash Accounting

As many businesses still use cash accounting today, there are many pros to cash accounting specifically for those smaller businesses.

Easy to Use

Cash accounting is an easy method of accounting, it can be easier to navigate and for a business to maintain especially those that are small. A business does not have to do as much planning with cash accounting either which leaves space for other tasks.

Clear View of Current Funds

Cash accounting lets your business easily understand how much funds you have in the present. It gives you an accurate statement which resembles exactly what you have in your business hand at the moment. This can be very convenient for a business.

Cons of Cash Accounting

Though cash accounting can be easier, it has some downsides especially for those with larger business.

Skewed Representation

Cash accounting does not account for transactions that have been initiated but not yet completed, potentially leading to a skewed representation of an organization's financial health. This can leave many businesses blind to how future finances will look, having a negative effect on the business.

You Can’t Always use Cash

Cash accounting does not show the full reality of your finances either, which can have an impact on a business. Not all businesses can use cash accounting as well in certain circumstances.

Y ou cannot use the cash method if your business:

Maintains inventory
Is structured as a corporation
Has gross receipts in excess of $26 million per year

Which Method Should My Business Use

Large corporations often rely on accrual accounting to present a comprehensive view of their financial activities, while small businesses and individuals may opt for cash accounting due to its simplicity and immediate insights into cash flow.

The decision between cash and accrual accounting depends on various factors including the nature of your business, its size, industry practices, tax implications, and your long-term financial goals.

Whichever feels best for your business and circumstances is what you should follow because both can provide benefits for a business.

It's recom mended to consult with an accountant or financial advisor who understands your specific business situation. They can provide personalized advice based on your goals and circumstances to help you make the best decision for your business.

Accounting Pricing

Dan Gertrudes

Frequently Asked Questions

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Understanding Business Entities: A Guide for Business Owners

Thu, 03 Aug 2023 20:09:40 GMT

Understanding Business Entities: A Guide for Small Business Owners

Hey small business owners, let's dive into the exciting world of business entities. Learn why choosing the right business structure is crucial for success.

What is a Business Entity?

A business entity forms the legal and financial foundation of your operations, much like the foundation of a building. Let's explore the different types of business entities available to you.

Sole Proprietorship

Partnership

Corporation

LLC

Sole Proprietorship:

Discover the simplest and most common form of business structure. Learn about the benefits and risks of this ownership type, including unlimited personal liability.

Partnership:

Explore the advantages of a partnership when you're not the sole owner of a business. Understand the responsibilities, profit sharing, and liability implications of both general and limited partnerships.

Corporation:

Uncover the benefits of forming a corporation as a separate legal entity. Learn how this structure provides limited liability protection for shareholders and enhanced access to capital.

Limited Liability Company (LLC):

Discover the hybrid structure of an LLC, combining partnership and corporation characteristics. Learn about the flexibility of management and taxation it offers, along with the protection of limited liability.

Which Entity is Right for My Business?

Are you unsure which business entity best suits your needs? Consider the following factors when making your decision:

Liability: Learn how forming a corporation or LLC can shield your personal assets from business debts and obligations, minimizing personal liability.
Taxes and Flexibility: Understand the tax implications specific to each entity type. Explore the differences between sole proprietors, partnerships, corporations, and LLCs, and choose an option that aligns with your desired tax structure and paperwork level.
Growth and Funding: Discover why a corporation may be the ideal choice if you plan to expand your business and attract investors. Learn how issuing stocks can raise capital and make your business more attractive to potential investors.
Consultation and Making the Best Choice: Seek personalized advice from experienced accountants who can guide you through the legal aspects of choosing a business entity. Their expertise will ensure you make an informed decision specific to your unique circumstances.

Conclusion

Picking the right business entity is crucial for setting up your venture for success. Take the time to conduct thorough research, weigh the pros and cons, and choose an entity aligned with your goals. May your business thrive on your entrepreneurial journey!

Dan Gertrudes

Frequently Asked Questions

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4 Profit First Accounting Strategies for your New Business

Wed, 21 Jun 2023 13:57:32 GMT

Profit First Accounting Strategies for your New Business

If your company or you are a follower of the Profit First strategy, congratulations are in order! You’re already ahead of the game. But here’s the catch-22: your bookkeeping is a mess, your accountants are pulling their hair out, and worst of all, you’re losing more money than you’d like to admit.

So, why is your balance sheet a sh*t show?

Well it all goes back to the concept of “Money is Fungible”, which means that it can be used interchangeably. This is great for so me things, like paying bills or making investments. But when it comes to tracking your finances , it can be a real problem.

What are Profit First Strategies?

If you're not already implementing Profit First Strategies, you may be wondering what they are. These are specific strategies that businesses use to separate their profits from their expenses. By implementing these strategies, you can create a clear separation between your money and your expenses, which makes it easier to track your finances and maximize your profits.

Now for many Profit First focused companies, they will light up and fund 5 or 6 different bank accounts to help delineate cash by financial purpose. Well, that means a small company making $2 million per year in revenue has to reconcile 6 different bank accounts. Surely it isn’t a lot of work until it is or worse yet, when you go to finally outsource your bookkeeping and accounting, it becomes expensive. Let’s not forget also that if you don’t reconcile, there’s a greater risk of fraud and a sloppy balance sheet.

What Profit First Strategies Should I Use?

There are several Profit First strategies that you can implement to keep your balance sheets organized.

Set up Separate Bank Accounts

Percentage-based Allocations

Use

Automation

Monitor your Cashflow Regularly

1) Set up separate bank accounts for different purposes. For example, create an income account, a profit account and an expense account.

2) Use percentage-based allocations. Allocate a certain percentage of your income to each account. For example, allocate 50% of your income to your expense account, 30% to your profit account and 20% to your tax account.

3) Use automation. Automate your accounts by setting up recurring transfers or automated payments for expenses. This will help ensure that you stay on track with your allocated percentages.

4) Monitor your cashflow regularly. Keep a close eye on your cashflow to ensure that you are keeping up with your profit accounts and not overspending from your expense account.

By implementing these strategies, you can keep your balance sheets organized and help ensure that you are staying profitable.

How Do I Organize My Balance Sheet?

We recommend using classes or balance sheet chart of accounts to segregate your Profit First strategies. This means assigning specific accounts to specific strategies, such as separating your profits from your operating expenses, or designating a “tax” account for any future payments you’ll need to make.

By codifying your cash in this way, you’ll be able to better monitor and manage your finances, saving both time and money in the long run. Plus, it makes things much easier for your accountants and other financial professionals who need to review your balance sheets or make recommendations.

What does this mean?

Classes:
Using Classes can ensure each of your products or services have their own profit and loss statements, allowing you to identify which items are profitable and which aren’t.

Balance Sheet Chart of Accounts:
Using this enables you to separate everything from revenue streams, to expenses to liabilities, which can help you gain a deeper understanding of your cash flow and financial standing.

Ultimately, whether you choose to use classes, codes, or charts of accounts, the key is to ensure everything is organized and harmonizes with the Profit First division All in all, if you’re a Profit First company struggling to keep your finances in check, consider implementing some Profit First Strategies and segregating your account accordingly. Your balance sheets (and your wallet) will thank you. To understand more about profit finance read here .

Key Takeaways

Prioritize Profit: The Profit First method ensures profitability by allocating income to specific accounts before paying expenses.
Organize via Accounting: Instead of just opening multiple bank accounts, use "Classes" or a "Balance Sheet Chart of Accounts" to segregate funds.
Prevent Fraud: Regular reconciliation of all accounts is necessary to maintain a clean balance sheet and reduce financial risk.
Leverage Automation: Use recurring transfers and automated payments to maintain your allocation percentages without manual effort.

Dan Gertrudes

Frequently Asked Questions

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Bookkeeping Basics for Small Business Owners

Thu, 08 Jun 2023 15:59:36 GMT

Bookkeeping Basics for Small Businesses

Are you ready to dive into the wonderful world of bookkeeping for small business owners? Buckle up, because it’s going to be a wild ride.

Keep paperwork for asset purchases

Remember that time you impulsively bought a giant espresso machine for your cozy café and didn’t save the receipt? Bad move.

Assets like equipment, real estate, and vehicles are big investments. Allways keep the paperwork and submit digital copies to your GrowthLab bookkeeper. Future-you will be very grateful.

Give your bookkeeper read-only access

Think of this like giving your bookkeeper a spare key so they can tidy up without interrupting you. With read-only access to your financial accounts, they can pull invoices and transactions directly. And yes… they might see that late-night inflatable unicorn pool float purchase. Don’t worry, it’s a judgment-free zone.

And let’s not forget an accounting rule as old as time: debits should always equal credits. In bookkeeping, this means that every transaction needs to have an equal and opposite reaction. It’s like Newton’s Third Law but with less physics and more spreadsheets. But don’t worry, we’ll take care of this part.

Categorize transactions correctly for tax purposes

Did you know that cat food isn’t a legitimate business expense unless you own a cat cafe (Honestly, that would be awesome). But seriously, tax season is no joke, and categorizing your transactions can save you from potential IRS woes. Plus, it’s also a chance for you to get creative with your business acumen. After all, who says buying donuts for the office isn’t a marketing expense? (definitely not the marketing team)!

What to Record in your Books as a Small Business:

1. Keep track of what the purchase was.

Record what you spent money on so you understand where your cash is actually going. (Maybe skip t he frivolous online shopping for now).

2. Keep track of where you purchased it from.

Don’t be ashamed to admit it – sometimes, you might forget where you bought something from (we won’t tell anyone). But when it comes to tracking your business expenses, it’s important to remember the vendor or store you made the purchase from. Trust us, it’ll save you from some awkward emails in the future.

3. How much did it cost?

Okay, we know that keeping track of expenses isn’t everyone’s favorite hobby, but it’s necessary if you want to keep your eyes on the prize– earning more money. Knowing how much you spend on each purchase will help you track your spending against your budget, and help you stay on target with your financial goal.

4. When was the purchase made?

You might not be a time traveler, but it’s important to record the date and time of your business purchases. This information will come in handy when you need to track your monthly expenses or determine your tax reductions.

5. What category does it land on?

Keep your bookkeeping organized by categorizing each purchase. It might seem tedious, but it’ll make your accountant and future self thank you. Plus, when you come across that one mysterious receipt from last year, you’ll know exactly what category it belongs to (spoiler alert: it’s probably office supplies).

And there ya have it– five simple steps to keep your books in order. Have fun spending…, we mean, recording!

Key Takeaways

Document All Assets: Maintain digital receipts and paperwork for major purchases like equipment, vehicles, and real estate.
Streamline Access: Provide bookkeepers with read-only access to financial accounts to automate data collection.
Maintain Balance: Follow the double-entry rule where debits must always equal credits to ensure financial accuracy.
Categorize for Taxes: Accurately label every transaction to maximize legitimate business deductions and remain IRS-compliant.
Record Five Essentials: For every purchase, track the description, vendor, cost, date, and expense category.

These bookkeeping basics may be daunting, but they’re essential. Remember, it’s like cleaning the pipes to ensure your business runs smoothly. Who knows, you might just impress your CPA and secure a spot on the accounting honor roll.

Here's What We Can Do For You

Interested in Tax Support? Contact GrowthLab today!

Frequently Asked Questions About Bookkeeping for Small Businesses

Dan Gertrudes

Other Blogs Related to Small Business Accounting

Quarterly Tax Calculator

Wed, 31 May 2023 14:55:12 GMT

Estimated Quarterly Tax Calculator

Are you a business owner struggling to stay on top of quarterly tax filings? Gone are the days of stress and confusion over how much to pay and when. With GrowthLab’s quarterly tax calculator, you’ll be able to better navigate the financial seas like a seasoned pro (or at least someone who’s really good at Googling tax-related questions). So whip out your calculator or open up your spreadsheet, grab your coffee, and let’s quickly tackle these taxes, one quarter at a time!

*disclaimer this ONLY for estimation purposes. this should not be used as a final tool to pay your taxes with. and someone should always consult with their tax professional*

How does our Quarterly Tax Calculator Work?

Our quarterly tax calculator is designed to turn complex calculations into simple inputs, so you can get a ballpark estimate for your tax bill in seconds . By breaking down each key input, from income to expenses and beyond, we help you better understand exactly what goes into financial results. So why stress about the numbers?

What are Quarterly Taxes & Who Owes Them?

Quarterly taxes are payments made by self-employed individuals or business owners to the IRS four times per year. This is a way for individuals or businesses to pre-pay a portion of their taxes so they don't have to pay a large lump sum at the end of the year.

Generally, any self employed individual or business that expects to owe more than $1,000 in taxes for the year will need to make quarterly tax payments.

What are the Quarterly Tax Due Dates?

Click to see the due dates for quarterly tax payments .

How do I Pay my Quarterly Taxes?

Paying your quarterly taxes is simple and can be done in three steps:

Visit IRS.gov and click on the “Pay” button.
Choose a bank account, debit, or credit.

3. Select a payment for estimated tax when prompted by the IRS.

What Doesn’t the Tax Calculator Include?

Tax Credits

At times, tax credits may be based on your personal circumstances. For example,

Had a baby
Bought a home
Went to school

To provide you with the most accurate results, we would need to inquire more information from you. However, for the ease of use and speedy calculations, we’ve left them out of our tool. If you’d like additional help, you can contact us!

*disclaimer this ONLY for estimation purposes. This should not be used as a final tool to pay your taxes with. You should consult with your tax professional*

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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Five Accounting Basics for Small Business Owners

Fri, 26 May 2023 15:13:06 GMT

5 Accounting Basics for Small Business Owners

Hey there, small business owners, it’s time to learn about accounting basics ! As we all know, accounting can be an overwhelming and oftentimes a boring task. However, it’s definitely not something that can be ignored if you want your business to be successful. We’ve narrowed down five basic principles that all business owners should follow.

1. Keep your business and personal finances separate

Your accountant may be a superhero, but they can’t work magic, so try to keep your personal funds out of your business transactions. This one might seem like a no-brainer, but when it comes to accounting, cash is the worst kind of payment method since there’s no proper record of the transaction.

2. If you do use cash, keep your receipts

There’s nothing worse than having a business expense and not being able to prove it. This means lost money and frustration for both yourself and your accountant. If you have digital receipts, create a folder for all of the pdfs so they don’t get lost in your hard drive, and remember to always save those pesky pieces of paper.

3. Incorporate into a formal business

Doing this is like getting a stylish new pair of glasses – it makes your vision clearer..legally-speaking. Incorporating your business helps to clarify your business vision, goals, and legal obligations in a formal way. This way, you can focus more on the growth of the business rather than worrying about legalities.

4. Learn to read your financial statements
This means you need to be able to glance at a balance sheet , income statement, or cash flow statement in order to make informed choices. This ability also allows you to understand your hiring , cash flow around large business purchases, and the need to downsize or grow. Don’t be afraid to use your resources or ask for help if you need it!

5. Know your AR (accounts receivable) & get invoices paid!

This way, you won’t be left wondering if your clients owe you money or not. Collecting past dues from clients is a struggle all business owners face, and there’s no secret to getting them to pay up. However, maintaining good communication and reminders can make all the difference. Learn how we helped this company with accounting .

There ya have it - five accounting basics for all you small business owners out there. Remember, don’t let accounting be a bore - embrace it and your business will thank you!

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6 Things you Should do to Prepare for Your Taxes

Thu, 16 Feb 2023 15:49:34 GMT

6 Things you Should do to Prepare for 2024 Taxes

As a business owner, you may be overwhelmed by tax season. After all, the process of preparing your return can be tedious and time consuming. The good news is it doesn’t have to be. There are several strategies that can help you prepare for your 2022 taxes and take some stress on your plate.

1. Hire the Right Professional

While you can do your taxes yourself, it’s in your best interest to hire a professional. With a CPA or other tax pro by your side, you can simplify the tax process and minimize your tax burden. An experienced, highly knowledgeable tax pro can work with you throughout the year to keep an eye on cash flow and monitor profits. Once it comes time to file your tax return, they may help you maximize the deductions and credits you qualify for. The right tax professional will almost always pay for themselves.

2. Determine Which Deductions You’re Eligible For

A tax deduction is an amount you may deduct from your taxable income to lower the amount of taxes that you owe. The reality is many small business owners don’t claim all of the deductions that apply to them because they are simply unaware of them or lack the appropriate records to prove they qualify for them. Be sure to do your research and work with a professional to familiarize yourself with all the deductions that make sense for your business. Here are several examples of deductions you might be eligible for:

Legal and Professional Expenses: This refers to any money you pay to lawyers, accountants, tax advisors, and other professionals that assist with various business-related initiatives.
Advertising Expenses: Advertising expenses may include but are not limited to website development, travel to trade shows and conferences, social media ads, and billboards.
Property Expenses: Property deductions are expenses related to any building or space you use for business purposes. Keep in mind that you can’t deduct land and investment properties.
Home Office Expenses: If you run your business out of your home, you may be able to write off a percentage of your mortgage or rent payment as well as some utility costs. Note that you’ll need to document the dimensions of your office.
Vehicle and Mileage Expenses: Do you use a car, truck, van, or other vehicle to do business? If so, you may be able to deduct mileage from your taxes. It’s a good idea to track your mileage throughout the year.
Equipment Expenses: Any type of business-related equipment like a computer, bulldozer, or machine that will last longer than one year is tax-deductible.
Charitable Contributions: If your business donates to charity, you may qualify for a charitable contributions deduction. The caveat is that your donation must be documented correctly.
Retirement Expenses: You can deduct any contributions you make into a tax-deductible retirement plan. A few examples of these types of plans include a 401(k), 403(b), and Simple IRA.
Startup Expenses: If you launched your business in 2022, you may be able to deduct various startup expenses that the IRS considers capital expenses.

3. Take Advantage of Tax Credits

Tax credits can reduce your tax bill, dollar for dollar. If possible, claim a credit rather than a deduction as a credit will usually lead to greater savings. Some of the most common credits for business owners include:

Work Opportunity Tax Credit (WOTC): You may qualify for the WOTC if any of your employees are a part of a group that has faced employment barriers. Targeted groups may be disabled individuals, ex-felons, and veterans.
Employer-Provided Childcare Facilities and Services Credit: If you offer childcare facilities on-site or have a contract with an outside provider, you’re eligible for this tax credit. It’s worth 25% of the amount you paid for child care expenditures and 10% of the amount you paid to provide childcare resources to employees.
Small Employer Health Insurance Premiums Credit: You may take this credit if you have less than 25 full-time employees, pay an average wage of less than $51,600 per year, pay at least half of your employees’ health insurance premiums, and purchase your plans via the Small Business Health Options Marketplace.
Research & Development Tax Credit - This tax credit is more complicated than the rest. For more information on the new changes to this law check out our blog on the change here .

4. Avoid Audit Traps

An IRS audit can be quite stressful so it’s important to do whatever you can to prevent one in the first place. To do so, be careful of how you classify your employees. Don’t classify them as independent contractors unless they truly are. Also, if you take the home office deduction, make sure you can prove your calculations. In addition, don’t deduct too much or the IRS may get suspicious. A qualified professional will ensure you’re completing

your tax return correctly so you can avoid any audits.

5. Understand Your Tax Filing Deadline

It’s important to understand when your business taxes are due. If you’re a sole proprietorship, single-member LLC, multi-member LLC taxed as a corporation, or corporation that ends your tax year on December 31, you must file by April 15, the same day personal taxes are due. In the event you’re a partnership, multi-member LLC, or S Corp, your tax filing deadline is March 15. Note that if March 15 or April 15 falls on a weekend or holiday, your deadline is the next business day.

6. Consider an Exte nsion

Life happens. If you get busy with other responsibilities, you don’t have to rush. You can file a business tax extension and give yourself some extra time to complete and file your small business tax returns. If you decide you do need an extension, you’ll need to submit an IRS extension form before your tax return due date. An extension can give you up to six additional months to take care of your taxes.

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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Interested in Tax Support? Contact GrowthLab today!

6 Small Business Accounting Tips to Keep Your Books Balanced

Sun, 12 Feb 2023 14:08:08 GMT

Small Business Accounting Tips to Keep Your Books Balanced

As a small business owner, it’s all too easy to let your accounting fall by the wayside. While it’s tedious and time consuming, accounting is essential to the success of your business. By maintaining balanced books, you can much more easily understand past financial performance - understanding where you made and lost money - opening up the door to better financial forecasting.

The reality is that the way you handle your accounting can make or break your business. Here are several of the most important small business accounting tips to keep your books balanced.

1. Keep Up with Receivables

While getting paid is exciting, managing receivables can be a daunting task. Instead of allowing all of your receivables to pile up, it’s important to keep track of them as they come. You don’t want to end up in a situation where you’re overwhelmed at tax time with countless customer deposits to reconcile, or even worse, no payment! Being proactive can save you a great deal of time, money, and hassle down the road. Remember.. revenue doesn’t always equal cash!

2. Create Cash Flow Statements

A cash flow statement can provide you with a comprehensive understanding of the cash that moves in and out of your business. If you create cash flow statements on a weekly or monthly basis, you’ll find it easier to anticipate expenses and allocate income more appropriately. Regular cash flow statements can also help you build financial trajectories .

3. Record Expense Receipts

Every time your business makes a purchase, you should record it. To do so without the hassle, you could try using one credit card for all business-related expenses. Another idea is to leverage a tool like Bill.com or Melio to manage vendor payments. You can also take photos of your receipts and store them in one designated location - we use Hubdoc or Bill.com. By keeping good track of your expenses, you won't be surprised or unsure about charges on your bank statement, and be able to prevent a number of cash flow, accounting, and tax issues.

4. Separate Personal and Business Accounts

Many small business owners use the same bank account and credit card for their business and personal needs. If you go this route, there’s a good chance you’ll overlook vital business transactions. Having a separate bank account for your personal and business accounts can make it far easier for you, your bookkeeper, and/or accountant in the long term to determine how you're spending your money. We also recommend having a second business credit card to keep those expenses separate from personal as well.

5. Invest in a Tax Professional

Nobody likes tax season, but we all have to pay taxes. While DIY tax preparation may seem like a good idea, it can actually cost you thousands of dollars down the road… if not more! Unless you’re a seasoned tax pro, you’re likely to miss a tax deduction or pay less or more in taxes than what you actually owe. Tax laws are ever-evolving and failing to keep up with them can lead to serious income taxes penalties. We’ve been focused on building out our tax team to support the growing needs of our customers . Give us a ring!

6. Communicate with Your Accountant and Bookkeeper Often

Even though you’re busy, make it a priority to keep in touch with your accounting team. View them as your trusted business advisors. Partners that can provide you with valuable tips and answers to questions you may have about taxes, cash flow, budgeting, etc. If they send you an email or document with a term you don’t understand, don’t be afraid to ask them what it means. Remember, knowledge is power!

Interested in a Small Business Accounting Services? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. We offer top-notch business accounting focused on your unique needs. You can trust us with:

Historical cleanup
Bill pay
Actuals-to-budget reporting
Grant accounting
1099 processing and filing

Key Takeaways

Separate Finances: Always use dedicated bank accounts and credit cards for business to avoid tax and tracking errors.
Be Proactive: Reconcile receivables and record expense receipts immediately to prevent cash flow surprises.
Use Tools: Leverage automation platforms like Bill.com or Hubdoc to manage vendor payments and receipt storage.
Professional Support: Invest in tax professionals and maintain frequent communication with your bookkeeper to ensure compliance and better forecasting.

Dan Gertrudes

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What is Grant Accounting

Fri, 10 Feb 2023 13:00:07 GMT

What is Grant Accounting?

If your organization depends on grants, grant accounting should be on your radar. It can help you track grant-related revenue and expenses so that you fulfill your mission and maintain excellent relationships with donors, stakeholders, and others who are important to you. Some people may call it nonprofit account, but this applies for non dilutive equity providers, university transfer office companies, SBIR grants (NIH, DOD, DOE, etc.), and other for profit organizations.

What Does a Grant Accountant Do?

A grant accountant can keep your organization and everyday operations running smoothly. They oversee grant activities and may perform a variety of tasks such as:

Create and enter budgets
Create financial statements
Entity level P&L
Grant or program level P&L
Assist with audits and assessments
Prepare invoices for reimbursable expenses
Payroll allocations by grant or program
Manage restricted and unrestricted funds
Reconcile grant projects and awards

The Application of Classes in Grant Accounting

You can assign each transaction in QuickBooks to a class to track revenue and expenses for a specific program regardless of the chart of accounts. With classes, you may have one set of general ledger accounts and separate by classes based on specific programs, grants, or donors.

This may result in a shorter, less complicated chart of accounts - without loss of the underlying detail. In addition, QuickBooks allows an option to set up a budget for each grant. QuickBooks adds ease and efficiency to the grant tracking process, but can not replace a solid grant accountant.

What Types of Reports are Required for Grant Reporting?

There are a number of reports that are required for grant reporting. These include:

Financial statements or financial reports - restricted versus unrestricted
Grant specific financial statements
Program level activities
Results and impact details
Future plans and sustainability

Dan Gertrudes

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Long Range Planning - Strategic Planning Tools

Wed, 08 Feb 2023 20:56:19 GMT

Long Range Planning

If you’re a small business owner, planning for your future is important. That’s where a long range plan comes in. No matter your industry, a long range plan can help you meet your long-term goals and reach your full potential. Let’s dive deeper into the ins and outs of long range planning so you can determine how it may apply to your unique business.

What is Long Range Planning?

Put simply, a long range plan is a roadmap that can help your business meet its growth goals. It usually spans a 3 to 5 year period and strives to align long-term objectives or a part of the mission statement with action plans. Depending on the main purpose of the long-range plan, it may have a fixed or rolling deadline.

A long range plan typically requires the support from various stakeholders in your business, such as those involved in finance , operations, sales, marketing, and manufacturing. All of these stakeholders work together to convert goals into an execution plan that allocates specific tasks to certain resources.

Long Range Planning vs. Strategic Planning

Strategic planning is a process your business may use to pinpoint long-term goals after you carefully evaluate where you’re at and where you hope to be in the future. The final strategic plan is typically made up of non-actionable goals. Long range planning is designed to turn the strategic plan into actionable steps that steer you toward success.

It helps execute strategic planning. While both strategic planning and long range term planning require a significant monetary and time investment, they’re often well worth it. As long as these initiatives are well thought out and properly implemented, they can lead to a variety of benefits for your business, such as goal achievement, growth, and employee satisfaction.

Key Elements in the Long-Range Planning Process

No two long range plans are created equal. After all, every business has their own unique goals and plans on how to meet them. However, most long range plans involve several important components including:

Mission: A mission statement explains your purpose and how you serve your customers, employees, and others.

Vision: You can think of a vision statement as the “why” of your business. It focuses on who you intend to be down the road.

SWOT Analysis: A SWOT analysis explores strengths, weaknesses, opportunities, and threats. It can help you determine what you can improve and what you should avoid.

Sales and Operational Goals: With a thorough understanding of sales and operational goals, you may identify initiatives or activities that boost revenue and profits to maximize performance.

How to Create a Long-Range Plan

There’s no set process for long range planning. Every business may have their own particular way of going about it. However, many organizations take all of or some of these steps:

Reflect on the Mission: First and foremost, it’s a good idea to meet with key stakeholders so you can discuss your mission and what it means to you. Let’s say your mission involves serving customers with environmentally friendly products. This can give your company something to focus on as you build a logical, long-range plan.
Create Actionable Goals: Once you choose the part of your mission you’d like to focus on, you can determine the actionable goals that cater to it as well as deadlines for each of them. The goals you set will serve as a backbone of your long-range plan. If your mission relates to green products, one of your goals may be to design green packaging to go along with them. Remember that your goals are not set in stone and sure to change or evolve over time.
Identify Operational Procedures: The next step is to come up with a plan that will enable your organization to achieve your goals by your desired deadlines. In most cases, your plan will begin at the leadership level and involve the CEO and management team. As soon as they decide how each individual department will contribute to the goals, team managers can create department focused operational plans to help meet them. In the green packaging example, the manufacturing team might have a plan to create the ideal prototypes while the marketing team’s plan is based on new social media or print marketing campaigns.
Adjust the Plan as Needed: A long range plan typically takes anywhere from 5 to 10 years to complete. Therefore, there’s a good chance it will require some revisions. If you notice changes in technology, supply chain, and customer demand, for example, don’t be afraid to adjust your plan accordingly. It’s in your best interest to schedule regular meetings to discuss progress and determine whether any modifications are necessary.

Best Long-Range Planning Tools

Although you don't need to have these tools to create a long-range plan. These tools will set you up for success.

LiveFlow

LiveFlow makes financial analysis and planning easy with automatic structured exports of your financial reports. If you're looking to build or update a model, but are not ready to move to a full planning platform, we recommend you start with Liveflow . Liveflow will automate the syncing of your QuickBooks data into Google Sheets following your monthly close process, making your modeling streamlined, accurate, and more efficient.

Jirav

When you're ready to move to a full-fledged modeling platform, one of the many options we like is Jirav. Their platform will help you create full financial forecasts for yourself or for your clients. Jirav will also support the reporting and dashboard visuals following the close of each month to help you deliver any analysis you may be looking for. On top of this, Jirav syncs with a handful of HR platforms to help pull in HR data that you may wish to use to structure your model.

Basis

Another full modeling platform we love is Basis. Basis not only syncs with your general ledger, but also has a ton of integrations within the HR, PEO, CRM and ERP space. This allows another level of business data to be imported in real time into your model for deep analysis. The output of this data within their reporting and dashboards allow for both financial and business analysis within the platform.

Bottom Line

If you’d like to ensure a successful future for your business or clients, long range planning is not an option... it’s a necessity. In fact, it may be just what you need to harness the power of your current strengths and resources and enjoy a thriving organization for years to come. Through critical thinking, sound strategy, and timely execution, you’ll be able to scale your venture and meet (or even exceed) your long-term goals.

Ryan Clifford

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What’s New for the R&D Tax Credit and Expenses

Mon, 06 Feb 2023 13:43:48 GMT

What is New for the R&D Tax Credit and Expenses

You may have heard of the Research & Development (R&D) or (R&E) Tax Credit before. It was a great way for startups that spend on product development to save money. Businesses could qualify with research activities such as, developing new/improving products or experimenting with new technologies/improving existing ones.

What’s Changed in the R&D Tax Law for 2022?

The Federal 2017 tax reform act enacted changes to Section 174 (Research and Experimental) applicable for tax years beginning after 2021. The 2017 tax reform act is effective for amounts paid or incurred in the tax years after December 31, 2021, to eliminate current-year deductibility of Research and Experimental (R&E) expenditures and software development costs.

The act requires companies to charge R&E expenditures to a capital account over five years. Expenditures performed outside the US are charged to a capital account over 15 years. Companies will still be permitted to take R&D credit for expenses incurred in the US. The net effect companies will lose deductions in the current year.

Prior to the passage of the Tax Cuts and Jobs Act in 2017, companies may have claimed IRS Section 174 (R&E) expenses as ordinary and necessary costs in the year expensed. The Act changed that rule. The overall value of R&D credit remains the same, but businesses must take longer to write off the expenses. If the research is abandoned after the company starts to take the amortization the company is not permitted to take the balance as a write-off in the year of abandonment.

2022 R&D Tax Example

The Tax is paid in the initial year. The losses of $900,000 are carryforward and only can be used when the company has a profit. There are specific net operating loss rules as to how much of the loss can be used in a profit year. The above example does not discuss State taxes.

R&D Expenses capitalized over 5 years, in year 1 the company can take only 10%, in year 6 the balance of 10%.

The threshold for state income taxes is whether and how a state conforms to the IRS Code. States begin the determination of State taxable income with federal taxable income generally done in three distinct ways, each of which brings in unique state income tax consequences. How a particular state adopts the IRS code directly affects the application of enacted federal changes to its taxable income computation.

In summary, in the initial year (possible ongoing) Companies will see higher taxable income in the current year. The results are that within six years the company breaks even. Effectively, the company is paying higher taxes upfront.

Unsure How to Navigate These Changes?

Reach out to us with any questions you may have about the R&D Tax Credit changes. Also, check out TaxTakers blog with more resources on how you can qualify for the R&D t ax credit. Once you determine if you qualify, you can apply for an R&D tax credit with the help of TaxTaker.

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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What is Reconciliation in Accounting

Wed, 01 Feb 2023 17:39:20 GMT

What is Reconciliation in Accounting?

Running a business can be exciting. However, there are some parts of it that may be a bit tedious and time consuming. Accounting reconciliation is one example. Since even one error in your accounting books can lead to inaccurate financial statements, poor cash flow management, and even an IRS audit, this process is important. Here’s everything you need to know about accounting reconciliation.

Also known as account reconciliation, accounting reconciliation is when you compare the numbers in an account with another financial record to confirm the balances match. The main goal of reconciliation in accounting is to catch errors in your journal entries and general ledger before they become serious problems. If you find that account balances don’t match, you’ll need to make some changes.

You may think of account reconciliation as proofreading for accounting. So what can you compare an account to? This depends on the account type and the nature of your business. You might compare an account to your credit card statements, bank statements, receipts, or similar records.

What Creates Reconciliation Discrepancies?

There are a number of reasons you my come across balances that don’t match, such as:

Mistakes

We’re all human beings that make mistakes so you should expect them from time to time. An employee in the finance department may have manually entered the amount incorrectly, for example. Or the bank might have made a mistake that is outside of your control. By reconciling accounts, you can catch these mistakes early on.

Missing Data

In a perfect world, every transaction would get entered. However, this is unlikely as transactions may fall through the cracks and cause discrepancies. Account reconciliation can prevent issues related to missing data.

Timing Differences

Most deposits don’t appear automatically. If you make a deposit, it might take a few days for it to show up in your bank account. This timing difference can lead to mismatching balances.

Fraud

Unfortunately, fraud is more common today than ever before. The good news is routine account reconciliation can help you pinpoint fraud right off the bat, before it turns into a more significant issue.

Types of Reconciliation

There are different types of account reconciliation your business may perform, including:

Bank Reconciliation

Bank reconciliation is the most common type of reconciliation that allows you to double check your bookkeeping. It's where you compare your internal bank transaction values with bank statements. It can help you evaluate how you’re doing from a cash flow standpoint. Let’s say you’re ABC Business and recorded an ending balance of $250,000. If your bank statement shows an ending balance of $300,000, you have a discrepancy and some investigating to do.

Payroll Reconciliation

Payroll reconciliation is when you verify your payroll register with the amount you plan to pay out to your employees. If you have employees, it will ensure you pay them correctly so you can avoid issues such as upset employees and potential fines and penalties. You’re familiar with your payroll so if your last payroll run was $6,000 and it’s a $10,000 pay period, there’s likely an issue.

Clearing Account Reconciliation

Also known as a wash account or cash clearing account, a cash clearing account is an account you use to transfer money from one account to another account when you can’t move the funds directly. It’s best to reconcile these accounts automatically rather than manually.

Vendor Reconciliation

If your business works with vendors, vendor reconciliation is important. It lets you compare vendor invoices with your actual expenses. Through vendor reconciliation, you can streamline invoice processing, avoid payment errors, improve invoice tracking, and faster reporting and auditing.

Customer Reconciliation

Does your business offer credit terms to your customers? If so, customer reconciliation is essential. It compares outstanding customer balances or bills to the entered account receivable in your general ledger. In most cases, customer reconciliation is performed at the month-end before monthly financial statements are issued.

Inter-company Reconciliation

Depending on the setup of your business, intercompany reconciliation may be important. It verifies transactions that occur between two units or subsidiaries of the same parent company. One company's debt should match the credit in another.

Goals of Accounting Reconciliation

There are many reasons your business should reconcile accounts. By doing so, you can reduce the risk of overspending, stop fraud, and create accurate financial statements . With flawed financial statements, which are supposed to show your profits and losses, assets and liabilities, cash flow, and other aspects of your financial health, you may have trouble making smart, data driven decisions, and securing financing. Read about how we helped these companies with accounting .

How Often Should You Reconcile Accounts?

You can choose how often you’d like to reconcile your accounts as there is no hard and fast rule. However, it’s in your best interest to do so on a regular basis. This may be daily, monthly, semiannually, or annually. It’s up to you and what you believe makes the most sense for your particular business. If you don’t have the time or internal resources to commit to accounting reconciliation, outsourcing may be worthwhile.

Key Takeaways

Definition: Reconciliation is the process of comparing internal financial records against external statements to ensure balances match.
Error Detection: It identifies discrepancies caused by human error, missing data, timing differences, or fraud.
Core Types: Common methods include bank, payroll, vendor, customer, and inter-company reconciliation.
Frequency: While there is no fixed rule, regular reconciliation (daily or monthly) is vital for maintaining accurate financial health.
Business Value: Accurate reconciliation prevents IRS audits, improves cash flow management, and supports data-driven decision-making.

Dan Gertrudes

Frequently Asked Questions

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What Does a Controller Do

Tue, 01 Nov 2022 18:42:22 GMT

What Do Controllers Do?

As a business owner, there’s a good chance you wonder if your accounting and bookkeeping are correct. You might also ask yourself if your bank reconciliations are up to date or whether your balance sheet is an accurate reflection of the state of your business. In addition, you may have an occasional fear that someone is stealing from the business you worked so hard to build.

With a controller by your side, you can answer all of these questions, ease your concerns, and gain some much needed peace of mind. So what is a controller and what do they do? Keep reading to find out so you can determine whether this type of professional makes sense for your unique organization.

Roles and Responsibilities of a Controller

Put simply, a controller oversees the accounting functions of a business. They're managerial level professionals who design and supervise the processes for recording a company’s finances. Plus, they confirm that all data is accurate, on an accrual basis, and submitted in a timely, efficient manner. While the roles and responsibilities of a controller vary, they typically involve:

Leadership: Controllers focus on mentoring and managing accounting, bookkeeping, and financial teams.
Cash Flow Management: Cash flow management is monitoring and balancing cash flows in and out of a business to ensure all obligations are met and investments are optimized.
Audit Support: Controllers often work with external financial and tax auditors to provide them with the various types of documentation and information they need.
Internal Controls: This refers to creating and monitoring company policies and internal controls, such as spending controls to protect assets and reduce the risk of fraud.
Budgeting: Budgeting involves creating a budget from scratch using historical data or making sure the current budget is being followed.
Debt Management: Debt management often involves administering loan agreements and ensuring bank compliance.
Compliance: Controllers help ensure compliance with federal and local laws, provisions, and financial regulations.
Financial Strategy: Financial strategy allows controllers to create a clear roadmap for what a business is attempting to achieve financially.
Reporting and Analysis: Through the reports that controllers develop and analyze, businesses are able to make informed decisions that steer them toward success.
External Reporting: External reporting refers to preparing financial and tax statements, including public filings with the Securities and Exchange Commission (SEC).
Cost Savings: Controllers look for opportunities that allow businesses to save money and make the most out of their resources.
Communication: Managers, owners, founders, investors, and other key stakeholders meet with controllers regularly to review finances.

Does My Business Need a Controller?

Now that you know what a controller does, you may wonder if you need one. A controller might make sense if:

Your Business is Growing: If your business has expanded and your accountants and bookkeepers can no longer meet your needs, a controller is your best bet. This professional can help your growing company with complex transactions, enforce internal controls, and reduce errors and inefficiencies that can cost you time and money.

You Need to Meet GAAP Compliance: No matter your revenue size, a controller may be necessary to create financial statements that comply with GAAP. They can help you adhere to the requirements of investors, bankers, or venture capitalists.
Your CFO Has Too Much On Their Plate: It’s all too easy for a CFO to become overwhelmed. If you know your CFO is having a difficult time managing the accounting team while leading financial strategy, it may be time for a controller to take the load off them. A controller can take over supervising the accounting team and support the CFO’s forecasting and decision making efforts.
Your Business Earns More Than $5 Million: As a general rule of thumb, organizations with more than $5 million in revenue can benefit from the expertise of a controller. If your revenue is less than $5 million, a controller may still come in handy, depending on your circumstances.

Difference Between a Controller and a CFO

While the terms controller and CFO sometimes get used interchangeably, there are noteworthy differences between these two professionals. In general, a CFO works with external parties while controllers do more work behind the scenes. CFOs help key stakeholders make important financial decisions.

Controllers are responsible for the day-to-day management of accounting teams while ensuring accuracy and compliance. A day in the life of a CFO may consist of determining the best ways for a business to invest money, reviewing and comparing past and future finances, overseeing capital structure, and predicting future scenarios while analyzing the right direction for a company to succeed.

A controller, on the other hand, might spend their day supervising accounting operations, preparing timely and accurate reports, providing information to external auditors, and recommending ways to improve financial performance.

Reason to Outsource a Controller

If you’re a medium business, you might not be in a financial position to hire a full-time, in-house controller. The good news is you can outsource one. By doing so, you’ll only pay for the work you need, save money, and maximize your ROI. In most cases, you can scale up and down to meet the ebbs and flows of your business.
You might also want to outsource a controller if you’d like to supplement your existing financial team. A controller can come in and streamline processes while reducing inefficiencies and errors. Also, if you have an outsourced CFO, you can invest in an outsourced controller who may work with them to meet all of your needs. In addition, if you have a complex transaction, like a merger or acquisition coming up or would like to raise capital, outsourcing a controller is likely the way to go.

Key Takeaways

Core Function: Controllers oversee day-to-day accounting operations, ensuring data accuracy and GAAP compliance.
Strategic Value: They bridge the gap between bookkeepers and CFOs by managing cash flow, internal controls, and financial reporting.
Hiring Milestones: Businesses typically benefit from a controller when revenue exceeds $5 million or during periods of rapid scaling.
CFO vs. Controller: While a CFO focuses on external strategy and fundraising, a controller focuses on internal processes and financial integrity.
Outsourcing: Outsourced controllers offer a cost-effective way for medium-sized businesses to access executive-level oversight without a full-time salary.

Dan Gertrudes

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Scaling FP&A Advisory Starts with Productizing your Service

Fri, 04 Mar 2022 11:00:03 GMT

Scaling FP&A Advisory Begins with Productizing your Service

Do you want to add profitable monthly recurring advisory services to your accounting firm? Of course you do. But how? There are many different ways to do it. Here's how we do it at GrowthLab . We call it "Finance-as-a-Service, or "FaaS." We’ve built our FaaS framework by servicing our customers through cadence, rigor, and the team.

We purposely put the team in the third position to deemphasize the people aspect of our service. At the core of building a FaaS or sometimes referred to as CAS (Client Accounting Services) in the accounting industry, is your ability to have a fixed price fee for a fixed service level. This is also known as “productizing services.”

Productization is the framework by which service-based businesses delink time from value. Although I don’t want to get into the theoretical trade off of selling time versus value, my goal here is to help service-based industries like the accounting industry to begin to scale an FaaS practice inside of your firm.

`The Pillars of Productization: Cadence and Rigor`

The accounting profession figured out decades ago that bookkeeping and accounting could be productized because of the inherent framework that bookkeeping lends itself to… cadence and rigor of deliverables. Cadence is all about when the activity happens for example, bank reconciliations are completed by the 5th of the month so that a financial review can happen at the 10th of the month. Rigor is about what gets delivered consistently such as, actuals to budget report or a cash flow statement. So why is it so difficult for our industry to sell a perceived higher value human capital through a similar framework for advisory services? I believe the simple answer is a FaaS framework versus unstructured and ad hoc advisory.

If you can figure out the cadence, rigor, and the team to service the customer then you are on a path to productizing your advisory services. Therefore, your firm can now begin to sell your advisory services constantly and consistently, month in and month out, at a fixed price versus on an hourly basis. There are many advantages to moving from hourly to fixed price more importantly because it reduces credit risk due to AR exposure while also eliminating inefficiencies and cost in tracking time, invoicing, and collections.

`The Annual Strategic Business Cycle Framework`

We believe that in order to productize human capital and advisory services, you need to start with a framework grounded in cadence and rigor. At GrowthLab, we call our framework The Annual Strategic Business Cycle. We believe that business strategy is grounded in process and therefore can lend itself to an elevated repeatable framework that is the starting point for the industry to design their services. The framework helps define our customers needs, and more importantly when to deliver the value to meet those needs.

We’ve defined The Annual Strategic Business Cycle to be both short term and longer term in nature. So we start with the longer term view of the cycle which starts with company goals: GDP (Goal Deployment Plan), followed by the development of a longer range plan. Once the LRP is created we can then move on to the Annual Operating Plan (AOP). The first part of our framework essentially created the baseline or backdrop which is updated annually.

The second part of our framework is essentially the checks and balances needed throughout the year to measure and adjust operational strategy and execution to ensure your customer meets their annual and longer term goals. Below I have included an illustration of The Annual Strategic Business Cycle which includes cadence and deliverables.

The depth and breadth of your framework and therefore your productized service is adjusted based on the client profile including industry, size, complexity, and capital requirements. Once you’ve been able to define when to deliver and what to deliver on an annual and monthly basis, you can begin to understand the capabilities and capacity needed to design the team to meet the customers demands.

In closing, I return to my open comments, in order to scale an FP&A advisory practice you must productize services. Start with what you’re delivering and when you’re delivering it in order to scope out that monthly recurring service.

Key Takeaways

Productization: Shift from selling time to selling value by creating a fixed-price, fixed-service model.

Cadence & Rigor: Scale advisory by defining when activities happen and what consistently gets delivered.

Fixed Pricing: Moving to fixed fees reduces accounts receivable (AR) exposure and eliminates the overhead of time tracking.

Strategic Framework: Use a repeatable "Annual Strategic Business Cycle" to align services with client goals.

Ryan Clifford

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How to Start a Bookkeeping Business

Fri, 25 Feb 2022 13:00:03 GMT

Starting a Bookkeeping Business

If you're thinking about starting a bookkeeping business or a CFO business, you should start by hiring a couple of part-time or contract employees. This is a great way to dip your toes into managing people and starting to scale things on the HR side. In the bookkeeping business, there are three things that you need to have a core competency in:

Peopl e - It's all about people. You can use all the AI you want, maybe you have a tech stack, but you still need people to engage and interact with your customers.
Financial Management - Financial management starts with solid bookkeeping, good controllership, strong planning, and very thoughtful leadership around financial stress.
Digital Marketing

So start off by finding two or three people that are willing to work 10 to 15 hours a week, but don't hire them all at once, you should stagger your hires. For a while you are going to have to be knee-deep in the work, because you have to be. You will do your own business development, marketing, scoping engagement agreements, operations, and even the customer work and at the same time.

That is why you need to find people to leverage. In this business, we make money by leveraging. You start bringing in people that are at the controller level, a senior accounting manager level, and also at a bookkeeping level. When you learn how to optimize those people, that capability and the capacity will be needed to meet your customer's demands.

Find half a dozen customers and start there. Start bringing in one to two contractors or part-time employees, and start to figure out the marketing piece. You won’t be up to bat without a good website. It doesn't have to be a $50,000 website, but it does need to be a landing site. Start developing the content, the thought leadership, even if it means a little bit of fake it till you make it .

If you're thinking about starting any business, regardless of whether it is bookkeeping or any other startup, it is important to get the content out there at least six months before your official start date. Get a website out there, start talking to people in the industry that you can bring in and do not require too much training.

As you grow, you're going to have to start thinking about systems. Karbon is a great one, but there are alternatives, especially for a smaller practice. But having a workflow system in place is going to be of value for any bookkeeping business. Those are our tips for starting a bookkeeping business. But lastly, you have to find the customers.

Key Takeaways

Core Competencies: Success relies on mastering People, Financial Management, and Digital Marketing.
Strategic Hiring: Start with 2–3 part-time contractors to scale management skills before hiring full-time staff.
Early Marketing: Launch your website and content strategy at least six months before your official start date.
Systemization: Implement workflow software (like Karbon) early to manage deadlines and standardize client delivery.
Client Base: Target an initial group of 5–10 clients to stabilize revenue and refine your operations.

Dan Gertrudes

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5 Steps to Calculating Indirect Operating Cash Flow

Mon, 21 Feb 2022 13:00:02 GMT

Steps to Calculating Indirect Operating Cash Flow

Operating cash flow refers to the cash you produce from your operations and business activities. If you use the indirect method to calculate it, you begin with your net income and then begin to add on depreciation and/or changes in receivables and inventory. Most businesses and investors prefer it over the direct method, which shows the inflows and outflows of your bank account.

Operating Cash Flow Formula

Operating Cash Flow =

Net Income (Revenue – Cost of Sales)

+ Depreciation

+/- Change in Working Capital

+/- Non-cash Transactions

Five Steps you Need to Take to Calculate Indirect Operating Cash Flow:

Net Income

Calculate your net income, which is a simple measure of your revenues minus expenses, interest, and taxes. You can look at the accrual net income figures on your income statement to do so.

Non-Cash Expenses

Non-cash expenses do not involve a cash payment and reduce earnings rather than cash flow. These may include depreciation, amortization, or things like prepaid expenses. Take your non-cash expenses and add them back in.

Working Capital

Working capital is the money you have to meet your current, short-term obligations. It’s your current assets minus your current liabilities. Look at accounts receivable, inventory, accounts payable, and other changes in your working capital. This can give you an idea of how much of your cash flow differs from your net income.

Other Non-Cash Expenses or Customer Deposits

Include any customer deposits or other non-cash expenses that you did not account for on your income statement.

Operating Cash Flow

Now comes the tricky part. Use the formula and put everything together. Take your accrual net income plus depreciation and subtract your change in accounts receivable, change in inventory, and change in accounts payable. Then add any non-cash expenses and subtract any customer deposits. Learn ho we helped this company with inventory.

HOW WE CAN HELP

We offer a wide range of services to meet every type of businesses financial planning needs.

13-Week Cash Flow

Short-term cash flow is managed with a 13-week cash flow, which provides a structured method of reviewing all your vendor payments and customer receipts, week by week for the next 13 weeks.

Long-Range Model

Business modeling, or long-range planning, is the process of translating your operational road maps and targets into a 3-5 year financial projection. This most effectively helps you in communicating your goals and execution plans.

Budgeting

An Annual Operating Plan (AOP) is your budget grounded in the operational and financial plans of the business. Your AOP is your tool to provide real-time feedback and organizational alignment.

And much more...

Ryan Clifford

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What is Succession Planning

Fri, 18 Feb 2022 13:00:04 GMT

What is Succession Planning ?

Succession planning isn't just for those companies that have been around for 25 years.

Succession planning isn't about finding one of your siblings to sell your business to.

Succession planning is all about the exit.

Let’s say you started your company with that big why , you found a few customers, you started hiring employees, you started investing in property and equipment, marketing, and now you have arrived. Succession planning takes many different paths and journeys. What's important with succession planning is that it is just like starting a business. You start with that big why , and it is usually a good solid year to even come up with all of the components and the planning needed to start a business.

On the succession planning side, it does start with planning. You can’t wait twelve months before thinking of walking away from the business, you really should start your succession planning at least three years before.

With that said, succession planning doesn't actually have to mean outright selling the business. You could have two or three key employees that you could ultimately transition and sell out of your position in your business over a ten year period. That's very common in service-based businesses. Now, businesses that are capital intensive, that takes a whole other type of exit. It still starts with good solid succession planning. At least three years before, start thinking about the type of personas that you're going to be selling to. It also requires you double down on certain foundational items in your business like bookkeeping and accounting , like a three-year to five-year plan.

Think about the balance sheet . If you have too much debt on the balance sheet, debt tends to be an impediment to sell your business. You've got a ton of liens, you've got other stakeholders, it requires a different level of complexity when coming to planning and putting together an exit.

Top 3 Things to do Before Thinking of Selling Your Business:

Good bookkeeping, good accounting, and understanding the fundamentals of the balance sheet are important.
Secondly, just like any other business development where you're trying to sell something, you need to identify the segment in the market. Is it a good acquisition for your business?
Never forget about your people on your bench, your employees, your team . They're actually an intricate part of any succession plan, either direct or indirect, because you still have to retain them in order to make sure that they hang around when the deal gets done and the new owner comes in.

Dan Gertrudes

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What is Business Finance

Mon, 14 Feb 2022 19:27:13 GMT

What is Business Finance?

F inance means different things to different people. At GrowthLab, we like to think about business finance as the sources and uses of cash in your business. For example, take a look at the income statement. Most income statements that we see in small businesses are more focused towards cash than accrual. As businesses begin to grow, income statements become more accrual, but never 100% because of cost/benefit outcome.

Finance starts with what are the ins and outs of cash in your business? If you want to understand this, take a look at direct and indirect cash flow models. When thinking about business finance, you're thinking about what are the underlying cash needs of your business? ( Checkout the GrowthLab 4) In order to understand this, you need to start with a three to five-year plan - the Long-range Plan or LRP.

If you're going to grow your business from $0 in revenue today to $50 million in revenue in the next three years, that's going to require cash. With that perspective, it's all about how much cash and when do I need the cash to execute on my plan to go from $0 to $50 million in the next three years? On the flip side, many businesses that have been operating for 5 to 10 years, their business finance really means what are my underlying KPIs that I need to know in order to make better decisions to achieve my 3 to 5 year goals ?

What GrowthLab can do

13- Week Cash Flow

Long-Range Model

Grant Accounting

Budgeting

So business finance could be about raising capital, getting a bank loan, or finding investor money. Business finance is also an underlying pinning of how do I exit my business? What is my overall 3 to 5 year plan? This is the expectations coming out of the business in order to value the business on a cash basis.

Sometimes you hear about EBITDA , and companies being valued at 3 to 5 times. What does that mean? EBITDA is as close to cash as you're going to get from a P&L without going through the indirect cash flow. When thinking about business finance it starts with good solid bookkeeping, accrual accounting, or knowing that it's cash accounting, good planning, 3 to 5 year planning, and then understanding the underlying valuation of the business based on that cash.

Dan Gertrudes

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10 Steps to a 13-Week Cash Flow

Tue, 08 Feb 2022 20:05:41 GMT

Building a 13-Week Cash Flow

Whenever GrowthLab creates or teaches a customer how to build a 13-week cash flow, we lean into our 10-step approach to building a 13-week cash flow. We will deviate from some of these steps based on the unique business needs and internal functions. However, that is more of the exception than the norm.

The 13-week cash flow forecast is a financial tool that provides insight into a company's short-term financial health by projecting weekly cash receipts minus cash disbursements. It is commonly used in turnaround situations when a company is experiencing financial distress to assess short-term options and liquidity issues. Company leadership, including the CEO and CFO, often relies on these models for weekly planning and quarterly strategy sessions to identify potential liquidity shortfalls and make informed decisions during times of financial uncertainty. If you want to learn more, read this blog: what is a 13-week cash flow .

Key Takeaways:

Short-Term Visibility: A 13-week forecast provides a granular look at liquidity, helping businesses avoid insolvency during tight cash periods.
Precision Over Projection: Unlike long-range plans, this model relies on precise timing of collections, payroll, and vendor payments.
Vendor Prioritization: Use an A/B/C categorization method to manage accounts payable and preserve cash when necessary.
Weekly Discipline: The model must be updated every Monday and reconciled every Sunday to identify variances between expected and actual cash flow.

Building a 13-week cash flow model differs from building an Annual Operating Plan (AOP) or a Long-rang Plan (LRP). The expectation is all about precision when companies are tight on cash where every dollar counts, precision around collections, wages, and vendor payments is critical and can mean the difference between survival and insolvency. It is a valuable financial tool for short-term cash management. It helps businesses optimize their cash flow by highlighting daily cash inflows and outflows over a shorter time horizon. This forecast enables companies to make informed decisions about investments, expenses, and other financial commitments in the short term, and let's not forget about stability and planning.

This forecasting tool is also crucial for managing debt service payments effectively. By estimating cash payments for each week, including bills, payroll, and debt service payments, you can ensure financial stability and the ability to pay lenders. This process requires collaboration between your finance, accounting, and management to update the model weekly with precision. We prefer to do this exercise on Monday mornings! Your banking and financial partners will thank you for this insight and confidence.

If you're looking for additional support, check out our FP&A Services or Virtual CFO Services .

A virtual or fractional CFO can be a valuable asset when it comes to managing your 13-week cash flow forecast. Their expertise and financial modeling skills are crucial in identifying potential issues and staying proactive and unbiased in addressing your cash reserve needs. By hiring a fractional CFO, you can ensure that your cash flow forecast is accurate and strategic, ultimately helping your business thrive and maintain sustainable growth.

Essential Steps to building a 13 week cash flow model:

Here's our process in 10 easy steps to get you back on track with your cash management and short-term projections

When building a 13-week cash flow forecast, it is crucial to tap into reliable data sources to ensure the accuracy of your projections. These data sources could range from bank accounts and enterprise resource planning (ERP) systems to accounts receivable (AR) and accounts payable (AP) ledgers. Many of us are using QBO or Xero, which are great platforms that can feed the data into your cash flow forecasting model. (Check out STRMS.io for automation opportunities) By consolidating historical data points and utilizing financial planning and analysis tools, you can effectively project future cash flows at a stream level. Having access to diverse data sources allows for a comprehensive analysis and forecasting of your cash flow over the specified period.

Download Our 13 Week Cash Flow Template

Step 1: Your Starting Balance is Your Beginning Cash Balance

Every Monday morning, we start the weekly process of updating the 13-week cash flow tool. We tally up your cash balances from all your bank accounts and update the beginning balance at the top of the sheet. We usually avoid going to all your bank portals to grab the balances as your instance of QBO or Xero will usually have the bank feeds directly linked, saving you time and effort.

Step 2: Anticipate Your Revenue and Know Your Invoicing Process

Cash flow is all about how much cash and timing of cash. On the revenue side, we start by understanding your invoicing cycle. Do you invoice daily, weekly, or monthly? Do you pull cash via ACH or credit card? Do you charge your customers up-front on an annual basis? Do you have annual contracts and monthly recurring revenue agreements? In developing a 13-week cash flow, timing is everything.

Recurring revenue businesses have this step fairly easy, but not every business has recurring revenue Anticipating customer demand can be daunting, but we do have a few tricks up our sleeves. One of our methods is to look at last year’s seasonal patterns and overlay growth with seasonality. Another method is the forward-looking approach which is possible when you have a purchase order (PO) process, a bidding process, or a quoting and estimating component. In this case, when we have a defined pipeline of revenue, we anticipate a certain conversion rate and certain conversion timing. Obviously, forward-looking customer demand is a better measure of anticipated revenue than the alternative.

Step 3: It all Starts With Your Collections

Our first step to driving cash inflows is to pull your accounts receivable aging report from your general ledger. If you don’t have one, you should! You should know who owes you money, how much, and when. GrowthLab will bucket your customers based on historical collection patterns. In other words, who owes you what in this week? Next week? And in week 6, for example. And be realistic. Don’t assume you’ll receive money immediately. Processing takes time. And know your Customer’s behavior: who usually pays you in 30 days, 60 days, and 90 days?

Step 4: Let’s Decide who you are Going to Pay & When

After GrowthLab has modeled out what cash you expect to receive, we figure out who you are going to pay. If your accounting is on an accrual basis, pull your latest accounts payable report by vendor and by due date. Once you have the aging report, categorize each vendor to prioritize payments:

Category A: Critical vendors to be paid within the next 30 days.
Category B: Important vendors to be paid within the next 60 days.
Category C: Non-essential or flexible vendors to be paid at the end of the 13-week cycle.

Be careful, don’t squeeze your vendors too much, because one day you may need them.

Step 5: Payroll… an important line item in the 13 week cash flow projection

We know that for most companies, payroll is both the largest cash expense and the most predictable cash expense. GrowthLab will figure out what your anticipated payroll cash requirements are for each payroll.

To ensure accuracy, account for the following payroll variables:

Frequency: Weekly, biweekly, semi-monthly, or monthly.
Anomalies: Commissions, seasonal bonuses, or one-time severance payments.
Contractors: Determine if they are paid via payroll or as standard vendors.

By the way… don’t forget about your contractors, some companies treat them like vendors, others pay them through payroll. What is your process?

Step 6: Monthly Recurring Expenses – Auto Debit & Credit Cards

Even though many companies are on accrual accounting, there are many expenses that impact cash flow immediately. Today it is very common for vendors such as software-as-a-service and other technology service providers to either pull funds directly from your bank account via ACH or debit or charge your credit card. Other expenses that are often billed this way are rent, mortgage, utilities, etc. The ACH and debit card transactions never hit your accounts payable and the credit card transactions are lumped together in your credit card bill.

To add credit card cash payment to your 13-week cash flow, GrowthLab will take a look at your bill for the next payment. To estimate future credit card bills, it is good practice to add up all recurring credit card transactions. Then add a buffer for non-recurring and ad-hoc expenses. Take this sum and then add it as the cash outflow your 13-week cash flow based on your credit card statement due date.

Step 7: Expecting the Unexpected in a 13 week rolling cash flow

One-off transactions catch all businesses by surprise. Machines break, computers need upgrading, accidents happen, HVAC systems go down, and customers take longer to pay you.

Building a 13-week cash flow tool gives you better visibility and decision-making ability when dealing with the unexpected. It is best practice to anticipate the need for a buffer to deal with the unexpected. You can build this buffer into your own cash balance — making it a “rule” that you don’t let your ending cash balance fall below $XXX. Another angle is to develop good banking relationships and establish a line of credit as a lifeline.

Step 8: Inventory Purchases

This won’t apply to every company, but for those who buy inventory: don’t forget the lumpiness of cash from inventory purchases. GrowthLab Starts by understanding your annual inventory turns and anticipating your customer demand cycle. GrowthLab will think about your inventory buying patterns over the last few months in an attempt to extrapolate that over the next 13 weeks. Overlay this with a schedule of inventory POs that you have issued (made a commitment to pay) and the timing of the due dates of those payments. Again, be more granular (use your POs) on the near-term weeks and project out (use your historic buying patterns) for the out-weeks where you don’t have visibility.

Step 9: Develop your 13 Week Cash Flow Forecast

Using the data that GrowthLab gathered above, we build out a spreadsheet where your columns are your 13 weeks and the rows make up your: cash balance, accounts receivable collections, accounts payable, and capital expenditures and special financing events. Then let's take your beginning cash balance on Monday, add in your weekly collections, subtract your accounts payable and any other cash outflow from inventory, capital expenditures, debt payments, etc. Add in any cash from new financing, and calculate your ending cash balance as of Sunday. Do that for all 13 weeks.

Step 10: Now Reconcile the 13 Week Cash Flow Analysis

GrowthLab will Reconcile your anticipated weekly ending cash balance with your actual ending cash balance on Sunday. Reconciling this means identifying the difference between (a) the cash balance you expected to end the week with versus (b) your actual ending cash balance and then identifying what happened or didn’t happen to cause the difference of (a) versus (b). And, lastly, GrowthLab repeats steps 1 to 10 every Monday! Make sure you know how to read a statement of cash flows so you can properly understand what the numbers mean.

Frequently Asked Questions About 13-Week Cash Flow Models

Dan Gertrudes

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3 Ways to Solidify the Foundation of Company Culture

Mon, 07 Feb 2022 14:58:33 GMT

Ways to Solidify the Foundation of Company Culture

Company culture is no longer just a buzzword you hear when talking about tech-savvy companies like Google or Amazon . Culture is an important part of every business, large or small. It unifies teams, brings in stronger candidates for new positions, and helps to retain current employees.

First, let’s discuss the company culture definition. Company culture is simply what makes the company unique. While there may be certain services or products that are hard to replicate, they are not truly inimitable. The only part of your business that will ever be truly unique is the business’ personality.

For some businesses, increasing wages may not be an option to draw in and retain employees, but it is not just about money. These people want to see better benefits and more culture within the business that they choose to work for. They do not want to just show up and work 9-5 and be another number. They want value. They want relationships. They want work/life balance. Some 65% of workers are currently looking for a new job. Culture can make a difference.

Strong company culture is achieved from the expectations and values set at the top. As the leader of a business, it is your responsibility to provide the foundation of company culture. How can you do this? This can be accomplished by:

1. Being Transparent

With the ongoing effects of The Great Resignation , it is imperative that you communicate with your employees and show your support. Trust between management and team members leads to loyalty and increased motivation. Employee engagement levels will match how they feel about the organization. A committed employee will be more productive and motivated than an employee who feels unheard and unvalued.

2. Understanding your Employees’ Wants and Needs

Employees need to see that your business values their time - both in and out of the office. This does not mean that you need to allow your employees to never work. What it does mean is that you should respect your employees’ time outside business hours. It should go without saying, if you treat your employees well and are understanding that life happens, the outcome will be positive.

3. Allowing Time for Relationship Building

Many businesses do not take the time for team building. While it may seem like a waste of time, allowing employees to interact with one another creates a bond that makes it harder to leave the organization. You want your employees to have an effective commitment to your brand. That is, staying because they want to… especially in a remote or hybrid working environment.

Why is a positive company culture important?

Retention & Engagement: Employees who feel cared for stay longer and work harder.

Customer Perception: Your team reflects your business; customers can sense a positive or negative atmosphere.

Talent Acquisition: A strong, visible culture acts as a magnet for high-quality candidates.

Culture is the ultimate unification tool of your business. When your management team, employees, and customers are all aligned with the same vision, it drives success and value.

Key Takeaways

Culture is Identity: Beyond products, culture is the only truly unique and inimitable part of a business.
Transparency Drives Loyalty: Open communication from leadership builds trust and increases employee productivity.
Respect Boundaries: Valuing employees' time outside of work hours is critical for long-term retention.
Invest in Relationships: Team building creates emotional commitment, which is especially vital in remote or hybrid environments.
Unified Vision: Aligning staff and customers with a single vision drives overall business success and brand value.

Abigail Church

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Video: What is Bookkeeping

Fri, 28 Jan 2022 20:09:05 GMT

Video: What is Bookkeeping?

Do Small Businesses Need a Bookkeeper?

Understanding the role of a bookkeeper and how they can benefit your small business is crucial. Below, we break down what bookkeepers do and how they differ from accountants, emphasizing why your small business might need one.

What is Bookkeeping?

Bookkeeping is more than just data entry—it's the backbone of your business's financial management system. Here’s how:

General Ledger Management: Whether you use QuickBooks, Xero, or another platform, bookkeepers ensure that all financial data is accurately entered into your general ledger.
System Integration: Modern bookkeepers act as system integrators, efficiently linking your financial systems to provide comprehensive monthly reports.
Account Reconciliation: Ensuring all financial accounts, including payroll, are reconciled regularly to maintain accuracy in your financial statements.

Essential Bookkeeping Tasks for Small Businesses

Invoicing and Collections: Accurate invoicing and managing accounts receivable to reflect your business realities.
Accounts Payable: Ensuring bills are processed and paid on time to maintain good vendor relationships.
Payroll Management: Proper payroll processing and reconciliation in your general ledger.

Bookkeeper vs. Accountant: What’s the Difference?

Bookkeepers focus on entering data into the general ledger and managing day-to-day financial transactions.
Accountants take on a broader role, including setting up accounting systems and policies, managing accruals, and preparing for financial analysis and reporting.

Why Your Small Business Needs a Bookkeeper

A skilled bookkeeper is essential for:

Foundation for Financial Planning: Provides the data needed for accurate financial analysis and planning, crucial for business growth.
Operational Efficiency: Helps streamline financial operations, from payroll to paying bills, ensuring your business runs smoothly.
Compliance and Accuracy: Reduces the risk of financial errors and helps ensure compliance with accounting standards and tax requirements.

GrowthLab’s Commitment to Your Business

At GrowthLab, we believe in integrating bookkeeping with comprehensive financial oversight.

We offer:

Business Accounting
CFO Services
Financial Planning & Analysis (FP&A)
Tax Consulting

Ready to learn more about how our services can support your business?

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What is a 409a Valuation?

Thu, 27 Jan 2022 17:00:08 GMT

Understanding 409a Valuations

A 409a valuation is crucial because it formally establishes the fair market value of your company’s shares. As long as it’s performed correctly, a 409a valuation can ensure you adhere to tax laws and help you avoid any unnecessary IRS audits that may lead to serious issues down the road. Arguably even more importantly, a 409a valuation gives your management team alternative methods for compensating key employees! By performing a 409a valuation and granting options, you can compensate hires without using up critical funds during the early stages of your company.

When to Get a 409a Valuation

A 409a valuation is a legal requirement that ensures your company is compliant with section 409a of the IRS code. There are a number of situations in which it makes sense to get a 409a valuation urgently. It’s a good idea to pursue one right away if:

You plan to offer stock options to your employees.
It’s been 12 or more months since your last 409a valuation.
You’ve raised, or are in the process of raising, new funding .

How to Get a 409a Valuation

If you’d like a 409a valuation, there are three options available to you. You can do it yourself, use a special software, or hire a firm that specializes in valuation. If you’d like to ensure you perform a 409a valuation correctly, going the professional route is your best bet. What we often find is 409a valuations done by yourself to be valued too high. The challenge with this is limited value for the employees that receive options based on this valuation. Remember, this is alternative compensation, and giving them the most value possible will ensure commitment to you and your growing company.

You’ll enjoy the peace of mind of a safe harbor protection, which means you won’t have the burden of proof during an IRS audit if your valuation is too low. You can expect a professional 409a valuation to take about a month. While the report may be completed in a few weeks, data collection and revisions will likely lengthen this process by a bit of time.

Your valuation will be good for 12 months after the date of valuation or until a major event impacts the value of your company. New rounds of funding, significant contracts, business model changes, and increased industry regulations can lead you to update prior to 12 months.

Dan Gertrudes

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5 Ways to use the Metaverse in your Accounting Business

Fri, 14 Jan 2022 15:55:49 GMT

Ways to use the Metaverse in your Accounting Business

GrowthLab has many goals for 2022, but one of our goals is to host a customer meeting (financial review) in the metaverse . So what is this fantasy-like place called the metaverse? To put it simply, the metaverse is the online space where people can participate in a shared virtual universe. This world can connect you to anyone, anywhere, and make you feel like you are right there with them. You may be wondering, how does the metaverse relate to accounting? Imagine engaging with your virtual CFO in the metaverse – it would feel like you are there in person! With tools like oculus becoming more affordable, many companies are taking the leap into the future and incorporating virtual reality into their business models.

Accounting and The Metaverse

Here at GrowthLab, we also have taken this leap and began utilizing tools such as vSpatial and Workrooms to host a meeting in the metaverse. GrowthLab has created an open workspace that allows people to join via VR or on their computers. We actually held an internal meeting in this workspace with only one Oculus headset. Imagine what we can do when it becomes more common for people to have these headsets.

It may sound like a far-off world, but the metaverse is closer than you may think. The metaverse has many potential applications and can be used in virtually any industry. In accounting, we believe there are 5 Ways the Metaverse will Change the Accounting Industry :

1. Engaging with Customers - Physical Presences Meets Virtual Reality

Virtual reality bridges the gap between the virtual and physical world. When in-person meetings are not a viable option, virtual reality allows for an individualized experience that helps build connections.

2. Training and Development of New Team Members Right Out of College

While working remotely, training staff has become much harder and less effective. Virtual reality training is more immersive and brings back the feel of in-person training to employees.

3. Increase in Employee Interactions - Think happy hour in the Metaverse, not on Zoom

Team interactions have inevitably changed with remote work, but interaction makes up a large part of overall employee satisfaction. In virtual reality, teams can feel like they are back together even while potentially being thousands of miles apart.

4. Retooling RevOps - Enhance how sales people engage with new prospects and leads

Engaging with customers in a remote environment can feel cold and informal. With virtual reality, companies can create a more realistic sales environment that is tailored directly to their target customer.

5. Distraction-Free Working - full immersion meets VR

The main disadvantage of remote working is the distractions that come from working from home. Employees can use new VR tools to have a distraction-free work environment.

While it is unrealistic to expect every business to incorporate virtual reality into their business model, there are tools and software that have made it easier to begin the process. Meta Platforms’ Oculus has seen this new demand for metaverse compatible business products and is now redesigning its offerings as Quest for Business. Getting ahead of the curve is something that is not necessary, but can help to push your business to the next level.

Key Takeaways

Immersive Client Interaction: The metaverse allows virtual CFOs to conduct meetings that feel like in-person engagements, regardless of physical location.
Enhanced Remote Training: VR provides a more effective, immersive environment for training new staff compared to traditional remote methods.
Improved Team Culture: Virtual reality facilitates deeper employee social interactions, such as "Metaverse happy hours," boosting satisfaction in remote teams.
Advanced Sales Environments: RevOps teams can use VR to create tailored, realistic sales experiences for prospects.
Optimized Focus: VR headsets enable distraction-free, fully immersive workspaces for remote employees.

Dan Gertrudes

Want to meet with us in the Metaverse – or at least discuss it? Contact us today!

Frequently Asked Questions

How to Calculate Operating Cash Flow

Mon, 01 Nov 2021 13:00:04 GMT

How do you Calculate Operating Cash Flow

Operating cash flow (OCF) refers to the cash your business generates from its normal operations. Essentially, it shows how much cash flow you’ve made without taking secondary sources of revenues, such as interest or investments, into account.

This figure can give you a clear picture of how you’re doing financially on the core operations of your business. While a positive operating cash flow indicates your business has enough money to sustain and grow, a negative cash flow means that you’re unable to cover your expenses unless you borrow money, cut expenses, or raise additional capital . Let’s take a closer look at how to calculate operating cash flow.

Operating Cash Flow Formula

When looking at how to calculate operating cash flow, there are two methods you can use to calculate it: the direct method and the indirect method. While the direct method is the easiest and most accurate, it requires reconciliation.

Direct Method : Operating Cash Flow = Total Revenue - COGS - Operating Expenses

The indirect method adds depreciation and adjusts for changes in cash receivables and inventory, adjusting the net income. It’s preferred by most businesses and investors.

Indirect Method : Operating Cash Flow= Net Income (Revenue – Cost of Sales) + Depreciation – Taxes +/- Change in Working Capital

Components of the Formula

Now that you know how to calculate operating cash flow and the components of the formula, here’s a brief overview of what they are and where to find them.

Net Income: Net income is how much your business earns from its operations. It’s your company’s total revenue minus all expenses. You can find it at the bottom of your income statement.
Depreciation and Taxes: Although depreciation and taxes are referred to as an expense on your income statement, they’re not always cash charges. Therefore, they’ll need to be added back to net income.
Changes in Working Capital: Working capital is your current assets minus your current liabilities. You need to subtract any increase in assets and add back in any decrease.

Example

Let’s say your business sells tennis equipment and reports the following figures...

Net Profit: $100,000
Uncollected Customer Debt: $50,000
Debt Owed to Suppliers: $10,000
Depreciation Expense: $5,000 per year

If you use the indirect method to calculate operating cash flow, you’ll end up with $65,000.

$100,000 - $50,000 + $10,000 + $5,000 = $65,000

Need Help with How to Calculate Operating Cash Flow? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. You can trust us to calculate your operating cash flow and make recommendations on how you can use it to increase your revenue and meet (or even exceed) your business goals. Contact us at 888.673.8481 for more information!

Ryan Clifford

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Remote Bookkeeping Services

Fri, 27 Aug 2021 12:00:05 GMT

All About Remote Bookkeeping Services

In the past, you would have to hire a bookkeeper as a full-time employee. They would work in your office and you’d cover their salary, benefits, desk, office supplies, training, and more. If you don’t have the time and resources to bring an on-site bookkeeper on board, there is another solution.

With remot e bookkeeping services, you can receive the financial support you need from a professional who works in a remote location. You’ll only pay for the services they provide and be able to save a great deal of time and money as a result. Since the average cost of bookkeeping services can be high, outsourcing your bookkeeping can be a great benefit for your business.

How Remote Bookkeeping Works

Also known as online bookkeeping or virtual bookkeeping , remote bookkeeping can allow you to receive accurate, efficient bookkeeping services without hiring a full-time employee. You’ll provide them with secure access to your financial documents and online software like QuickBooks. They will use these resources to keep your books up-to-date so you can gain control of your finances, make smart, data-driven decisions, and grow your business.

Benefits of Remote Bookkeeping Services

There are a number of notable benefits of remote bookkeeping services including:

Access to Top Talent

Save Time

Save Money

Scale Your Business

Access to Top Talent

While every bookkeeper is different, most are highly trained professionals with years of experience under their belt. If you hire a full-time one, you may opt for a less skilled professional in an effort to save some money. With remote bookkeeping services, you can enjoy access to top talent at an affordable price point.

Save Time

Not only is it tedious, it’s also quite time-consuming. With remote bookkeeping services, you can trust another professional to tackle all of your tasks. This frees up your time as well as the time of other employees. It allows you to allocate your resources wisely and focus on big picture tasks like growing your business.

Save Money

The average age cost for bookkeeping services in-house is through salary. An in-house bookkeeper's average salary is $44,686. Now, some bookkeepers may be paid on an hourly rate, which would be a different cost. When you add in health insurance, 401k, PTO, and other benefits, the cost of hiring one is expensive. A remote bookkeeper can provide you with the precise bookkeeping you need without the high price tag. It can also save you cash on furniture, office supplies, technology, and the other miscellaneous costs of hiring a full-time employee at your location.

Scale Your Business

These services make it easier to scale your business. They offer the improved efficiency and productivity you need to meet your short and long-term goals. Without them, you may struggle with the precise financial reporting, budgeting, and forecasting that is vital to your success.

Key Takeaways

Cost Efficiency: Remote bookkeeping eliminates overhead costs like benefits, office space, and equipment.
Expert Access: Gain access to highly trained professionals and top-tier talent at an affordable price point.
Scalability: Frees up internal resources to focus on business growth and data-driven decision-making.
Comprehensive Support: Covers essential functions including accounts payable, receivable, and financial reporting.

Remote Bookkeeping Services

The services you receive will depend on the scope of work you agree on. We invest in a variety of services that support your accounts payable, accounts receivable, and banking statement functions.

✅ Enter Financial Transactions

✅ Receive & Record Cash, Checks, and other Payments

✅ Assign Costs & Income into Appropriate Accounts

✅ Produce: Balance Sheets, Income Statements, Cash Flow Statements, & other Financial Statements

✅ Reconcile Discrepancies

✅ Maintain Budgets

Dan Gertrudes

Frequently Asked Questions

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What Do Online Bookkeepers do?

Tue, 10 Aug 2021 12:49:57 GMT

What Do Online Bookkeepers Really Do?

Also known as virtual bookkeepers or remote bookkeepers , online bookkeepers can be invaluable to your business. They perform the same types of tasks as traditional, on-site bookkeepers from a remote location rather than in your workforce. Through online bookkeeping software programs and mobile apps, they can manage your business finances so you don’t have to.

With their support, you’ll be able to allocate your time and resources on other tasks like adding to your product or service line and growing your business. So what exactly are online bookkeeping services and what do online bookkeepers do? Here are several of the many tasks they can tackle.

Accounts Payable

Accounts payable refers to the money you owe to vendors and suppliers for goods or services purchased on credit. Online bookkeepers manage these duties by:

Monitoring purchase orders and invoices.
Coding invoices with correct ledger information.
Obtaining payment approvals and ensuring timely processing.
Monitoring credit card statements for questionable transactions.

Accounts Receivable

Accounts receivable is money your customers owe you for the goods or services they previously purchased from you. An online bookkeeper may focus on accounts receivable tasks and bill customers for the work your business performed. They can create and send invoices and make sure they’re entered into the right accounts in the accounting system.

Banking

Every time an this bookkeeper receives payments from customers and other sources, they’ll prepare bank deposits. They may also reconcile bank statements and correct any discrepancies that they discover. Another common banking related task they may perform is wire transfer or ACH preparation.

General Ledger

A general ledger is essentially a master document that provides a complete record of all of your business financial transactions. An online bookkeeper typically enters information into it and reconciles general ledger accounts. In addition, they can prepare detailed journal entries and month-end reconciliation. One of their primary goals is to run the general ledger balance at the end of the month before they close the books to make sure accounts are balanced and accurate.

Online Bookkeepers are Not Created Equal

Your business is unique so the bookkeeper you partner with will have a unique set of duties to complete. Once they learn how your business works and what you hope to accomplish, they can recommend a customized scope of work. You’ll only pay for the duties they complete and save a great deal of money in the process rather than a flat monthly price.

Key Takeaways

Remote Efficiency: Online bookkeepers perform the same duties as on-site staff using software and mobile apps.
Core Financial Management: They handle essential tasks, including accounts payable, accounts receivable, and bank reconciliations.
Data Accuracy: A primary role is maintaining the general ledger to ensure all financial transactions are balanced and accurate.
Scalability: Services are highly customizable, allowing businesses to pay for specific tasks rather than a fixed overhead cost.

Dan Gertrudes

Frequently Asked Questions

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What are the Benefits of Virtual Bookkeeping

Tue, 10 Aug 2021 12:35:05 GMT

Benefits of Virtual Bookkeeping

No matter your industry, precise and efficient bookkeeping is essential. It can help you take control of your business finances and make smart, data-driven decisions. Fortunately, you don’t have to hire a traditional full-time, on-site bookkeeper.

With a virtual bookkeeper, like GrowthLab, you can receive the support you need remotely. Similar to remote bookkeepers or online bookkeeping, they can record, store, and manage your financial transaction from any remote location. They can do this through a variety of online bookkeeping software programs and mobile apps - many of which you probably already use! Let’s dive deeper at the most noteworthy benefits of virtual bookkeeping.

1. Save Money

Hiring a full-time bookkeeper involves significant overhead. By switching to virtual bookkeeping, you eliminate costs such as:

Salary and payroll taxes
Employee benefits and insurance
Office infrastructure (desk, space, supplies)
Software

They can eliminate the high expense of a full-time bookkeeper and save you thousands upon thousands of dollars in the long run.

2. Reduce Fraud

Unfortunately, fraud occurs often with traditional bookkeepers. If a bookkeeper has a direct interest in your business, they may commit it. Virtual bookkeeping offers an easy way to reduce the risk of fraud as they are unbiased and known to commit their tasks honestly. They also cross-check their books multiple times prior to sending them to their clients.

3. Access Top-Notch Talent

If you hire an on-site bookkeeper, you may be tempted to choose an entry or junior-level professional to save some money. Virtual bookkeeping allows you to trade local junior-level talent for experienced professionals.

Benefits include:

Higher Quality: Access to specialized financial expertise.
Greater Accuracy: Reduced error rates through professional-grade workflows.
Scalability: Talent levels optimized to your specific business stage.

4. Save Time

There’s no denying that bookkeeping tasks are tedious and time-consuming. You can take them off your plate and allow your team to focus on more important tasks like coming up with new products and growing your business. You’ll be able to free up your schedule and direct your time and energy on what you’re good at.

5. Up-to-Date Books

If you partner with an experienced virtual bookkeeper, you can ensure your books are up-to-date at all times. They’ll receive access to your bank statements, receipts, and invoice so they can update your books accurately in real time. Since your books will always be updated, you won’t have to scramble during tax season or an audit.

6. Improved Business Management

It’s difficult to manage your business well when you can’t trust your numbers. They can keep you organized and provide the information you need to reduce inefficiencies, increase productivity, and set yourself up for growth. You’ll know how you’re spending money and be able to increase or decrease your budget accordingly.

Dan Gertrudes

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Outsourced Bookkeeping for Small Business

Fri, 28 May 2021 12:00:03 GMT

Why outsourced Bookkeeping for Small Businesses?

If you don’t have the time or in-house resources to reconcile your books, an outsourced bookkeeping team may be your best option. They offer professional bookkeeping services so you can keep your books in order and finances in good shape... are are also cost effective! Here are some of the benefits you can expect if you invest in outsourced bookkeeping.

Save Money

A full-time bookkeeper can become expensive. You’ll have to pay them a competitive salary and take care of their health insurance, 401(k), PTO, and other benefits. You can receive the same services that a full-time bookkeeper would provide at a fraction of the cost.

Save Time

They can save you time in addition to money. Since they’ll log, analyze, and reconcile payments on your behalf, you’ll be able to focus on higher level tasks that improve your bottom line. You’ll be able to hand bookkeeping to professionals who specialize in it.

Reduce Errors

When you opt for an in-house bookkeeper, you’ll likely face a margin of error while they settle into their duties. By outsourcing these services, you can alleviate this issue and open the doors to experienced professionals who promise efficiency from the start. On top of this, you'll get access to a team of accountants, who span the range from bookkeeping through controllership.

Receive Detailed Financial Reports

They do more than simply enter data and keep track of your books. They provide small business financial statements and other detailed financial reports. These reports can give you valuable insight about your business.

Make Smart Business Decisions

By investing in outsourced bookkeeping services, you can receive the data you need to make smart decisions. You’ll know which customers are worth investing in and which ones aren’t worth your marketing spend. You can also figure out when you need new employees and how much you can pay them.

Simplify Tax Season

Tax season can be overwhelming for small businesses. Outsourced bookkeepers will prepare your books for tax season throughout the year. You won’t have to scramble last minute because you’ll have the information you need to file right away while reducing your tax burden as much as possible.

Access Advanced Technology

The latest accounting systems may be too expensive for your small business. The good news outsourced bookkeepers can invest in them on your behalf. You’ll enjoy their expertise paired with technology that saves time and money while ensuring accuracy and efficiency.

Scale

With outsourced bookkeeping services and the information they bring to the table, you’ll have a good idea of when to expand your operations or downsize. You’ll be able to plan for the future and understand what you need to do to meet your business goals.

Are you interested in learning more about outsourced bookkeeping for small business? Fill out the form below for a free meeting with the GrowthLab team!

Dan Gertrudes

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Best Startup Accounting Services

Wed, 26 May 2021 19:57:01 GMT

Great Startup Accounting Services

It can be a real challenge to manage your finances as a startup, especially if you have a long list of other responsibilities. That’s where startup bookkeeping and accounting services come in. They can help you resolve cash flow issues, navigate through growing pains, and establish financial goals. Let’s take a closer look at several of the reasons you should look for the best accounting services for a startup.

You can focus on operations and growth.

By investing in startup accounting and bookkeeping, you and your lean team can place your efforts on product development, relationship building, sales, and marketing. All of these tasks are essential in the early stages of your startup as they can lead to sustainable growth.

You can receive quality financial information.

Startup bookkeeping and accounting services can provide you with the quality financial information you need to meet a variety of goals. Whether you’d like to obtain financing or raise equity financing, you’ll find it to be invaluable. In addition, this information can help you make smart decisions that set you up for success.

You can prepare for tax season.

Tax season can be a stressful time for your startup. With year-round startup accounting and bookkeeping services, you’ll have all the financial details you need to prepare and file your taxes without the hassle. More importantly, you’ll able to minimize your tax burden and keep more of your hard earned money in your pocket.

You can receive expert financial advice.

If you and your team have minimal to no experience with accounting and bookkeeping, it only makes sense to take these core business functions off your plate.

When you partner with a professional accountant or bookkeeper, you’ll receive expert support for essential functions, including:

Day-to-day bookkeeping
Bank reconciliations
Balance sheets
Income statements
Strategic financial planning

You can improve compliance and efficiency.

Accounting and bookkeeping can not only help you comply with regulatory requirements, they may also turn you into a more efficient operation. One way is by creating an accounting calenda r that keeps you on track for important dates. You’ll reduce your risk of errors that can cost you a great deal of time, money, and headaches down the road.

While you can try to tackle accounting and bookkeeping on your own, doing so is not recommended. By investing in professional services from the get-go, you’re bound to drive your startup toward unparalleled success and growth.

Dan Gertrudes

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5 Steps to Calculating Direct Operating Cash Flow

Fri, 16 Apr 2021 12:00:03 GMT

How to Calculate Direct Operating Cash Flow

Operating cash flow is the amount of cash your business generates through regular operating activities within a specific period of time. If you calculate operating cash flow via the direct method, you’ll find that it directly reflects the inflows and outflows of your bank account. The direct method involves this equation:

Operating Cash Flow=Total Collected Cash from Customers - Cost of Goods Sold - Total Purchases - Operating Expenses.

Here are the five steps you need to take to calculate the direct operating cash flow:

Accrual vs. Cash Revenue - If you manage your accounting on an accrual basis, you recognize revenue when you earn it, rather than receive it. Cash revenue, however, considers revenue when the money changes hands. To calculate your direct operating cash flow, you’ll need to identify your cash-basis revenue. Fortunately, many platforms like QuickBooks Online and Xero provide this information. Alternatively, simply take a look at all the money you received from your customers in that specific time frame.
Non-Inventory Based Cost of Goods Sold - Next, look at your cost of goods sold or how much you spend to produce the goods or services you sell. This figure should exclude inventory and include lenders that require immediate payouts. These immediate payouts may be for wages, equipment costs, and freight.
Inventory - Now, determine the money spent on your inventory, or the assets your business has and intends to sell to customers. It will likely include a mix of raw materials, work-in-progress items, and finished goods.
Operating Expenses - Then, figure out your operating expenses. This will include things like wages, rent & utilities, software, sales & marketing, etc.
Operating Cash Flow - Last but not least, take your cash revenue and subtract your cost of goods sold, purchases, and operating expenses. If you purchase recurring services with a credit card, be sure to deduct your credit card payments as well, so long as they’re not the same expenses noted in bullet #4.

Ryan Clifford

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All About the Employee Retention Tax Credit

Fri, 09 Apr 2021 18:15:30 GMT

About the Employee Retention Tax Credit

Due to the pandemic, there are several payroll tax credits available to employers. One option is the Employee Retention Tax Credit (ERTC). At its core, the ERTC is a completely refundable tax credit that can reduce your tax burden as long as you keep your employees on payroll. Let’s take a closer look at what it is and how it works.

How Much is the ERTC?

When it was initially signed into law under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the ERTC was equal to 50% of qualified wages eligible employers paid between March 13th 2020 and December 31st 2020.

Then, the Consolidated Appropriations Act (CAA) expanded the ERTC a bit. In addition to the 2020 benefit, it extended eligibility through Q1 and Q2 of 2021 and increased the credit to 70% of qualified wages, still up to $10,000 per employee, but now per quarter for Q1 and Q2 of 2021 (max benefit of $7,000 per employee per quarter).

Most recently, the American Rescue Plan Act (ARPA) further extended the ERTC to cover all of 2021, with the same $7,000 cap per employee per quarter (2021 max of $28,000 per employee).

If you don’t qualify for the credit under the quarterly revenue reduction clause but do because of the full or partial government mandated shutdown, the credit is equal to the amount of qualified wages during the time period operations were shut down.

How Do I Claim the ERTC?

For past quarters that the corresponding Form 941 has already been filed, you can claim the ERTC on your federal tax returns through Form 941-X , the Adjusted Employer’s Quarterly Federal Tax Return. Most payroll providers should be able to process them.

To claim the credit for the current and subsequent quarters, you’ll need to fill out Form 7200 , Advance Payment of Employer Credits Due to COVID-19. It’s important to do so before the end of the month after the quarter in which you paid the qualified wages, or before Form 941 is due for that quarter. You can file Form 7200 any time until August 2nd, 2021.

Am I Eligible for the ERTC?

If you’d like to take advantage of the ERTC, you must be an employer who has had to fully or partially stop operations because of a COVID-19 government order or faced a substantial decline of at least 50% in gross receipts in Q2, Q3, or Q4 of 2020. To see if you are eligible for Q1 or Q2 in 2021, the quarterly decline needs to be at least 20% compared to the same quarter in 2019. But, there is a special rule for the 2021 ERTC that allows the business to look to the previous quarter to determine that 20% decline. For example, during Q1 of 2021, Q4 of 2020 revenue could be used (compared to Q4 2019). This special rule would be used if Q1 2021 revenue had not declined more than 20% from Q1 2019 revenue.

Thanks to the American Rescue Plan, you may also pursue the credit if you’re a startup that was established before February 15th 2020 with annual gross receipts of up to $1 million. The ERTC is also an option for you if you’ve experienced a revenue decline of 90% or more, compared to the same quarter of the past year.

For some clarification on what qualifies as a “full or partial government mandated shutdown” which is still largely a gray area, and many more helpful FAQs, see the IRS Notice 20-21 .

Can I Claim the ERTC and the PPP?

At first, the CARES Act did not allow employers who received the PPP loan to take advantage of the ERTC. Under the CAA, however, you can now claim the credit for any wages paid beyond the proceeds of your PPP loan that have been forgiven. So, if you received a PPP loan in 2020 but paid eligible wages beyond the wages that were forgiven as part of the PPP, you can still benefit from the credit.

Interested in the ERTC for Your Business? Contact GrowthLab Today

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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How to Calculate Net Income

Fri, 19 Mar 2021 12:00:02 GMT

How do you Calculate Net Income

Your business depends on revenue to grow. Revenue, however, doesn’t give you the most accurate financial picture of your organization. To determine whether you’re actually earning money after you pay your business expenses, you need to understand your net income.

By doing so, you can figure out how profitable you are and decide if you want to expand, bring on investors, and make other meaningful changes to your business. Let’s take a closer look at what net income is and how you can calculate it.

What is Net Income?

Simply put, net income is your total profits after you deduct your expenses from your revenue. Also known as net profit, net earnings, or your bottom line, net income can be positive or negative. Your net income will be positive if you have more revenues than expenses.

On the contrary, if your expenses exceed your revenues, you’ll be left with a negative net income, or a net loss. You may decide to calculate your net income on a monthly, quarterly, or yearly basis. It all depends on your unique business needs, preferences, and resources.

Net Income vs. Gross Income

Gross income (or Gross Profit) is the total incoming revenue your business earns minus the cost of goods sold, which is the price of labor and/or materials you use to sell your products and/or services. Net income is the total incoming revenue minus costs of goods sold AND all other business expenses. Several examples of these expenses include:

Operating & Administrative expenses
Sales & Marketing
Professional Services
Interest
Taxes

Put simply, gross income only considers the cost your business incurs to sell your products and services. Net income takes other business expenses that aren’t necessarily related to the sales process into account.

Net Income Formula

Fortunately, it’s fairly simple to calculate your net income. First and foremost, you’ll need to determine your gross income with this formula:

Gross Income = Revenue – Cost of Goods Sold

Then, you can use the cost of good sold figure to calculate your net income with this formula:

Net Income = Gross Income – Expenses

Once you come up with your net income, record it on your income statement. Your income statement will allow you to see how profitable your business is as it reports your profits and losses over a specific period of time.

Need Help with Net Income? Contact GrowthLab Today

Dan Gertrudes

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What is a 13 Week Cash Flow

Fri, 12 Mar 2021 13:02:47 GMT

What is a 13-Week Cash Flow?

For many businesses, financial statement forecasts are prepared on an annual basis and look at the numbers on an accrual basis. Therefore, you can’t depend on them to manage your business cash flow due to some of the timing nuances of specific transactions - think inventory, prepaids, etc. That’s where the 13-week cash flow comes in. Sometimes we recommend going with a higher-level monthly cash flow, but if you’re trying to get tactical and are truly worried about the timing of payments, it may be best to switch to a weekly forecast.

A 13-week cash flow is a financial statement that forecasts the inflows and outflows of your business’s cash over a 13-week period. Its goal is to help you look at the underlying moving pieces of your business’s cash transaction so you’re better prepared to make smart, short-term financial decisions.

Essentially, a 13-week cash flow allows you to determine your working capital so that you know whether you need to obtain more cash, delay or cut expenses, or focus more on growing sales to get through a cash crunch.

Why 13-Weeks?

13-weeks may seem like an odd time frame. However, it’s the length of a standard financial quarter. While you can forecast for more than 13-weeks, doing so can lead to greater inaccuracies - and oftentimes we don’t have full transparency into some of the moving pieces that far out.

Do I Need a 13-Week Cash Flow?

No matter the size or scope of your business, there’s a good chance you need a 13-week cash flow. Without one, you may not know where your cash is going or the amount of working capital you have at your disposal.

A 13-week cash flow can help you gauge how your business is performing so you can quickly resolve any challenges or take advantage of any opportunities. It’s essential if you’d like to improve your short-term financial decisions.

How to Develop a 13-Week Cash Flow

If you’d like your business to reap the benefits of a 13-week cash flow, follow these steps:

Choose a Starting Point- Figure out when you’d like to kick off your first 13-weeks. Once you do, note the balance you have in the bank. We suggest doing it every Monday or Friday. It provides a clean starting point or break where you’re not trying to figure out uncleared transactions mid-week.
Estimate Your Cash Receipts for Week One- Ask yourself what you expect to generate in the first week in cash receipts. When you do so, consider the seasonality of your business and what you typically earn during that time frame. Think about the timing of vendor payments. Depending on your business, it may be best to organize by vendor, too. Remember, just because you have net-30 terms, doesn’t mean all vendors will actually pay in 30 days!
Estimate Your Cash Payments for Week One- Do the same thing you did in step two but with cash payments. Ask yourself what you expect to pay vendors, suppliers, etc. in the first week. Don’t over trivialize the small numbers. If you’re debating whether your phone bill is $50 or $65, you’re wasting your time.
Repeat Steps Two and Three- For the next 12-weeks, continue to estimate your cash receipts and cash payments.
Update on a Recurring Basis- At the end of each of the 13-weeks, check your bank account to determine what actually happened. Then, update your estimates or projections on a weekly basis. Use this information to consistently improve future receipt and payment forecasts.

Need Help with Your 13-Week Cash Flow? Contact GrowthLab Today

Dan Gertrudes

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What is Sales Tax Nexus?

Tue, 02 Mar 2021 18:08:39 GMT

Sales Tax Nexus

The term “nexus” refers to a commercial connection in a certain state. If your business is headquartered in Oregon but you have an office in California, for example, you have a nexus in California. A sales tax nexus in a certain state requires you to collect sales tax on the sales that you earn there. Let’s dive deeper into what sales tax nexus is and how it may affect your organization.

Examples of Nexus

There are a number of different definitions of nexus and they vary from state to state. Here are a few examples of the most common ones.

Home State Nexus: The state that you live in and run your business is known as your home state nexus. You’ll need to collect sales tax from any customers in your home state nexus.
Warehouse, Inventory, or Storage Nexus: If you have a warehouse, inventory, or storage location in a state that’s different from your home state, you may need to charge taxes in there.
Employee Nexus: Any employees, contractors, or sales reps in other states may warrant your need to collect taxes from customers in those states as well.
Third Party Provider Nexus: Third providers like fulfillment houses and drop-shipping suppliers may be considered nexus. You might be required to charge taxes from customers who live in the same states as these third parties.

Online Merchant Nexus: If you don’t have a physical location in a certain state but sell products or services to customers there, you may be liable for taxes in the states they in.

With the above, just note that while these items may be examples of nexus for sales tax purposes, there may be different points of discussion for income tax nexus.

What to Do If You Have Nexus

First and foremost, determine where you have it. Then, follow these steps.

Register for Sales Permits: It’s your responsibility to register for the sales permit in each individual state you have nexus. You can find information on how to do so on state Department of Revenue websites. Also, check out the Streamlined Sales Tax Registration System (SSTRS) to register for 24 states at one time.
Charge Taxes: Once you register for all your sales permits, make sure you collect sales taxes from customers in the applicable states. In most cases, the customer’s location will dictate how much they’ll pay. Some states, however, charge origin-based taxes where your business location will determine the tax rate.
File Sales Tax Returns: Each state has its own unique rules on how to file sales taxes with them. For details on how to do so, visit its official website or give us a call!

Need Support? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. Since sales tax nexus can get complicated, especially if you have nexus in multiple states, our team of financial and tax pros are here to help. Contact us at 888.673.8481 for more information!

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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How to Set Up a Basic Bookkeeping System

Fri, 26 Feb 2021 13:00:06 GMT

Setting up your Bookkeeping System

If you’re a small business owner, you can’t overlook the importance of bookkeeping, regardless of where your business sits in its lifecycle. It’s essential as it allows you to maintain accurate records, measure cash flow, remain compliant with taxes, and most importantly… understand growth. With a bookkeeping system in place, you can simplify the bookkeeping process and save a ton of time and money down the road. To set one up, be sure to follow these steps.

Choose the Right Program

There are a variety of bookkeeping programs on the market. However, they are not all created equal. Ideally, you’d opt for a digital software as this can reduce the risk of errors and increase security. Research all of the options at your disposal and consider the pros and cons of each before you make a decision. We like to leverage QuickBooks Online as it’s the most well known, and with that comes the most integrations and support.

Set Up a Chart of Accounts

At its core, the chart of accounts is a list of accounts you’ll use in your bookkeeping system to keep track of your financial activities. It’s important because it ties your entire bookkeeping system together. Think of it as different categories of your revenues and expenses. While your software may set up a basic chart of accounts for you, we suggest you spend some time modifying it to cater to your unique business. Make sure each account has a name that is both not too broad, and not too specific. For example, you don’t need a category for Shell Station Gas, but you probably also don’t want to just throw it under general expenses.

Create an Expense Tracking System

To keep accurate financial records, you must track your business expenses. Remember, come tax time, if you don’t have expenses to offset your revenue, you can count on a higher tax liability! Ideally, you’d take photos of all your paper receipts and store them with your digital receipts on your computer or the cloud - or even better, directly within QuickBooks Online. Whichever route you take, make sure you file your receipts as you receive them as delays can lead to confusion and issues down the road.

Finalize Payment Terms

Take the time to decide how and when you want to get paid. Will you accept credit card payments or invoice directly and give customers 30 days to pay? Or do you prefer upfront payment via PayPal or Square? Your industry, offerings, and customer preferences will help you finalize your payment terms and ensure they work well for everyone involved.

Reevaluate on a Regular Basis

Your bookkeeping system is not set in stone. It will likely change as you scale your business. Therefore, it’s vital to reevaluate often. You may discover that the system you had in the start-up phase is no longer effective. Don’t be afraid to make changes to your bookkeeping system so that is relevant to your current business needs and priorities.

Ask for Help

It can be complicated and overwhelming to set up a basic bookkeeping system, especially if you have a lot on your plate or have never done it before. For this reason, don’t be afraid to reach out to a bookkeeping professional for help. They can provide you with valuable insight or even take care of the entire process on your behalf. If you’re looking for support in creating your accounting workflows, let us know! We’re here to support you.

Key Takeaways

Digital First: Use software like QuickBooks Online to minimize errors and improve security.
Customization: Tailor your Chart of Accounts to your specific business rather than using generic categories.
Digital Documentation: Track expenses by storing digital receipts immediately to simplify tax season.
Clear Terms: Define how and when you get paid (e.g., Net 30, upfront) to manage cash flow.
Scalability: Regularly audit your bookkeeping system to ensure it grows with your business.

Dan Gertrudes

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What is Accrual Accounting?

Tue, 23 Feb 2021 19:10:46 GMT

Understanding Accrual Accounting

As our client base at GrowthLab continues to expand, we are seeing more clients use true accrual accounting for their operations. Many of our small business clients use cash accounting , where revenues and expenses are recorded as cash is exchanged. Accrual accounting, however, records revenues and expenses as they are incurred.

From a sales reporting perspective, this is important because a client may not collect on all of their sales as they occur. However, accrual accounting allows businesses to record and report their sales when they occur, rather than when their customers pay. This is especially useful for businesses that afford their clients terms, and maintain a list of receivables throughout the year.

Examples include:

Retail businesses that need to know when sales typically occur so they can properly manage inventory levels.
Service businesses like landscapers that need to prepare staffing and scheduling around busy seasons such as spring and fall cleanups.

Why Accrual Accounting Helps Track Expenses

By using this method for expenses, a client can better track and plan monthly expenses. This also allows a business to properly forecast its cash flow, if they know to expect certain bills on a monthly basis, and when those bills' due dates generally fall. If a client either pays their bills as cash flow allows or is a cash-basis client, this will result in higher expenses in the month(s) when those bills are paid. Common examples where accrual accounting improves reporting include:

Rent
Utilities
Insurance policies
Year-end reporting

For instance, rent should be recorded as a monthly expense on the P&L. Without accrual accounting, a business might record several months' rent in a single period if they paid late or prepaid rent.

Cash vs Accrual Accounting

Cash and accrual accounting are the two primary financial reporting methods used by businesses.

The difference comes down to how they recognize revenue and expenses.

Cash Accounting

Revenue and expenses are recorded when a payment is made or received

Accrual Accounting

Revenue and expenses are recorded when a payment is earned or incurred

Cash accounting is often simpler and works well for businesses with straightforward operations. However, accrual accounting provides more accurate financial reporting and deeper insight into business performance.

In the case of utilities, using this method can be a key indicator for reporting. Utilities may include:

Gas or oil (heating)
Electricity
Telephone

If a client receives a gas bill in February, it may be higher than the one they receive the following month in March, as the weather warms up and less heating is required. That bill is to be recorded as such in February to reflect higher gas usage for that month, which is also key for comparative reporting.

For a cell phone, perhaps a client goes on a trip and incurs additional charges for data usage, roaming, etc. That bill should be recorded as such to provide the client with a report showing the actual expenses incurred for that period. Higher-level accrual accounting would not just record the bill on the bill date, but would actually adjust the expense based on the usage dates on those bills.

At year's end, accruals can be a very important piece to the client's final bottom line for the year. Clients may receive bills in January, and sometimes later, for expenses incurred in the previous year.

Common examples include:

repair bills
legal bills
services bills

Many times, you will also see legal bills that come in for services performed in the prior month. As such, those expenses should also be accrued into the prior period. The same types of adjustments would be necessary if a client pre pays for services. Examples of prepaid expenses include:

Insurance policies
Future purchase deposits
Service deposits
Event deposits

In these instances, the first step would be to post these items to a Prepaid Expense, which is an asset account, and then expense them at the proper time.

Cash Basis

Revenues are recognized when cash is received and expenses are recorded when cash is paid.

Accrual Basis

Revenues are recognized when earned and expenses are recognized when incurred.

Do I Need Accrual Books Instead of Cash?

Believe us, we get it. Cash accounting is simple. You only record earnings and expenses when cash comes in and goes out, right? We’re not saying cash accounting is bad; it serves its purpose and lays its cards on the table. But for several reasons, many businesses prefer accrual accounting to report their financials, or if push comes to shove in a court of law, there’s a paper trail to back up their income. Using accrual accounting insights, you can keep tabs on your business’ financial health and stay in forward motion. You can make predictions about the business's:

Value
Growth
Potential revenue

Plus, report expenses according to when they occur. By doing so, you get ahead of schedule, so bills don’t pile up and you know you have to save money if you’re having a low-sales season.

Key Takeaways

Revenue Timing: Accrual accounting records income when earned, providing a clearer picture of sales performance than cash-based tracking.
Expense Management: Expenses are recorded when incurred, which prevents "spikes" in reports and allows for better monthly trend analysis.
Cash Flow Forecasting: By tracking payables and receivables, businesses can predict future cash needs and avoid budget shortfalls.
Scalability: While cash accounting is simpler, accrual is essential for businesses with inventory, credit terms, or complex service cycles.

Dan Gertrudes

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Understanding the 1065 Form

Fri, 05 Feb 2021 14:46:07 GMT

What is the 1065 Form?

The 1065 Form is specifically designed for business partnerships who need to file their annual federal tax returns. It allows these businesses to report their income, losses, gains, deductions, credits, and more. If you’re a partnership and unfamiliar with 1065 Form, keep reading!

Who is Form 1065 For?

Form 1065 is for business partnerships, or legal entities that are formed by two or more individuals who decide to run a business as co-owners. Your partnership agreement may mean your entity is a limited liability partnership, general partnership, limited partnership, or LLC. It’s what’s known as a pass-through entity where profits and losses go directly through each partner.

Each partner in your partnership will state their profits and losses on their personal tax returns. Even though your partnership must file a 1065 Form on a yearly basis, you don’t have to pay taxes on it. Instead, you’ll make your tax payments when you file your personal income tax return.

How to File Form 1065

If you’re involved in a business partnership, you’re required to submit your Form 1065 on March 15th every year. Fortunately, you can file an extension and get six extra months to do, so if you’d like. Before you file Form 1065, be sure to gather your balance sheet, profit and loss statement, and other year-end financial statements.

You should also have your partnership start date, Employer Identification Number (EIN), and business code (NAICS code) on hand. Receipts and returns as well as other details that will help you calculate your cost of goods sold will be useful as well. Here are the schedules you’ll find on Form 1065.

Schedule L: Schedule L will ask you to outline your balance sheets from the start to the end of the year. At its core, a balance sheet includes your assets, liabilities, and equities. It’s a snapshot of your financial health at specific moments in time.
Schedule M-1: In Schedule M-1, you’ll state any income, expenses, or depreciation that were not deducted on your return. This way the IRS can reconcile the difference between your taxable profits vs. what you actually reveal as net income on your books.
Schedule M-2: Schedule M-2 will allow you and your partner(s) to disclose changes in cash, stock, property, or other earnings you have not previously accounted for.
Schedule K-1: Schedule K-1 is where you and your partner(s) report your share of income, deductions, and credits on your personal tax returns.

At the end of the day, the most important piece of the 1065 is the K-1, as that is going to be the document that each partner uses to reflect on their personal taxes. Keep in mind that each individual may actually be personally liable for the taxes due from the businesses depending on how the partnership legal documents were written.

Need Assistance with Your Form 1065? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. You can trust us to fill out your Form 1065 with accuracy and advise on how you can take advantage of your unique business nuances to meet your business goals. Contact us at 888.673.8481 for more information!

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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5 Tips to Managing Your Accounts Receivable

Fri, 29 Jan 2021 14:00:02 GMT

Tips to Managing Your Accounts Receivable

No matter your industry, a steady, positive cash flow is vital. It’s what will allow you to pay your employees, purchase inventory, and serve your customers. Therefore, you should design a strategy that allows you to establish sustainable cash flows.

One way to do so is through proper accounts receivable management. Here are five tips to help you take control of your accounts receivable process and avoid cash flow issues that take a toll on your organization.

Set Up Electronic Payments - Your customers lead busy lives, so it’s your job to make it easy for them to pay their invoices on time. You may want to set up electronic payment methods through platforms like Melio or Bill.com . The less hoops your customers have to jump through to pay you, the more likely you are to get paid on time.
Provide Multiple Payment Options - There’s no denying that customers like options. Some want to pay with a credit card or electronic funds transfer. Others, however, may be old school and prefer to send a check in the mail. By offering multiple payment options, you can prevent payment delays that are the result of inconvenience.
Outline Your Payment Terms - Make sure your invoices clearly outline your payment terms. Do you operate on a net 30 where customers have 30 days to pay? Or are invoice payments due on receipt? Your customers should know exactly what you expect from them so place your terms in a bold, easy-to-read, font at the top of each invoice.
Send Reminders - Life happens and customers are likely to forget to pay your invoices. To avoid this situation as much as possible, send out polite payment reminder emails. Figure out if you’d like to send them a week, three days, or a day before payments are due. If your customers owe you larger sums of money, you may want to give them a reminder call to build some rapport.
Offer Early Payment Discounts - If you can afford it, consider rewarding customers who pay early with discounts. Maybe they receive 3% off, for example, if they pay within a week rather than 30 days. Of course, this only makes sense if you’re in an industry with sustainable profit margins and confident it won’t hurt your bottom line. This can also be used as an incentive for those customers that don’t pay within the defined payment terms. Remember, it’s better to have some cash versus no cash at all.

At GrowthLab, we help small businesses like yours succeed. You can trust us to manage your accounts receivable and make recommendations on how you can use it to increase your revenue and meet (or even exceed) your business goals.

Dan Gertrudes

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Why Does Someone Need Monthly Bookkeeping?

alison@growthlabfinancial.com (Alison Bulmer) — Fri, 22 Jan 2021 14:00:04 GMT

Why Do we Need Monthly Bookkeeping?

As a small business owner, you shouldn’t overlook the importance of your monthly bookkeeping. After all, it’s one of those things that can save you a great deal of time, money, and headaches down the road. Without keeping clean and accurate books, your business is likely to face financial chaos - think about it.. How are you supposed to measure performance if you don’t have clean numbers?! Here are several of the many reasons we think you should make it a priority...

Review Payroll

Your employees are likely the backbone of your business - they sure are for ours. Monthly bookkeeping ensures payroll remains accurate and compliant by allowing you to:

Verify Accuracy: Ensure employees are paid the correct amount every cycle.
Maintain Compliance: Confirm that the correct amount of taxes are being withheld.
Manage PTO: Monitor PTO accrual balances to prevent them from becoming a large unmanaged liability.

Keep Track of Customer Bills and Payments

Customer bills and payments allow your business to collect the cash on the services performed. While you should send out bills right after your customers receive products or services - or even before in some scenarios - it’s wise for your bookkeeper to review those at least collections once a month. There’s no easier way to grow your business than to make sure you’re collecting the payments on the services already rendered. Revenue is great, but cash is even better.

Handle Vendor Billings and Payments

You should also handle vendor bills and payments quickly. Since some of them may slip through the cracks, a monthly review by your bookkeeper is a good idea. They can ensure all of your vendors have been paid in a timely manner and take care of any bills that may have been overlooked. And even if you can’t pay them that month, at least this exercise allows your Accounts Payable listings to be accurate so you know where you stand. With monthly bookkeeping, you’ll be working towards continuously maintaining a healthy relationship with your vendors. After all, you probably wouldn’t have a business without them!

Simplify Taxes

Taxes can be complicated and overwhelming. With monthly bookkeeping, however, you can make life easier come tax time. You’ll have an organized, accurate record of your income. It’s much easier, and cheaper, to keep up with this stuff along the way, versus trying to do it all within a week before taxes are due. We know your CPA can do it at the end of the year, but you will also be paying for that expediting.

Understand Your Cash Flow

This is our favorite one. Cash flow refers to the money that flows in and out of your business. With monthly bookkeeping, you can understand where your cash is coming and going, as well as the specific timing of those cash flows. While over an extended duration your business may have done well, if these flows aren’t understood on a monthly/weekly basis, you may be missing some cash shortfalls.

Interested in Monthly Bookkeeping Services ? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. You can trust us to handle your books on a monthly basis and make recommendations on how you can use it to increase your revenue and meet (or even exceed) your business goals. Contact us at 888.673.8481 for more information!

Dan Gertrudes

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How to Properly Calculate EBITDA

Fri, 01 Jan 2021 14:00:05 GMT

How to Calculate EBITDA

Earnings before interest, taxes, depreciation, and amortization, or EBITDA, is an important metric for your business. Knowing this allows you to analyze your earnings without considering interest, taxes, and other variables so you can compare your operations and success to other businesses in your industry. Let’s dive deeper into how to calculate EBITDA and how to use this figure for decision making.

Factors in EBITDA

As stated, the factors are Earnings Before Interest, Taxes, Depreciation and Amortization. You can use them to calculate your profits and don’t have to account for debt, tax payment, or asset depreciation. Here’s what each factor in the formula means:

Earnings: Income earned from products, services, or investments.
Interest: Charges for taking on debt.
Taxes: Self explanatory.. Everyone’s least favorite expense!
Depreciation: The expensing of assets over the duration of their lifespan.
Amortization: Principal and interest charges on loans.

Asset: Valuable assets (intangible and tangible) like intellectual property or real estate.

EBITDA Formula and Example

The formula is as follows:

Net Income + Interest Expense + Taxes + Depreciation + Amortization = EBITDA

Let’s say you own a clothing company and want to use this formula. You take a look at your income statement and find these numbers.

Net Income: $300,000
Interest Expenses: $8,000
Taxes: $1,000
Depreciation: $6,000
Amortization: $4,000

Once you add up all these figures, you’ll end up with an EBITDA of $319,000. If you’re displeased with it, it may be worthwhile to start at the top of your Income statement. Do you truly understand where you make and lose money? Are there places where you can lean out your expenses and “tighten the belt” on spending? If you don’t understand the root cause of why your EBITDA is the number it is, then you’re probably going to have a hard time fixing the problem. Give us a call if you want an outside opinion!

Pros and Cons of EBITDA

A EBITDA can be useful because it shows the value of your operations and offers an overview of your business growth. However, as with most metrics, it comes with a few drawbacks. EBITDA can be misleading and disguise financial burdens.. Most specifically, this does not always show the cash impact of your operations. Although you may have some great revenues, if you’re not collecting the cash on that revenue, this number may be extremely misleading. Check out our blog on calculating your operating cash flows for more detail!

Dan Gertrudes

Frequently Asked Questions

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What is an 83B Election?

Fri, 04 Dec 2020 15:00:02 GMT

83B Elections

With an 83B election, you can pay taxes, at ordinary tax rates, on the total market value of your equity grant at the start of your vesting agreement. You’ll be able to do this instead of paying taxes on it annually. Put simply, once you own your company’s restricted stock, you’ll have the opportunity to pay taxes on it immediately, rather than in installments over time.

If your stock increases significantly, you won’t be required to pay annual taxes unless your company goes public, merges with another firm, gets bought or there is a sale. When the stock is “sold” you are taxed at Capital Gain rates. Essentially, an 83B election offers an effective way to make the most out of your stock compensation.

Benefits of an 83B Election

The most noteworthy benefit of an 83B election is the fact that it can save you a great deal of money on taxes. Of course, your particular situation will determine exactly how much tax savings you’ll enjoy. Understand that if you’re a startup that isn’t worth much at the current moment, an 83B can only benefit you. You won’t have to worry about paying more in taxes if your stock prices go up.

Drawbacks of an 83B Election

It’s important to note the major risk of the 83B. Since your stock prices do have a chance of going down in value, you may lose money even though you’ll save on taxes. That’s why 83B is ideal if your company has a lower valuation. In addition, if you decide to leave your company before your restricted stock vests, you’ll miss out on the tax money you paid on any invested shares when you initially filed your election.

How to File an 83B Election

You must file an 83B election within 30 days of the date your stock was issued. To do so, follow these steps:

Fill out an 83B election form and cover letter. You can find templates online or reach out to our team to create one for you.
Make three copies of the signed form.
Send the form and cover letter to the appropriate IRS office. The IRS website will inform you of where to mail them to.
Send your company a signed form.
Keep the last signed form with the receipt for your records.

Interested in an 83b Election? Contact GrowthLab Today

At GrowthLab, we help small businesses like yours succeed. We can guide you through the process of an 83B election so you can save on taxes, protect your company financially, and set yourself up for success. Contact us at 888.673.8481 for more information!

Stephen Cummings

Vice President of Business Strategy & Tax at GrowthLab Financial

Stephen Cummings brings over 50 years of deep expertise in finance, tax, and treasury strategy to his role as Vice President of Business Strategy & Tax at GrowthLab Financial

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20 Questions To Ask When Hiring a Finance-As-A-Service Firm

Wed, 09 Sep 2020 19:05:55 GMT

Questions To Ask When Hiring a Finance-As-A-Service Firm

GrowthLab is your Finance-as-a-Service partner serving Founders and Management Teams with Financial Planning & Analysis (FP&A), Remote Bookkeeping, Accounting, Virtual CFO, Tax Advisory, and Workflow Automation on a monthly subscription basis.

While it can be a relief to be able to hand the tedious and difficult work of dealing with your finances over to someone else, it can also be nerve-wracking. How in the world do you navigate the financial terrain of business? We’ve created a list of 20 questions that you should ask to determine whether hiring a finance-as-a-service firm is right for you.

1. When do I Need a GrowthLab CFO?

There comes a time in most businesses when the owner spends most of their time hovering over spreadsheets and creating financial statements instead of with customers, working in the business instead of on the business, and just being overly consumed by details and finances. When that time comes and you still don't have a solid budget or annual operating plan (AOP), it’s a good indicator that you need someone to support you.

2. Why do I Need Virtual CFO Services?

Having a Virtual CFO can provide your business with strategic financial guidance without the expensive salary of a full-time CFO. They can help you with financial forecasting, budgeting, financial analysis, and decision-making support to drive your business forward. This service is particularly beneficial for small and medium-sized businesses looking to scale up effectively and efficiently. And a lack of clarity and confidence in your business’s financial situation can be incredibly stressful. Hiring a Chief Financial Officer (CFO), provides you confidence knowing your finances will have oversight, it gives you operational alignment, strategy, and planning. Essentially, a CFO will set your mind at ease and pave a clear financial path for your business.

3. Why Shouldn’t I just Hire an Accountant?

Strategic and financial planning requires much more than just startup accounting services, it requires years of experience beyond just numbers. It’s important to remember that business planning is not based on tax planning, but tax planning is based on business planning. You need more than just an accountant.

4. What’s the Difference between Cloud Accounting Firms and What my CPA Does?

Cloud accounting and bookkeeping focus on providing support to management and help in decision-making centered around technology, while the role of a Certified Public Accountant (CPA) is to focus on bookkeeping to prepare for tax filings.

Cloud accounting firms are built from the ground up and designed to serve the whole finance and accounting value stream. Their focus is to deliver financial reporting and bookkeeping processes year-round, while a CPA’s focus for 4-6 months of the year is strictly tax preparation.

5. Can I Afford not to Have an Accounting and Finance Team?

While there are a number of businesses that do fine managing their own finances through bank accounts and point-of-sale services, hiring an accounting and finance team provides a vast amount of benefits.

If you would like to translate business strategy and financial performance to external constitutes, you will need an accounting team to capture historicals for comparison and compliance reasons. If you would like to translate them to potential bankers and investors, having strong financial acumen really backs you up and supports your storytelling.

6. How critical is Financial Management and Accounting for my Business Strategy?

Business strategy is basically the map of your business highlighting where you’re headed and how to get there. Financial management and accounting are imperative for business strategy because they make up huge portions of that map.

With financial management , you are defining your performance metrics and translating them to your strategic goals. Accounting is used to capture the data so that you are able to measure your defined metrics.

7. What’s the Difference Between Accounting and FP&A?

FP&A stands for financial planning and analysis. FP&A are in-house finance roles responsible for developing forecasts, budgets, and long-term planning of your company’s finances and strategy.

Accounting departments focus mainly on company records, reports, and transactions, and FP&A focuses on the story behind the numbers . The differentiator can be as simple as this, accountants focus on the “what” and the FP&A center on the “why” when it comes to the state of your company’s finances.

8. Am I going to get what I need from a Finance as a Service company or should I hire a Local Contractor?

With a virtual FaaS firm, you are working with a company that has greatly invested in people, processes, systems, and technology. They know what they’re doing, they utilize modern tools, they are progressive, and they are at the top of their game. Part of their branding adopts values of sustainability and business continuity.

When you work with a local contractor, they typically lack a support system, modern tools, business continuity, and more. Your options with local contractors tend to be limited.

9. Why Choose a Virtual Firm over a Local Freelancer?

If you are looking for a firm to do more than just take over your non-core functions, and also want continuity, management, and people strategy, you will want to hire a virtual firm instead of a local freelancer.

10. Can I really afford a Virtual CFO, Controller, Accountant, and Bookkeeper, together?

You aren’t going to be able to afford everyone, so you need to focus on the stage of your business at a particular time. Eventually, you will need someone with the capabilities to perform in all of these capacities. A FaaS firm will be the best option for you when you hit that point.

11. I have a CPA, why should I hire a FaaS firm to do my bookkeeping?

A FaaS firm compliments CPAs, especially during the 4-6 months when they are focused on taxes and audits. FaaS firms handle the whole financial value stream, ensuring that you have a doable strategy, plan for all aspects, and make sure that proper implementation happens.

Here is a great article on how we structure our offerings: https://karbonhq.com/resources/start-offering-finance-as-a-service-to-your-clients/

12. What types of reports, KPIs, business intelligence, and proformas, can you help me develop?

We assist in a variety of ways that are essential to your business.

We build out multi-year long-range plans that help to inform capital, people, and operational scaling needs .
We craft your annual operating plan, which is the link between your long-term strategy and your short-term execution. This proforma is essential for helping team members create their yearly goals, which then allows managers to design a compensation plan for best behavior and performance for the year. The annual operating plan is used to measure month-over-month performance.
We provide an A to B report so that you can review your end-of-the-month financials.
We can build fully built-out dashboards, synopsis reports, and more.
We can build out a 13-week cash flow model for your business.

13. Are you a consultant that will tell me what to do, or will you actually do it?

While part of our onboarding process is much like management consulting, we also provide a discovery, design, and implementation stage. We differ from a management consulting firm because we essentially own the execution and progress of your strategies month after month for years. Basically, we take ownership, we back you up, and we ensure success.

14. I’m a startup, do I need startup accounting services and FP&A?

You don’t need the capabilities, but we can benefit small businesses in a number of ways. Suppose you have trouble understanding where you are making money and losing it, understanding your cash flow, marketing for profit, or how to pay employees for performance. In that case, the capabilities that we provide will help you improve your abilities and understanding in those areas. As for startups, it is important to have a business model or annual operating plan (AOP) for capital raising and for your investor and board of director reporting.

15. Can I use spreadsheets for bookkeeping and budgets?

You absolutely can use your spreadsheets. You can also just use your bank account. It’s possible to manage your business with just spreadsheets and a bank account. Problems arise though when business grows and your transactions become more complex and abundant. Then your bookkeeping will evolve into a chaotic maze that you can’t get out of.

16. Am I going to get charged every time I pick up the phone?

Our business model intentionally keeps our customers in mind. Our goal is to become an extension of your management team, fully embedded in the processes and systems of your business. Our pricing model already takes into account the communication needs of our customers.

In order to have full awareness and ensure that our strategies work for you, we need to be available for you when you need us. To meet that need, the common pricing model of FaaS firms is built around a monthly recurring revenue with a 12-month commitment and limited set-up fees.

17. My banker is always telling me I need financial help, does your firm have turnaround experience?

We are 4 years out from the beginning of the COVID pandemic in April 2020. Although we have experienced economic expansion, hyperinflation, and rising interest rates, we believe in all likelihood that certain parts of the economy are slowing down, putting pressure on the company's cash flow and financial performance. As a FaaS provider, we understand the importance of managing cash flow , knowing where you're making and losing money, marketing for profit, and compensating employees for performance. While using spreadsheets or bank accounts is a good start, complexities arise as your business grows.

We aim to be an integral part of your management team, offering support without charging every time you pick up the phone. Our pricing model is designed to align with your communication needs, encouraging open dialogue and collaboration.

With a decade of experience in financial services, we are equipped to navigate economic challenges and provide turnaround solutions during periods of slowdown. We focus on accounting systems, cloud accounting, financial management, and rethinking business strategies for companies that are facing financial distress.

18. What metrics or KPIs do you recommend on the accounting, finance, and strategy side?

Free Cash Flow is the top financial metric for any small business to look at. We analyze your FCF, and then look at your gross margin, which tells you what percentage of revenue is left over. This helps us determine what you can sell, how much you can sell it for, how much you can make it for, and how much you can service. We check out cash efficiency metrics such as working capital, average days outstanding, amount of inventory, number of times inventory is turned, and how they’re keeping up with vendor payables.

19. Can they help me decide if I need to hire?

Of course! We have three ways to help you decide if you need to hire.

By helping you to understand your metrics and how to define and model the metrics to make better decisions.
By helping create HR systems to ensure a solid employee onboarding process, compliance, employee handbook, and an effective payroll system .
We craft an annual review cycle for you, complete with a compensation framework that is aligned with your overall business goals.

20. How are business strategy, finance, accounting, and HR interconnected?

All of these functions weave together seamlessly, and shouldn’t be disconnected. Accounting feeds finances, finances inform company strategy performance, and the strategy informs HR . Together they create a seamless business flow that allows your business to function in an efficient way. And let's not forget, we also provide tax advisory services to our business customers with our Virtual Tax Manager offering!!

Our team of experts is here to help. Schedule a meeting below.

Dan Gertrudes

Other Blogs Related to Finance-as-a-Service

What Do Investors Want to See in a Financial Forecast?

Fri, 28 Aug 2020 19:06:14 GMT

What Investors Want to See in a Financial Forecast?

Check out this video on “What Investors Want to See in a Financial Forecast” brought to you by our friends at BusinessTown. Check them out at businesstown.com

Dan Gertrudes

Other Blogs Related to Startup Finance

Digital Marketing Tips for Small Businesses After Q1

Fri, 28 Aug 2020 19:06:10 GMT

Digital Marketing Tips for Small Businesses After Quarter 1

The first quarter of the year is over and I hope we all achieved or went above our projected marks. Did you grow in the short term? If the answer is no, that could be because of your marketing efforts, especially digital marketing.

What is digital marketing? Let’s review!

First things first…

To run a successful business, you need a strong digital marketing strategy that helps you stand out from your competitors. Look at what you did well in 2017 and what you did not. A colleague of mine said, “use data to leverage your marketing.”

Analyze the:

Who
What
Where
When

This will help you determine how to market your business. Focus on your target market and utilize your data and technology for optimal results.

Secondly

Technology is constantly evolving, but that doesn’t mean you should abandon the major social media platforms you’ve used over the past few years. Platforms such as the following continue to perform at high levels and remain effective marketing tools for many businesses:

Twitter
Instagram
Facebook

If you are currently using these platforms, take time to evaluate your results. If they are working well, continue using them. When reviewing, consider the following metrics:

Conversion rates: How many users are taking the desired action after seeing your content?
Click-through rates: How often are users clicking on your posts, ads, or links?
Cost per click: Ho w much are you paying for each click on your ads?

You should also ask yourself:

How do these metrics compare to competitors or industry averages ?
How do they add to your overall cost per customer acquisition ?

Reviewing these metrics can help you determine which platforms are delivering the best results for your business.

Email Marketing

Email marketing can be very effective when used correctly. However, you should avoid infiltrating customers' or future customers’ inboxes with too much material. If customers feel their inboxes are being flooded, they are more likely to delete your messages or unsubscribe. In many cases, sending one email per week is enough to keep customers engaged and your company connected with them, reminding them of your services, while still respecting their time.

At GrowthLab, we often recommend using Active Campaign . This platform offers more than basic email marketing.

If you're starting out with email marketing, try A/B testing on your client list. Half will receive one form of the email and the other will receive a different layout.

Mobile Marketing

The biggest tool in marketing that has grown the most and keeps growing in the coming years is Mobile marketing, 80% of all internet use will come from mobile in the next few years. Another staggering statistic is that 60% of internet usage occurs on mobile devices. Because of this usage, businesses must ensure their websites, emails, and content are mobile-friendly . Some companies also consider developing mobile apps because they allow customers to access your business, services, and content directly from their phones at any time.

Content, Content, Content

Content remains the most important part of marketing. In previous years, many businesses focused on how much content they were posting rather than whether the content was truly relevant to their company or audience.

Take Gary Vaynerchuk , for example. T his guy is the content king. He posts often, reaching the double digits per day across the social media platforms he uses. His strategy works because he understands his audience and the message he wants to share.

Much of his content focuses on:

Business advice
Self-motivation
Personal growth and mindset

Because of this, many people can relate to his content and take away a message or theme from his posts. Even with a very high posting rate, his strategy works.

However , small businesses should not feel pressured to follow this exact approach.

When planning your content strategy, consider:

Creating content that is relevant to your audience and business
Creating content that will produce the best return
Posting consistently, but focusing on quality over quantity
Sharing content that provides value, insight, or motivation

There are also platforms that can help simplify this process. Some tools can automatically filter and fetch relevant articles and schedule posts for you. My favorite is Content Studio which can help you discover content and schedule posts in advance. This allows you to spend more time focusing on other important parts of your business.

Even though t here is no magic potion or magic fairy with the right answer to digital marketing. Finding what works to receive pontential leads that may turn into clients is the key. Most times, plugging in and out of different techniques will be beneficial. Technology and automations can help tremendously if you use it correctly. However, at the end of the day, you must find what works best for your business and market the right mix so the ROI pays off.

Frequently Asked Questions

Revisiting Your Annual Operating Plan

Fri, 28 Aug 2020 19:06:06 GMT

Your Annual Operating Plan

As a business leader, you either love or hate creating and managing budgets. No matter which side you are on, you know that budgeting is where the rubber meets the road in terms of translating your strategic plan into an execution long term plan for the next twelve months.

A comment about budgets you may hear is, “I know I wil l be off-budget so I don’t create one and if I do, I don’t pay attention to it.” This is a mistake many business owners make. You do not drive in a car for more than 10 miles without turning on your GPS, so why would you drive your business for twelve months without a GPS?

But what happens when you are halfway through the fiscal year and far off-budget? Well, what does your GPS do? It recalculates. You need to do the same with your budget. You must re-allocate your resources so that you can get to the same destination even though you are taking a different route.

So, what does this “Recalculation” look like when managing a budget? Today, we will remove some of the mystery associated with revisiting your Annual Operating Plan (AOP).

Before starting the planning process, first, you need to know where you are. It is arguably impossible to reach where you want to go in AOP planning if you do not know where you currently stand. This is why it is important to pull all source documents including Year to date (YTD) financial statements and spend time reviewing them. You don't need the previous years budget for this step. This will provide you with an address or understanding of your business’ dynamic for the first half of the year.

You should then indicate which materials are typically under or over budget, examine corporate goals, and strategic business review (if applicable). Here, you can determine if your original AOP planning supports corporate goals and make necessary adjustments for key performance.

After, you can review your budget with functional leaders. Leaders include sales, marketing, operations, product development, etc. By spending time with the officers of each department you can get a gauge as to where they are with their budget. This is also help you gage the marketing plan and budget along with it. It is beneficial to review corporate goals for the second half of the year and discuss what each department needs. Since there will be bumps in the road, you should modify the budget in terms of money, people, or machinery.

During this meeting with department heads, your company should also identify potential risks and opportunities to the updated AOP budget. These risks and opportunities are ones that the original AOP process did not account for. Next, identify countermeasures to maximize efforts in achieving the top line plan by decreasing exposure to risks and capturing present opportunities. Then, pinpoint resources needed. These can be either reallocated or acquired and assist with countermeasures such as capital, marketing, people, property, plant, and equipment.

Now you should be ready to adjust your original AOP budget so that it reflects new resource and timing changes and begin down your new path.

Dan Gertrudes

Frequently Asked Questions

Other Blogs Related to Startup Finance

GrowthLab’s 5 Steps to Weather the COVID-19 Storm

Fri, 28 Aug 2020 19:05:36 GMT

5 Steps to Weather the COVID-19 Storm

1. Be Surgical with Expenses

■ Smart business owners use a scalpel to cut expenses surgically, not an axe

2. Focus on the Customer Experience

■ Great companies use difficult times to focus on the customer experience

3. If the Constraints are too Large, Refocus on your Business Model

■ Agile businesses adapt in order to succeed… like restaurants are doing to stay alive

4. Short Term Planning

■ Smart managers understand their cash flow and cash needs for the next three months

5. Long Term Planning

■ Big picture thinkers don’t lose sight of the drivers of their business over the next three years and cash requirements – Bank Debt, Working Capital, or Equity for example.

GrowthLab’s Financial Survival Guide

Fri, 28 Aug 2020 19:05:34 GMT

Financial Survival Guide

1. Keep an Eagle Eye on Expenses

Be surgical with expenses. Cut with precision and cut thoughtfully. Don’t make drastic moves. Drastic moves should be done only when we have a fundamental business reason to adjust; even before a drastic cut, re-think the business model. If you are a restaurant, yes, you will need to cut food orders and thin staff, but don’t abandon the lease. Think about what else you can do?
Segment your Expenses. Segment them into foundational, people, and variable expenses. Use this to help you choose what to cut out with the surgical scalpel..

Which expenses are foundational to your business? What do you need to spend in order to keep doing what you are doing? What do you need to do to keep providing what you are providing? These are the things you should protect because you need to have them in place when you come out on the flip side.
Set your people expenses aside, we’ll deal with that in step #3!
Which expenses are truly variable expenses? What can be done by your team that is currently being done by someone else? What services could be downsized without adirect near-term degradation to your revenue? These are the things you should look to cut first

2. Be Strategic with Revenue & Customers

Let’s face it, not all customers will look the same in 6 months and you may need to prioritize. To doso, review your customers with a lens to segment them into three categories. This will be based on your understanding of their industry and the context of the economic impact of current happenings. The three categories are: high, medium, and low risk customers.
High - The high risk customers are those who are, most likely, not going to survive and ultimately pose a credit risk to your company. Keep their receivables on a tight leash or ask for payment up front. You are, ultimately, doing them a favor by not staying blind to their situation and your own situation.
Medium - Those customers who might need a bit of help from their vendors, but are going to likely survive fall under your medium risk customers. These customers pose some risk, but you are comfortable that the fundamentals of their business will, ultimately, return. For these customers, consider deferring some fees or allowing longer payment terms or even a higher level of credit. Work to keep them as customers and navigate as a strategic partner with them.
Low – Lastly, the low-risk customers are those who you are confident, are going to survive. These may be the well-funded, early stage ventures or those whose businesses are experiencing an uptick due to the current situation. Focus on keeping their service top notch, unwavering, and constant. Give them no reason to put your expense line on the chopping block.

3. Now Look at your People & Key Vendors

Make sure your people expenses match with what you need to accomplish in the next 3 to 6 months. Said another way, which people are part of your foundation? For those who are part of the foundation of your business, do everything you can to protect them. If you have just, “nice to have” people or vendors, those are targets for adjusting their engagement.
For service businesses and emerging growth startups, people costs are typically the largest line item. Downsizing cannot and should not, be taken lightly as it will have a lasting impact on the business. It takes time and real money to attract, train, and retain great talent, so don’t cut lightly.

4. Build a 3-month cash plan

Now, with the building blocks of thinking and organizing of information that you’ve done, you are going to build a detailed 13 week cash flow plan . What is this and how do you do it? Well, we’ve got a cheat sheet for that here. The summary is that you build a spreadsheet where the columns follow your weeks (#1-13). The first row is starting cash. The last row is ending cash. The middle rows are the detailed cash inflows and outflows. Update it weekly on the same day to retain your focus on keeping the bank balance where it needs to be.
At this point, cash is king; everything else is secondary. If you can’t meet payroll for your foundational people or you can’t pay key vendors, all the secondary “stuff” doesn’t matter. Thus, cash is king.

5. Build a 3-year plan

Once you’ve got a few weeks of short-term cash management in place with the 13 week cash flow tool, you have a better sense of the sustainability & liquidity of your business in the new paradigm. You have also, most likely, been thinking about the longer-term and what needs to change to be sustainable in 12 months or 3 years. That’s where you turn to next…putting a plan in place that translates that longer-term thinking into a dollars-and-cents, financial pro-forma.
You may ask, “Well, what does this do for me when I simply need to get through the next six months?” Good question. What this does for you is that it let’s you, as the business owner, pick your head up for a few moments and look towards the horizon while focusing on seeing the path beyond those six months.
Thinking three years down the road requires that you are not blind to the impact of the downturn on your business. Not all companies are like Zoom, which is seeing a significant uptick in business from the crisis. Don’t be blind to the risks. Identify the risks and create countermeasures to address them.
Tactically, what you are doing with your three year plan is that you are answering two key questions:

Do I see a future for this business beyond the current downturn?
What capital needs (cash) will the business need to succeed?

If the answer to the first question is, “Yes,” then you need to answer the second question and identify where the capital is going to come from to sustain the business. Segment your capital providers and focus on the most likely sources which could include:

Revenue model
SBA Emergency Funding
HELOC
401k loan
Current banking relationship
Equity Capital

Paycheck Protection Program Calculator

Fri, 28 Aug 2020 19:05:33 GMT

The Paycheck Protection Program Calculator

There is a TON of activity right now with the CARES Act’s Paycheck Protection Program. It is a GREAT program for small and medium sized businesses.

If you’ve been reading our emails or joining us for the weekly “GrowthLab Jump,” we have been “preaching” that this loan makes total sense for the “forgivable” portion; yet we need business owners to be smart about planning for any unforgivable portion.

We created a Paycheck Protection Program (PPP) calculator to estimate the:

Potential maximum loan amount,
Likely forgivable amount, and
Remaining balance that would convert into a term loan.

It is a great tool for estimating and scenario planning because our #1 goal right now is to help you with short-term cash flow and liquidity needs.

CHECK OUT THE CALCULATOR HERE

Let us know if you need help figuring out what is “in” and “out” of the “payroll costs” number…it is not JUST gross wages, there are other things you can include. Our focus is to be conservative and maintain the backup you need six months from now when the dust settles.

We are actively helping customers apply and gather the backup documentation needed to substantiate the numbers. If you need help with any of this, let us know.

We are big fans right now of the BIG THREE…helping our customers have visibility and confidence in their 3-week, 3-month and 3-year plan.

Getting your SBA PPP Application Submitted

Fri, 28 Aug 2020 19:04:59 GMT

Getting your SBA PPP Application In

The GrowthLab Weekly Jump is an information session hosted every Monday that tackles relevant issues in today’s trying times! Jumpstart your week with practical advice in times of uncertainty.

In case you missed this week’s Jump session, you can find the recording & slide deck below:

This week’s focus is on getting your PPP application DONE. Then pivot back to COMMUNICATING with your people & customers. And focus on CASH. Re-focus on your business: Short-term Cash Flow Planning.

Actions for this week–

Get your SBA PPP Application Submitted
Communicate with your Team & Customers
Focus on Short-term Cash Flow Planning

Action 1: Get your SBA PPP Application Submitted

This is a great opportunity for most small businesses. It caused a ton of management distraction last week. Get the app done, submitted, and move back to business!

If you haven’t yet, GET IT DONE.
Find out if your bank is accepting applications.
Don’t wait for the bank past Tuesday, get in the queue at another bank.
Don’t apply in two places!
A lot of guidance has been given; takes away a lot of the gray area from last week.
If you have submitted, ensure you have a data room
Banks are asking for common items as well as some unique ones.
Make sure you have all the documents used to build your “payroll costs” number and headcount number for the application in a data room.

Action 2: Communicate with your Team & Customers

Now, more than ever, you should be bringing your team and your customers along in your journey. Be proactive, be open & transparent. No one is untouched by this crisis.

Communicate with your Team & Customers
Tell them:
The steps you are taking
What you are hearing from the market
Possible opportunities & risks
Get them to Engage:
Celebrate the wins
Articulate the risks & how you are mitigating them

Set cadence & communicate regularly. Make it a conversation, not a one-time broadcast.

Action 3: Focus on Short-term Cash Flow Planning

Build your 13-week cash flow planning framework. Always remember cash is king.

Tool
Know your framework ( use our guide )
Build your tool (or use ours)
Know your Cash Flow
What’s coming in?
What’s going out?
What key vendors take priority?
What accounts receivable needs pressure?
Cadence
Set a weekly cadence: update it every Monday morning

Strategic Planning & Execution with Your PPP Loan (Part 3 of 3)

Fri, 28 Aug 2020 19:02:44 GMT

Strategic Planning & Execution with Your PPP Loan

This is the third in GrowthLab ’s series. We previously explored, “ How to Strategically Use Your PPP Loan ,” and “ Cash Flow Planning & Your PPP Loan .”

Tracking & Documenting Your PPP Loan Forgiveness

Let’s do a quick recap of our journey to date, before we dive into documentation. First and foremost, you need to ensure that the money is spent strategically to drive business value (not just employment). Secondly, you need to plan cash ; optimize where and when you spend the money to ensure that you can get an optimal forgiveness amount balanced with optimal value for your business. And, lastly, you need to keep track of the PPP money to document your forgiveness which is what we’ll focus on here.

There was a lot of chaos going into the PPP. The law was passed and pushed through to banks without enough time to establish guidelines and expectations; but the program worked, businesses got their loans. When it comes to forgiveness, expect some similar chaos. There is a lot that we don’t know yet, but we do know that every request for forgiveness will require the right documentation. That’s the focus of this piece.

GrowthLab recommends that you keep a few things in mind and take a few key actions to keep your accounting and recordkeeping in order. Good accounting and records will help you be prepared to submit your forgiveness paperwork. Also, if you get audited by the SBA, you are going to be in a better position to prove that you were prudent in your forgiveness calculations.

Know that the rules are going to change — Remember how the rules changed as the PPP program was being developed? You should expect the same for the rules for forgiveness. Banks are anticipating that the treasury will provide more specific guidance in the upcoming weeks. Stay familiar with the guidelines and what is “in” and what is “out” of forgiveness.
Create dedicated bank account for your loan and only transfer money for “forgivable” stuff — Don’t let the money get “lost” in your operating account. Open an account to hold the PPP loan monies (or, if you don’t want to do that, put it into your payroll account where there is minimal activity). For every payroll run, transfer the exact amount of each payroll from your loan account to your payroll account. When you pay your rent, transfer the exact amount of rent to your operating account. When you pay your utilities, transfer the exact amount of your utilities. Do the same for health and dental benefits. Don’t do anything else with the PPP account — don’t put any other money into it or pull any other money out of it. Remember that these funds are not free money or income until they are forgiven. Treat them as such.
Plan for timing of payroll — Make sure that the cash you want to be forgiven is leaving your account during the eight week period. We recommend that you plan for all of your forgivable expenses. Take a look back at our cash planning piece in this series. If your last payroll falls one day or two days outside of the eight-week period, we may suggest running a special, early, payroll during the eight week period.
Create a new class in accounting system and use it for all relevant transactions — Create a new class in your accounting system. Call it, “PPP Loan.” Every transaction associated with the PPP forgiveness should be classed as “PPP Loan.” This likely includes wages, certain payroll taxes, utilities, rent, principal & interest on mortgage, and health insurance expenses. At the end of the eight weeks, you will be able to pull a cash-basis P&L by class to quickly see all your PPP Loan expenses.
Attach source documents to each PPP Loan transaction — Ensure that there is a source document uploaded to the transaction in the general ledger for every transaction that is in the PPP Loan class. Make the general ledger into your documentation guru. Thus, whether you are looking for documents to send to the bank or whether the IRS is auditing your books, you do not need to look beyond your general ledger for documentation. HubDoc and ReceiptBank are tools we use with nearly all our customers to do this for every source document, not just in special circumstances like this.
Do weekly check ins on your cash planning & forgiveness during the PPP loan period — Set a weekly cadence. Update your cash flow forecast. Review your anticipated forgiveness. Identify adjustments you could make to maximize business value. At a minimum, review your cash basis P&L by class at weeks 2, 4, 6, and 7 (because 8 is too late) to identify issues & opportunities and make final business (and cash) decisions.

The Granny Squibb Co.

Fri, 28 Aug 2020 19:02:18 GMT

The Granny Squibb Co. and GrowthLab

GrowthLab is creating a new segment to highlight our customers. We want to highlight their growth as well as something the company is working on for the future.

Growth — The companies growth story… what drove their entrepreneurial bug? What drove them to start the business?

Lab — If there was one thing the company could execute on in the next 12-18 months, what would it be?New Paragraph

This segment is highlighting The Granny Squibb Co . They are an organic tea company in Providence, Rhode Island. They now have six flavors – three sweetened and the same three flavors unsweetened with more in the works. They are sold in over 250 grocery retailers throughout New England including Whole Foods, Dave’s Marketplaces, and Urban Greens Co-Op.

What is the Company’s growth story and what drove you to start the business?

Granny Squibb Ice Tea Company started 10 years ago, Robin Squibb is the founder. When she moved she took her grandmother’s recipe and bottled it. My husband, Nick Carr, who is my partner andI met her about three years ago because we moved into the same apartment building as her. We had already been looking for an opportunity to work together. We wanted to find a company that not only had a great product, but we wanted to partner with someone that we trusted and that could mentor us and teach us about the business.

So three years ago, we met Robin Squibb and it was a very casual encounter. Pretty much, she was walking into our apartment building, she had just had a bad day and she went to Nick and was like, do you know anyone that wants to buy an ice tea company? Nick kind of laughed it off as a joke. He came upstairs and told me, as a joke, he was like, oh, you won’t believe what Robin just said.Right then it clicked. We’re like, we’re going to learn more about this. So we are essentially just right. Then walk down the stairs to our apartment. Knocked on the door, asked her if she was serious. She said yes. Then we spent 30 days with her every single day talking about the business. She had been highly focused on grocery chains. So she got us into Whole Foods, Wegmans and there was distribution throughout New England and into New York a little bit.

Nick and I realized that she was doing very little marketing and also wasn’t targeting smaller grab & go accounts like delis and restaurants and on premise accounts. So we saw this huge channel in her sales that wasn’t being tapped, along with the fact that she wasn’t doing a lot of marketing. It was a one woman show. So it was very hard. She was doing a great job.

If we triple the team over night, if we put our resources into this new channel of sales while we maintain larger grocery sales, then there’s a huge opportunity not only to grow the company in New England, but even in Rhode Island. We could triple the sales just with accounts in Rhode Island. So for the first two years of working at the company, that was our main focus. And we did it. We doubled sales. We were on our way to triple sales, but unfortunately COVID-19 hit. There are still a ton of opportunities. So we’re really, really excited about it.

If there was one thing the company could execute on in the next 12-18 months, what would it be?

With our lab, our cash flow plan and business plan was essentially thrown out the door when all this hit. Everything is changing. So our main goal is to essentially, to decrease our overhead without sacrificing anything that we have given to our employees in the past. So our team is by far the most important piece of this company.

So we need to figure out small, little ways, little channels that we can cut down costs without affecting the quality of life of our employees. So that’s what I’ve really been working with Korey on. We’ve been working on this large cash flow plan that still needs details, which is really hard to build because when you’re trying to put in your respective sales, we can’t based off numbers from last year’s numbers.

You guys are great. You’re awesome. I contacted you guys because I saw Dan do a webinar, I think it was through Venture Cafe. He was talking about a cash flow plan. And I was like “you” I need you. So it’s still a very baby relationship. We’ve only been working together for a little bit. I don’t even think that we’re close to the amount of work that we will do together. So I really look forward to that. But I think we have a great start and I’m excited about the relationship between GrowthLab and Granny Squibb.

– Kelley from The Granny Squibb CO.

15 Questions About The PPP Loan Forgiveness Application Process

Fri, 28 Aug 2020 19:02:14 GMT

Questions About the PPP Loan Forgiveness Application Process

Before applying for PPP forgiveness, read this to make sure you are maximizing your forgiveness and not missing out on other benefits like the ERTC!

***President Trump has passed legislation on the Consolidated Appropriations Act , that will deliver new stimulus impacting families and businesses, while also clarifying some of the tax drama that small businesses have been dealing with. Learn more about the second round of the PPP here. ***

As GrowthLab dives into everything PPP, we have fielded many questions during our weekly GrowthLab Jump sessions, office hours, and in customer meetings. Here are the top 15 questions about the PPP Loan forgiveness application process that we encountered during our live GrowthLab Jump session on Monday, June 29th. If these don’t answer your questions, just jump into one of our office hours or text us at 833-759-0277.

Keep in mind…the PPP loan forgiveness application is a tedious application. It has a lot of variables with a lot of employee data from various time periods… to help you out, GrowthLab has built numerous tools including a PPP Loan Forgiveness Calculator for both PPP Loan Forgiveness Applications — the EZ Form (Form 3508EZ) Calculator and the Regular Form (Form 3508) Calculator, as well as a guide for completion. If you have any further questions or need guidance, please contact GrowthLab. We also are providing Concierge PPP Loan Forgiveness Application services to our customers.

1. There are now two PPP Loan Forgiveness Applications, the original application and an “EZ” application. Which application should I use?

The best answer I can give you on this is our PPP Loan Forgiveness Application decision tree. It asks several yes or no questions to get you an answer to the “Which application do I fill out?” question.

2. Regarding the Covered Period for forgiveness, why choose the shorter 8-week period instead of the longer 24-week period?

Unfortunately, a lot of these things aren’t binary. I wish I could give a straightforward answer applicable to everyone, yet for many people, it comes down to cash. You may simply not have money to continue keeping people employed for 24 weeks. Maybe you were planning to furlough them after the 8-week Covered Period. On the flipside, why you may want to go with the 24-week Covered Period simply because if you had to downsize your headcount during COVID. In that case, many companies will be able to maximize forgiveness by utilizing the longer Covered Period even though you get “dinged” for downsizing heads…more on that later.

One of the key drivers to this decision is your “FTE reduction quotient” as the forgiveness application calls it. How much have you reduced headcount from where you were to where you are today or where you are going to be over the Covered Period? Some people were planning for the eight weeks. They plan, they hire accordingly. And it’s going to make much sense for them to stick with eight weeks.

Others are going to have lower payroll costs, but now they can extend it over a 24-week period. Thus, even though you’re only able to include half of your payroll expenses (due to the FTE reduction quotient), you have a larger payroll expenses and therefore are going to be able to still maximize your forgiveness.

3. What are the key drivers of the forgiveness calculation?

The two key drivers of the PPP Loan Forgiveness Application are Line 1 and Line 7 of the Forgiveness Amount Calculation. These are the “Payroll Costs” and “FTE Reduction Quotient,” respectively. You may think that “Payroll Costs” are straightforward, but the formulas, tables, and worksheets behind that “Line 1” have a lot going on. The “FTE Reduction Quotient,” similarly, has a lot of info and data behind it. This gets into the specifics of the application so let’s look at the actual application. Below is an annotated screenshot of the application — Form 3508 — the forgiveness amount calculation.

Let’s dive into “Payroll Costs.” Payroll costs are more straightforward than your FTE Reduction Quotient. If you’re looking at the actual application, Line 1 comes from PPP Schedule A, Line 10. In turn, Line 10 is made up of the following:

Cash compensation from Table 1 of Schedule A Worksheet. This is for employees who earned less than $100,000 or who were not employed in 2019.
Cash compensation from Table 2 of Schedule A Worksheet. This is for employees who earned more than $100,000 in 2019.
Non-cash payroll expenses including health, retirement, and state & local taxes.
Owners cash compensation.

For the average small business, most of your employees are probably going to be on Table 1. For those companies that had people making more than $100k in 2019, you will also have information in Table 2. This gets into some of the complication of creating the documentation in the Schedule A and Schedule A Worksheet. Those worksheets require information to be gathered for each individual employee by week. To simplify organizing the information, download our Excel toolkit and fill it out.

Non-cash payroll items are health insurance, retirement benefits and state & local payroll taxes. Federal payroll taxes are not included. Those are on a separate line of the application because these are part of compensation, but it’s non-cash compensation to your employees.

For the owner’s cash compensation. This line is for cash compensation to owners that is paid through payroll.

Regarding the FTE Reduction Quotient, this is formulated based on your headcount during the Covered Period (8- or 24-weeks, depending on what you choose) compared to your headcount during the Reference Period. Again, use our Excel toolkit to help you gather and organize your data.

And these two drivers play together to impact your forgiveness. If “Payroll Costs” multiplied by your “FTE Reduction Quotient” are lower than your loan amount, the full loan amount cannot be forgiven. So, back to the question of whether you choose the 8-week or 24-week Covered Period… If you have lower headcount and lower payroll during the Covered Period than during the Reference Period, you are likely going to benefit from the 24-week Covered Period because (a) your “Payroll Costs” number will be larger which will counterbalance the diluting factor or the FTE Reduction Quotient.

FTE & RELATED

4. How are FTEs calculated?

The PPP Loan Forgiveness Application offers two methods to calculate Full-Time Equivalents (FTEs):

Standard Method: Calculate actual weekly hours divided by 40 (e.g., a 30-hour employee is 0.75 FTE).
Simplified Method: Use a binary scale where employees working 40+ hours are 1.0 and those working fewer than 40 hours are 0.5.

Note: You must use the same calculation methodology for both the Covered Period and the Reference Period.

5. For FTE count, there are two possible Reference Periods. Can I choose whichever reference period I want?

Yes, you can choose either. So you will likely choose the one in which you have your lower number of FTEs. You have the option to choose either, just make sure that you use the same method of calculating FTEs for your Reference Period and your Covered Period.

6. In terms of reducing hours, is that on a per employee basis or overall across the company?

A lot of part time employees have voluntarily chosen to leave because they earn more in unemployment and covered stimulus funds. It is on a per.

This is on a per employee basis. That being said, it is calculated based on hours and headcount of people that work during your Covered Period. If you had somebody that left as soon as COVID hit, they are going to be in your Reference Period numbers, but they will not be in your Covered Period numbers. You don’t have to put zero in for them if you hired somebody else in their place.

When you hired somebody else in their place in your headcount, your headcount would be the same from the Reference Period to the Covered Period. If you didn’t hire somebody to replace that person, then it would bring your FTE down. That said, if you offered to have them come back and they said no (maybe because they’re making more money on unemployment), then you may be able to use the EZ application (use the Application Decision Tree to check). If that’s the only thing that would push you into the long form, you can choose to go to the easy form. Just provide documentation that you offered to bring them back and they refused.

7. What is the February 15th baseline?

The February 15th baseline is for your FTE count when you use the short form application– the “EZ” Application. And that is just a snapshot in time that they are using as a pre koban number or with what the baseline is in the easy application criteria.

If you go the long form, you do have other other choices to make. Like we reference in other questions, there are two reference periods if you use the long form application.

8. So if we have all full time employees. But may work 39.75 hours a week. Will they not be considered full time as one point five?

If all your employees work the same average hours in the Reference Period vs the Covered Period, than the fact that they are under 40 hours does not matter. It does not matter if you have 50 employees at 0.5 FTE each or 25 employees at 1 FTE each as long as the profile is the same from Reference Period to Covered Period. What matters is any differences between the Reference Period and the Covered Period. Said another way, if your employee profile looks the same as it did in the current period, you are going to be good.

SAFE HARBOR

9. Is there a Safe Harbor?

There is a safe harbor. And that safe harbor protects you from a reduction in your forgiveness, if you can get your numbers back up to pre-COVID amounts by or before December 31st. For instance, if you get back to February 15th, 2020 FTE levels by December 31st, you can just automatically enter “1” as your FTE Reduction Quotient. Therefore, based on your headcount reduction, you don’t get any reduction in your total forgivable amount.

DOCUMENTATION & LOGISTICS

10. How long does it take for the PPP forgiveness application to get reviewed?

The review process can take up to 150 days (approximately five months) from the date of application:

Bank Review: Approximately 60 days to process and filter applications.
SBA Review: Up to 90 days to determine final acceptance.

11. Can I use 100% of the PPP for payroll and get it all forgiven or am I limited to spending 60% of the PPP on payroll?

Yes, you can use 100% on payroll and get 100% forgiven. The 60% stipulation is not a limit on payroll. Rather, it is a limit on the non-payroll expenses. Those non-payroll expenses (rent, utilities, etc.) cannot be more than 40%.

12. What’s supporting documentation is the SBA expecting to back up the numbers on our application?

So there’s no specific guidance around that. The banks we have been in discussion with did not give clarity into that. They frankly don’t know. Be conservative and over-deliver on the documentation side. Gather the documentation as you collect the data. Gather anything related to an expense that you put it on your application.

If you have two backup documents, put them both in there. Also, don’t just wait for another day to gather the documents. Do the gathering of documents as you are putting your application together, as you’re calculating your numbers. Put the documents in a data room which is, essentially, a fancy name for a digital folder that you can share with your lender.

OWNER COMP

13. If an owner is not paid through payroll, are they considered in forgiveness?

No. If the cash to the owner does not go through payroll, do not include it. For instance, any payments to an owner of an LLC are not included. Any distributions to an owner of an S-Corp are not included.

14. So if you are self-employed as a realtor and don’t have any employees, what forms do I fill out?

If you are self-employed, just go straight to the EZ application.

WHEN WILL BE INCOME

15. Have you heard anything about how the government is going to go about recognizing that loan as income?

So if it is forgiven, the monies turn into income. They turn into income at the time that the monies are forgiven. Anything that is not forgiven remains on the balance sheet as a loan and needs to be paid back. So, thinking of tax planning. The forgiveness is going to directly — on a dollar-for-dollar basis — increase your Net Income (or decrease your Net Loss) and, thus, the forgiveness has a direct impact on tax planning.

Remember, also, that there is potentially a 5-month window from when you submit the application to when it gets forgiven. Thus, unless you get your application done in the next 30 days, you are not guaranteed to have the forgiveness be completed in 2020.

Key Takeaways

Form Selection: Use the "EZ" application (Form 3508EZ) if you meet specific criteria regarding headcount and salary reductions; otherwise, use the regular Form 3508.
Covered Periods: Businesses can choose between an 8-week or 24-week period; the longer period often helps maximize forgiveness if headcount was reduced.
Forgiveness Drivers: Total payroll costs and your "FTE Reduction Quotient" (headcount maintenance) are the primary factors determining your forgiven amount.
Timeline: The approval process can take up to 150 days (60 days for bank review and 90 days for SBA approval).
Tax Impact: Forgiven PPP funds are generally recognized as income for tax planning purposes once the loan is officially forgiven.

Frequently Asked Questions About the PPP Loan Forgiveness Process

Looking for more information on the Paycheck Protection Program? Check out some more of our resources below!

Healthy Babies, Happy Moms

alison@growthlabfinancial.com (Alison Bulmer) — Fri, 28 Aug 2020 18:44:27 GMT

Healthy Babies, Happy Moms and GrowthLab

This is GrowthLab’s segment to highlight our customers. We want to highlight their growth as well as something the company is working on for the future.

Growth — The company’s growth story… what drove their entrepreneurial bug? What drove them to start the business?

Lab — If there was one thing the company could execute on in the next 12-18 months, what would it be?

This segment is highlighting Healthy Babies, Happy Moms. They are passionate about having a positive impact on the health of babies and the well being of their mothers. They are committed to treating women with kindness and respect while helping them achieve success in their breastfeeding goals. They have expert nurses that guide mothers with the information and support they need to be confident in their ability to care for their children. They do this while minimizing stress and fostering their success in an atmosphere of comfort.

What is the Company’s growth story and what drove you to start the business?

Healthy Babies, Happy Moms started 20 years ago. I moved to Rhode Island in 2000 from Chicago. When I lived in Chicago I worked for a company very similar to mine. After I moved to Rhode Island, I found out that there was nobody doing what I was doing, so I started the business. At the time I had three young sons that I was staying home with, but knew I would soon need to return to the workforce. I started the business in my house and very slowly grew it, mostly by word of mouth and developing relationships with pediatricians who would refer clients to me. 10 years later, I was able to move the business out of my house and into an office space. Shortly after this, I secured a nursing agency license. I did all of that in anticipation of the Affordable Care Act being put into place. I knew that part of the mandate would be that my services would need to be covered. I was trying to get everything in line for when this was enacted so that I would have infrastructure in place to be able to handle the work.

Healthy babies, happy moms is a home health nursing agency that specializes in breastfeeding support for moms. There’s three components to our business. The first one is durable medical equipment. We provide breast pumps and infant phototherapy. Our breast pumps are for moms who are nursing and need a pump to work. Our infant phototherapy is for babies that are jaundiced and need to be readmitted to the hospital for care. Instead we do it in the home… We draw blood and have a nurse who goes to visit every day while the baby’s in the bed. It’s a great service because it keeps babies out of the hospital. The third component of the care that we provide is lactation counselors. We do those in our patients homes, in our office, and virtually. This is another service that is covered under the Affordable Care Act. It is making a huge difference in the success that women are having with breastfeeding and their ability to do it for as long as they want to… we get everything off to a good start.

If there was one thing the company could execute on in the next 12-18 months, what would it be?

One thing I am planning to do is add more products that are durable medical equipment… products that mothers who are pregnant would need. I’m also trying to increase our visibility as far as phototherapy goes. I feel like the vast majority of the pediatricians in the state that are dealing with families and have private insurance know about us. But the physicians in the Providence community health centers that are providing care to neighborhood families don’t know about us. Neighborhood, to their credit, has been covering the service for several years. I just think the doctors don’t know about it and I haven’t had the time or the ability to make a push to get into the health centers and let them all know. That is one area that I’m really hoping to grow the business.

My buddy Dan at GrowthLab has been helping me for years. I met him 6 years ago and he has been a great sounding board. When he bought the bookkeeping business I started using GrowthLab for bookkeeping in addition to seeking his advice when I needed it. Especially in the last six months, I’ve joined pretty much every jump call that GrowthLab has on Mondays. I’ve been able to navigate the PPP and EIDL only because Dan and Steve reached out to me to make sure that I knew what needed to be done. They have really helped me put myself in a good position to weather the storm and actually do well. I’m lucky because I don’t think a lot of other businesses have that resource and may not have the type of business that is going to survive something like this. I feel very lucky to have Dan, Steve, and Korey guide me through all of it.

— Kathleen Moren, Founder of Healthy Babies, Happy Moms

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