Recently, I was browsing through an accounting magazine and caught a headline that read: Beware of This Subscription Software Accounting Error. My initial thought was: Why the concern? After reading the article, I understood the author’s intention. The article drew distinctions between the various types of accounting software options (hint: they’re not all the same). When choosing, companies, and their financial partners, should be prudent.  

A company’s software purchase should be tailored to, and reflect, the reporting needs of the business, e.g. U.S. GAAP adherence, International Financial Reporting Standards (IFRS), and/or tax reporting. To better understand this, here are a couple of scenarios:

• • • Scenario A: A small business is looking to increase its growth by 100% by quickly increasing its capacity through technology and hiring more employees. To do so, the company is using operating cash flow and funding from family and friends. 
    • Scenario B: A company with approximately two million in revenue in the technology industry is seeking to raise funds through the public markets via initial public offering (IPO).

    In scenario A, there are no external stakeholders — and the only individuals that would ask for updates on financial performance would be the entrepreneur(s) and/or the family/friend investors. In this scenario, it’s more important for the owners to understand their financials and how the data impacts on future economic decisions. The accounting used is not necessarily as important as ensuring that the economic reality of the entity is apparent in the financial statement provided. So although it’s important to have financial statements that an outside party could follow, the data should be organized in a way that easily reveals what decisions should be made to ensure the company prospers. 

    In scenario B, the company has to adhere to rules established by the Securities and Exchange Commission (SEC). These rules comply with regulatory markets — and compliance is non-negotiable. So for companies that are going public or in the process of going public, understanding all the significant accounting rules for your company trumps the need for a business owner to understand every single accounting principle that the company follows. 

    The moral of the story is this: As a Fractional CFO, it’s important to understand client needs and the context in which financial statements are used. From an internal perspective, the overriding concern is to ensure that the financials presented are easily transparent to the reader. 

    Tax accounting is applicable when a company is cash-based and taxes to the government are the only significant liability. 

    For another company, in addition to tax implications, environmental, legal, or operational liabilities on the books can have reporting ramifications if not presented correctly. The Fractional CFO, as a company’s finance partner, must truly understand the business owner’s need for financial information — and this is more than just debits and credits. A cookie cutter approach will never work for companies that are trying to carve out a unique place in the marketplace. 

    Take-away: If you are seeking a finance partner who understands you and what you are looking for in financial reporting, reach out ot Brian at info@acceleratingcfo.com.