How the CFO’s Role is Becoming More Data-driven

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Lower costs and increase profits; that’s the universal mantra for CFOs. It’s as old as business itself.

What’s changing is the CFO’s role within business. They’re increasingly being asked to step up in tech and automation to propel growth while keeping costs down.

Partnering with IT

CFOs are now being asked to work closely with IT teams in designing and implementing digital tools that can provide data for decision-makers or analytics that help to identify areas within a company ripe for new growth and revenue.

As a result, CFOs are becoming more data-driven and basing key decisions on advanced analytics.

For example, the CFO of a multi-national company was tasked with overseeing the reduction of expenses by more than $750 million. The changes didn’t occur overnight, but gradually through the use of digital tools designed for specific needs like salary planning, financial forecasting, task automation and broader expense planning.

Driving front-end revenue

Cutting costs is no longer enough for successful CFOs. They must also look to long-term strategies for improved margins, revenue growth and development of new product or service lines.

Here’s where the analytics mentioned above also play a vital role in driving your company forward. If there’s no easy access to data around product line performance and profitability, sales and labor costs or sales forecasts, work with your IT team to make it happen.

Taking on non-financial roles

CFOs are also being asked to cross-train in non-finance roles within a company. It’s believed CFOs will gain better insights and develop new perspectives leading to a higher quality analysis of company data —  in turn, leading to sound financial decisions for the company.

While some jobs are lost due to automation, others are created. Instead of gathering data, displaced employees can begin to analyze it. Companies will often provide the training programs needed to become an analyst.

Simply put, analysts have the ability to condense data and present it. Data that is not only invaluable to the CFO, but others in the decision-making chain of the company.

By plugging-in all of the digital tools that are now available to them, company costs will decrease and profits will increase. Just as the company used in the first example, it surpassed the goal of slashing expenses by more than $500 million within a year of plugging-in its new technology.

Manage the rapid change of the CFO’s role with Magone & Co

We know the challenges privately held companies are experiencing — we’ve been there. That’s why we designed our Business Advisory services to help find areas that will most impact your organization’s success. Check them out and give us a call to see if they’re a fit with your company’s growth plans.

Operating Challenges: Clogged Supply Chains and Higher Costs of Doing Business

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Most business leaders expect revenues to rise throughout 2022, despite serious challenges.

The COVID-19 pandemic is winding down, but still interrupting supply chains. Energy prices are increasing, partially because of the Russian-Ukrainian War. Inflation is rising, and taming it may involve some economic pain for everyone.

Yet despite all this, there is good news.

Growth is expected to continue. In fact, 95% of business leaders expect their revenues to increase or hold steady, while 88% expect profits to grow or hold steady, according to JP Morgan Chase & Co. economists. The best bet for small and midsize business owners is to focus on the following:

  • Take a look at a new talent strategy. Many small and midsize companies are struggling to find and retain people. You may need a combination of outsourcing some business processes, engaging 1099 contractors or upgrading a benefits and salary strategy to attract high-quality talent.
  • Stay optimistic. Economists expect the U.S. economy to grow 2.4% through the third and fourth quarters of 2022 — and they expect growth to continue (albeit slower) throughout 2023, around 1-4%. They key thing to remember is you’ll be operating in a growing economy.
  • Supply chain problems continue to be rough, so you’ll need a risk mitigation strategy. The silver lining is this is an opportunity to see where you are vulnerable and where you need to source additional suppliers. (And on the business-growth side, where you can provide added value to your customers.)
  • Monitor costs closely, especially the impact of inflation. Energy costs are skyrocketing, affecting the entire supply chain. The federal government is looking to raise interest rates to tame inflation, and they expect it will cause economic pain. Devise a plan to protect your margins.

The good news: Despite a lot of vivid rhetoric in the headlines (i.e., “shattered” supply chains), supply chains are operating and the economy is expected to continue growing. And rest assured, there are plenty of options in talent, cost control, supply chains and growth.

Enlist the experts at Magone & Co

With our forward-looking Business Advisory services, we can help you identify the levers that will most impact your growth and success. Contact us for a free consultation.

 

Payroll Taxes Increase, But Tax Credit Relief May be Coming

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New Jersey business owners face a projected $200 million increase in unemployment insurance (UI) taxes scheduled to take effect in July.

However, a bill now being considered by the New Jersey Assembly Appropriations Committee would help minimize the impact on the state’s small businesses in the form of tax credits.

Assemblyman Roy Freiman, D-District 16, says while the UI tax increases may have a negative impact, it will be countered by the positive tax credits. Small businesses would be able to use the credits to offset their corporation business taxes and their gross income taxes.

If enacted, Senate Bill 2378 would adopt the U.S. Small Business Administration’s (SBA) parameters for a small business. According to the SBA, size standards are mainly based on yearly business receipts or an average number of employees. The SBA also indicates that its definition of “small” varies by industry.

Tax credits provided by the bill would be available for calendar years beginning in 2023 and the following year. Credits would be based on expected increases to unemployment insurance taxes in fiscal years 2023 and 2024.

The bill would also allow the tax credits to carry forward for seven years, and they are non-refundable.

If a small business uses government funds, including grants or subsidies, to minimize its contribution to UI, the business would be prohibited from using the tax credits.

Goal is lower UI taxes

Senate Bill 2378 has the long-range goal of reducing employer UI taxes. The bill’s sponsors are asking for the establishment of a supplemental unemployment compensation fund and $375 million to go along with it.

According to the bill, the fund would be used to pay off federal loans made to NJ’s UI fund. Once the loans are paid-in-full, sponsors say that will also eliminate federal charges for the debt, allowing the fund to regenerate quickly. With the reserves in the UI fund, sponsors hope that will lead the way for reductions in UI taxes for employers.

Opponents of the bill say the $375 million could be better spent elsewhere. They argue the current state of the economy doesn’t allow for diverting resources that could be used by people who are still out of work.

Finally, the bill calls for the Department of Labor and Workforce Development to notify individual employers, 30 days in advance, of any changes to their UI tax rates.

The bill is now before the New Jersey Assembly Appropriations Committee for consideration. We’ll keep you posted.

Don’t miss the credit if it applies to you

How will the new tax credit impact your payroll? Don’t miss a beat – the CPAs at Magone & Company have years of experience assisting businesses and individuals with our strategic Tax Planning Services. Give us a call today at (973) 301-2300 to learn more.

4 Reasons Your Nonprofit Needs an External Auditor

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How are you handling your nonprofit’s audits?

Internal audits are a great way to promote fiscal responsibility, but they’re not always the most reliable. Because the auditor is an employee of the organization with a vested interest, it can be challenging to conduct a neutral analysis.

An external auditor, on the other hand, has no affiliation with your nonprofit. They are typically CPAs who are hired to conduct a thorough review of all financial statements to ensure they fairly represent the entity. In other words, they verify the work of internal auditors — which can be beneficial to your organization for several reasons:

  1. Mitigate potential risks. External auditors are in a better position to spot discrepancies that can paint an inaccurate picture of your nonprofit’s finances. They can help board members identity any unethical practices or internal errors that could compromise the integrity of the organization.
  2. Perform a thorough analysis. The auditor will delve into balance sheets and cash flow statements, as well as leases, mortgages, donations, budgets and more. They may also interview your board members and your employees to learn more about internal controls.
  3. Offer outside expertise. Following their review, the external auditor will share their assessment with your organization’s audit committee. They may make recommendations on how to improve your processes and procedures, and safeguard assets. They will also answer any questions raised during the investigation.
  4. Strengthen donor potential. Did you know that charity rating websites take into account whether a nonprofit undergoes an external yearly audit? Donors may be more likely to contribute to a charitable organization with this distinction.

Preparing for an external audit

An external audit is usually performed at the close of an organization’s fiscal year. To streamline the process, begin by compiling the financial documentation that the auditor will likely need. This includes:

  • Banking and financial statements
  • Budgets
  • Donations
  • Payroll documents
  • Accounts receivable and accounts payable records
  • Mortgage statements or leases
  • Board meeting minutes

In addition, it’s important to share any factors or legal matters that may have impacted the organization’s reporting and recordkeeping. So be sure to collect any related documentation.

Guide your organization to a healthier financial future

Some nonprofits, because of the size of their annual budgets, or because they receive federal or state funding, are required by law to conduct an independent audit.

In other situations, a charitable nonprofit has a choice whether or not to conduct an independent audit. If you’re among the latter, you may choose to invest in an audit for the reasons mentioned above. If you need help determining if an audit would benefit your organization, give us a call at (973) 301-2300 to learn more.

Executive Pay and Fringe Benefits: Is Your Compensation Plan Triggering an Audit?

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Executive compensation has evolved dramatically in recent years, in terms of creativity, complexity and dollar value. For example, stock options, deferred compensation, fringe benefits and other “non-cash” alternative forms of payment are becoming increasingly popular at business types of all sizes, making up a larger portion of executives’ overall compensation packages.

But creativity isn’t fooling Uncle Sam. The IRS is well aware that executives often receive extraordinary (and potentially taxable) fringe benefits that are not provided to other employees.  And executive perks that are not properly reported can land both you and your company in hot water.

Under the IRS’s watchful eye

If your organization does get audited, here’s what you might expect as the IRS examines your executive compensation and fringe benefits:

  • Assessment of corporate executives and officers to identify the highly compensated employees and determine who is responsible for approving and processing their payments.
  • Review of meeting minutes concerning executive compensation. In this case, auditors are looking for decisions and instructions about the treatment of fringe benefits.
  • Inspection of employment contracts and severance agreements to identify salaries and benefits.
  • Examination of loan agreements between the corporation and executives and officers. 
  • Evaluation of monthly expense reports submitted by executives.
  • A search of accounts payable records for the names, titles and Social Security numbers of executives to establish if payments made to them were included on their Forms W-2 or 1099.
  • Examination of any documents filed with the Securities and Exchange Commission, such as Form 10-K, to identify compensation issues.
  • Scrutinizing of payroll codes or other accounting codes which might be used for executive expenses to detect payments which may be taxable.
  • Analysis of certain items on tax returns to see if fringe benefits have been claimed.

Getting ahead of an audit

When it comes to executive compensation, getting the details right and staying in compliance can be a daunting task. Reach out to the CPAs at Magone & Company to ensure your company’s executive compensation plans are in line with IRS regulations.

The Right Time to Build a Banking Relationship? Right Now

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If you think about it, running a business is largely about building relationships. And establishing a solid banking relationship is one of the most critical moves you can make as a business owner.

When is the appropriate time to begin forming this relationship? According to CPA Nick Magone, Managing Partner of Magone & Company, “Immediately — before you need the money.”

Get the ball rolling on the relationship

Banks typically offer three levels of financing:

  • Branch level – up to $250K
  • Small business lending – $1-5 million
  • Middle marketing lending – Over $5 million

To get started, reach out to your branch manager, and they’ll introduce you to the correct contact for your future lending needs.

Become the ideal borrowing candidate

What are banks looking for? First and foremost, if your business isn’t profitable, or isn’t able to show a track record of profitability, the bank will not loan you money. Remember, the bank is not your business partner.

Banks also need to have a clearcut understanding of your business and what it brings to the table for them. For example, how many of their services will you use? Will you need their treasury or cash management services in the future? In other words, they are looking for a profitable relationship. Bankers are more than accommodating to get to know you, especially if there is business to be had.

The first meeting

While in-person meetings are preferable, a video meeting can be just as effective for introducing yourself and your business. A typical presentation may include:

  • An overview of your business and management team, including who you are and the number of years in business overall.
  • The market your business serves, including the top 10 suppliers and customers.
  • Your high-level budget for the year, e.g. cost of goods sold, wages, administrative costs, etc.
  • The performance of the budget, as well as the trend for expected revenue and profitability throughout the year.
  • Future plans for growth, acquisition or inventory that may require financing.

The takeaways

Says Magone, “The three main points to keep in mind: Get to know your banker before you need the money; invite your banker to a meeting before you need the money; and, profitability and performance are key to having your loan approved.”

30 years of experience and expertise

In celebration of our 30th year in business, we’re rolling out a series of educational videos to help busy executives, families and business owners meet their accounting and tax needs and achieve their financial goals. Check out the latest on our YouTube channel.