She Means Profit

Fractional CFO vs. Bookkeeper vs. Tax Accountant: Understanding Key Roles

• Melissa Houston • Season 2 • Episode 171

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In this episode of She Means Profit, I demystify the roles of bookkeepers, fractional CFOs, and tax accountants to help business owners understand when and why to hire these experts. Discover how a bookkeeper can manage your daily financial transactions, how a fractional CFO can provide strategic growth planning, and how a tax accountant can navigate complex tax laws.

While all three are critical to a thriving business, they each serve different purposes, often at different stages of business growth. Knowing who to call on for your specific needs can save you time, money, and stress. You’ll learn what each role entails and understand when it’s time to bring each into your business – whether for daily financial tracking, strategic growth planning, or navigating complex tax requirements.

Let’s break it down! Bookkeepers are your go-to for managing daily financial transactions, including sales and expenses. A good bookkeeper keeps your records accurate and up to date. When you’re looking to grow or improve your cash flow strategy, a fractional CFO steps in to offer senior-level expertise and guidance on big-picture financial decisions. Tax accountants, on the other hand, are the experts in tax compliance, helping you navigate complex tax laws, credits, and deductions. With each role offering specific benefits, I’ll clarify how they complement each other and how to build your ideal financial support team as your business evolves. Plus, I’ll share insights on how to ensure you’re hiring the right experts and setting clear expectations with them.

Gain clarity on building a robust financial support system that saves you time, money, and stress, ensuring you hire the right professionals and set clear expectations with them. Perfect for those wanting to streamline their finances and drive business growth, tune in to get valuable insights and personal advice.

Listen to learn:‌

  • Learn the distinct functions of bookkeepers, fractional CFOs, and tax accountants and why you need to know their roles.
  • Each role is beneficial at different stages of business growth. Bookkeepers often come first, followed by tax accountants, with fractional CFOs typically joining as a business scales.
  • Introducing my new Fractional CFO Agency, designed to help businesses scale with expert financial guidance.

Links:‌ ‌

Courses:

Work with me:

Follow me on:

IG: @melissahoustoncpa
LinkedIn: @melissahoustoncpa

Note: We use AI transcription so there may be some inaccuracies

Melissa Houston: Welcome to episode 171 of the She Means Profit podcast. So today we're talking about what confuses a lot of business owners, and this is absolutely no reflection on your intelligence if you're confused by this. This is a problem of the accounting industry because the industry does not make it clear to you.

But when it comes to accounting and accounting services, the role of bookkeeper, fractional CFO, and tax accountant, these lines can blur between the different roles. So understanding who does what, and when you need their support will save you a lot of time, money, and stress down the road.

So by the end of this episode, you will have a clear understanding of what the bookkeeper does, the fractional CFO, and the tax accountant. And understand these are three completely different roles. And you'll understand when it's time to call on each one of them. So before we get started, Let's talk about cars.

I always say, like, I always have nothing going on in my life. I always struggle to find things to talk about, but I suppose I do have things going on in my life. I just. I don't know. I find myself incredibly boring, but this one relates to the podcast in the sense that we're going to talk about cars and buying cars.

This is something that I've been struggling with for a few months now, so I thought I'd share it with you. as you know, I'm a business owner myself. And I work remotely. I work from my home. I live with my husband and my daughter and each of them have their own cars because they need them. I, however, do not need a car.

I had a car and before the pandemic, had the car. During the pandemic, my daughter had gotten her driver's license and she was driving my SUV and quite literally into the ground, I felt like I was barely using my car. So I always let her use it. That was fine. But she always complained that it was, you know, expensive on gas.

And every time I got in the car, it was like, it had been taken over by her. And, I just felt that she was running it hard, right? just wasn't the type of car for her. So I decided, okay. We had spent tons of money on our son. when he was going through hockey, we at least 10 years of competitive hockey and that is expensive.

And my daughter never played any competitive sports. And I always felt guilty about that. Cause you know, Matthew got a lot of attention and a lot of money. Whereas Emma, she didn't really need a lot. so I always said to my husband, you know, when she gets older, we're going to buy her a car. So I decided this was the perfect time.

I'm going to trade in my car and get her the car that she wants. Okay. Done deal. We did that. So years go by, I'd gotten sick. as we were coming out of the pandemic. I was sick. So I was still wasn't going anywhere. So now we're, November 2024 and I've been noticing I could use a car.

I don't necessarily need the car. I'm going out a lot more and when I do go out, I take my husband's truck or I take my daughter's Honda Civic. Okay, I'm going to tell you right now the Honda Civic, it's a great car, but Jeez, do I feel old driving it. feel like I have to stuff myself in there like a sardine So it's not comfortable to me, right and then driving a truck.

It's this huge Chevy Silverado Like I'm five foot two okay, and getting into this massive truck and driving it around town is not my idea of fun and To be honest with you if I have to go somewhere and park in tight spots, I won't do it I just won't go so You I've been thinking in the last couple of months, I should probably buy myself a car.

There's absolutely no financial reason why I can't buy a car. However, cars are expensive. Okay. And I wanted to get myself an SUV and I wanted to get myself, it has to be six cylinder. I don't want a four cylinder SUV for those who have it. Great. That's not what I want. I want a six cylinder. And then, you 2024, all the car companies seem to have moved to four cylinder SUVs and that's driving me bananas.

So anyways, I've narrowed it down to my choices of the SUVs that I want. And Lo and behold, they're almost 100 grand. Okay, that's a lot of money for something I don't really need. So not only am I forking out money for the actual vehicle, I also have to pay insurance. So that's an additional cost and gas and repairs and wear and tear and stuff like that, right?

So when it boils down to it, that's a lot of money for something I barely use. I think I probably would use my own vehicle two, three times a week. That's it. And it would be just driving around my town. It's not going super far. I've been going to Toronto a lot lately, but I take the train or I take the plane.

I don't really drive there because the traffic in Toronto is absolutely ridiculous. And I also feel that if I invested in a vehicle that expensive, I wouldn't want to take it to Toronto because probably get dinged up and scratched and the whole bit, right? So anyways, there's my dilemma. I'm putting it out there to the world.

 Do I buy a vehicle or not? I'm gonna say that my mind's probably already made up, but I'm gonna wait a little longer. I'm gonna say that my mind's been made up. And I'm probably going to wait a little longer because I don't really need that vehicle and it just doesn't, I can put that money towards other things like, I don't know, renovating my house or something, instead of a vehicle or just saving it. But I'm going to ask you, what do you think?

You can either, email me or DM me or whatever. Let me know what your thoughts are on whether I need to get a car or not. I do like the independents, but that's it. Okay, let's get into it today. Let's talk about a bookkeeper. What does a bookkeeper do? Bookkeepers are the ones who are managing the day to day finances of your business.

And by managing, what I mean is that they are doing the data entry. They track and record all of your financial transactions, making sure that everything is accurate and up to date in your business. So this looks like, okay, they're recording the sales, expenses, and payments that you make. They're reconciling your bank accounts and credit card accounts.

They're managing invoices and accounts receivable, paying bills, and managing your accounts payable. So in short bookkeepers maintain your financial records and if I'm telling you all this and you're like my bookkeeper does not reconcile my bank accounts or pay my bills or anything like that, you need to get in writing your statement of work with your bookkeeper.

If you want them to be doing these things you need to make sure that you have it in writing what they're supposed to be doing for your business. But in short, bookkeepers maintain your financial records and make sure that your books are in order. So they're typically your first financial hire for your business and they're vital for keeping track of your cash flow.

So the bookkeeper, the goal is to ensure that everything is accounted for. So you have a clear picture of your financial health. Now, I talked to a lot of people and a lot of people think that bookkeepers should be providing them their financial statements. They should be telling them how they're doing in their business, what they need to change, what they don't, that's not the role of a bookkeeper.

Okay, a bookkeeper is strictly data entry. And, possibly for providing your financial reports, but not telling you how accurate they are, right? If you want a really good bookkeeper, you're going to have to pay for one. And a good sign of a good bookkeeper is that they understand GAP, which is the generally accepted accounting principles.

Okay, this is GAP in Canada and the U. S. We have GAP. So if you're hiring a bookkeeper and they don't know what GAP is, that is your red flag that they are not a qualified bookkeeper. Qualified bookkeepers know what GAP is, and those are the rules that they follow when doing the data entry into your business books.

Now, bookkeepers are not responsible for telling you and giving you financial guidance on your cash flow or your sales or operations or any of that. They are strictly qualified to do that. Enter the data in the books and possibly give you financial reports. That's it. It ends there. When should you hire a bookkeeper?

If you're just starting out managing your own books, you may not need one right away and solopreneurs typically don't. But if you're a business and you're starting to grow and you're finding it hard to keep up with your transactions and you need to use your financial data on a month to month basis, you need to use a bookkeeper.

it's time to bring one in. So this helps free up your time so you can focus on growing your business. a bookkeeper is really important because, as I mentioned, they enter the data and then with that data you run financial reports and you can make smart, informed financial decisions with the data that you have.

 so let's look at the role of a fractional CFO. So this often confuses people because the fractional CFO is a more senior level type person. The CFO in strict business terms is the right hand person to the CEO. So a CFO is very senior. They have years of experience, decades of experience, actually.

typically have a CPA. And they offer financial leadership and strategy, but it's on a part-time or contract basis. So fractional CFO is perfect for small businesses who can't afford to have a full-time CFO in their business. When you get to, I don't know, depending on what type of business you are and stuff, but typically around 10 million a year revenue, you would probably have a full time CFO in your business.

So when you're less than that, a fractional CFO is perfect to have in your business because you're paying them a fraction of the price, the fraction of the cost it would cost you to have a full time CFO. In your business and you're still getting the same type of results. So a fractional CFO steps in to offer financial leadership and strategy.

Okay, a fractional CFO will help you with financial forecasting and budgeting, strategic planning, understanding and improving your cash flow, managing your financial risks, preparing for your business growth, whether it's through scaling or doing a capital raise funding, right? But basically what a fractional CFO is there to do is to guide you financially.

Very senior level. Very, narrow expertise. You have to be careful if you're going to hire a fractional CFO that they are qualified to do the job. So the big difference here is that the fractional CFO doesn't. record and track what happened like a bookkeeper does. They're not involved in your books.

They help you plan for what's going to happen in the future. This is strategic planning. This is looking at your financial data and helping you make decisions that will impact your business in the long term and help you grow your business. So if you are a business who wants to grow to a million multiple seven figure, hit eight figure, whatever business you want to grow your business and you're a little sketchy on how to get there and you need the financial support, this is where you would hire a fractional CFO. Fractional CFO will come in and help you build your business profitably to ensure that you don't run out of money and that you can grow and scale your business and reach your financial goals.

So when should you hire a fractional CFO? If you're planning to scale your business, raise capital, or even if your business is becoming complex enough that you need that strategic partner to help you make your data driven decisions, a fractional CFO can be a game changer. They will help you set your financial goals and develop strategies on how to achieve them.

Okay, now we've covered bookkeeper, fractional CFO, two separate jobs. Now the third one is the role of a tax accountant. and this is where I'm going to talk about CPAs as well, right, because whenever I mention that I'm a CPA people think tax. No, CPAs do both strategic planning. So we were either in the role of a CFO we're in the role of tax accountant.

Sometimes you can find CPAs that do both. I personally am NOT one of them. I am a fractional CFO. I hate taxes. I understand taxes. I can do a little bit of tax planning. I understand what the tax rules are, etc. However, when it comes to creating the corporate tax return, the annual return and tax planning, you need to see a professional tax accountant.

So this is typically what relationship that you have with your tax accountant is somebody that you probably see either on a quarterly basis or an annual basis. Many people think of tax accountants only around tax season, but they do a lot more than just file your taxes. So, a tax accountant specializes in the laws and regulations around taxes where you live.

You have to make sure that you are dealing with somebody who is abreast to your State taxes and federal taxes. So if you're in Canada, it's your provincial tax and your, federal taxes. And if you're in the states, whatever state you're in, make sure that they specialize in your state taxes and your federal taxes.

So they're going to help you with filing your business taxes, ensuring compliance. They help you take advantage of tax deductions and tax credits. They help you plan your tax strategy to minimize your tax liability. So if you want to pay less taxes, work closely with your tax accountant. They advise you on tax implications of your business decisions, because every decision that you make is going to affect you in some way.

It will affect your taxes and they can help you handle your audits. Although your, CFO can help handle your audits as well. Just depending on what kind of information, if you're being audited, depends on what kind of information you're looking for. Tax accountants focus on keeping you compliant with tax laws and making sure that you're not paying more than what you owe.

So tax accountants are especially valuable as your business grows and your tax situation becomes more complex. So for example, if you start operating in multiple states or countries, you definitely need a tax expert to help you navigate different tax Okay, so when should you hire a tax accountant?

If you're just starting out and your taxes are fairly straightforward, You probably don't need a dedicated tax accountant right away. But if you're planning on growing your business, and as I mentioned, into different states, provinces, and, countries, having a tax accountant, a close relationship with your tax accountant, is going to be beneficial.

Typically, smaller businesses have a relationship with their tax accountant when they need their taxes filed. And that's okay. And if you need extra help, make sure that you get that extra help from your tax accountant. But what gets blurry here is that a lot of business owners think that a tax accountant should be giving them the services that a fractional CFO offers and that's not true.

Your tax accountant, you've likely hired them to file your taxes, keep you compliant, check your statement of work, check the engagement letter, make sure that you're getting what you paid for, but chances are that's exactly what you've hired for. So if you're looking for a fractional CFO, you should look for places like the fractional CFO agency and not your tax accountant.

Okay. So when do you need all three? we've looked at bookkeeper, fractional CFO, and tax accountant. And remember your bookkeeper is essential from when you start your business and it does the data entry of your financial transactions. They're your go-to for maintaining your financial records. The fractional CFO is when business is ready to scale, you need financial strategy, and you're dealing with complexity.

Think of your fractional CFO as your financial partner for the future. Okay? So think of your fractional CFO as your right hand person. And then your tax accountant, you'll need a tax time, but as your business grows and you're spreading your global presence, you want to make sure that you're using a tax accountant for proactive tax planning and compliance.

Okay, so at different stages of your business, you need different levels of support.

A bookkeeper is likely your first hire, a tax accountant comes in as you grow, and a fractional CFO becomes essential when your business reaches a level of complexity where you need financial strategy. So to sum it all up, bookkeepers, CFOs, and tax accountants are important team members, but you want to make sure that you're bringing them in at the right time.

So each role plays a crucial role in the financial health of your business. However, it's at different stages of growth. So if you're still not sure who you need for your business right now, reach out to me. I'd love to help you figure it out. You can find more resources on my website or listen to previous episodes of the podcast for additional financial tips as well.

So we're really excited to tell you that we've opened the Fractional CFO agency, and if you are looking for a Fractional CFO, you can check out our agency. Book a call with me, and we can figure out if we're a good fit to work together.

I will leave the links in the show notes as well. So thanks for tuning in to She Means Profit. Don't forget to subscribe, leave a review, and share this episode with your fellow entrepreneurs. Until next time.