A common mistake many high-net-worth individuals and families make is failing to treat their family’s financial affairs as a business entity in their own right. Managing the business of the family’s assets is a critical practice that demands the same rigor applied to their underlying business activities.

An effective family office will provide several benefits, including:

Setting up and maintaining an effective family office requires a mindset based on understanding the family’s assets beyond investment returns, including maintaining a healthy balance sheet, installing the appropriate controls, and providing effective software tools — exactly as you would in your business.

For more information on setting one up, read our article “Simple Steps for Setting Up a Family Office“

Whether you create a single-family office or work with a provider that serves several families, it’s important to understand that a family office can play a pivotal role in effectively protecting your family assets.

Your family office should go beyond bookkeeping and paying bills. It should help you understand and improve your entire financial picture and risk management strategies to ensure family assets are preserved, and you can have peace of mind.

For example, you want a professional (or a team) with experience in day-to-day operations such as paying bills, bank and credit card reconciliations, cash flow management, and financial reporting and forecasting. Also, it’s good to have support with medium and long-term planning, risk management, insurance, tax planning and compliance, and other considerations.

Another important aspect to think about is creating an internal controls framework that, just as in your business, separates duties and responsibilities. You may reduce the risk of fraud and malfeasance that occurs if a staff member creates and pays vendors that are not serving the family.

Fraud and malfeasance in your family office is something no one wants to believe happens because, over time, staff may feel like they are family. However, it’s important to recognize that family offices commonly experience some form of dishonesty, so it is prudent to develop appropriate measures to mitigate such possibilities.

It’s also helpful to ensure your family office uses appropriate software tools to manage your affairs effectively. Spreadsheets and basic accounting packages won’t offer the appropriate degree of sophistication and internal controls required by the family office team. The right software will enhance efficiency, strengthen key internal control processes, and provide relevant reporting and risk management.

For more guidance on picking software, read our article “Choose the Right Family Office Accounting Software to Eliminate Financial Complexity “

For instance, accounting platforms such as Sage Intacct can streamline financial reporting and provide real-time access to performance data, as well as insights to help you and your advisers manage the family’s assets more effectively.

It can also support complex accounting requirements and the institution of internal controls, as well as the ability to aggregate information from various investment portfolio custodians and identify anomalies in your financial transactions that may indicate fraud or other problems.

When protecting your family assets, the first step is recognizing that you need an independent enterprise mindset. It’s important to have all the appropriate operational, financial, and technological infrastructures to meet your needs today and to help you plan for the next generation.

For more information about our Family Office Services, contact our team.

Managing your company’s finances isn’t always easy. Things were probably a lot simpler in the early days of your business. The financial responsibilities were, and maybe still are, handled by a single person in your business. 

But as your business grows, your accounting needs grow with it. Expecting one person or a small department to continue handling everything is unreasonable, even risky. At this point, many companies consider outsourcing their accounting services to an expert.

If you’re one of those companies, ask yourself – what kind of outsourcing services you need? Should you get help with basic accounting obligations or seek out the expertise of an outsourced CFO?

We’ve pulled together some information to help you answer those questions. Decide what kind of outsourcing best fits your practical and strategic needs. Once you put that missing piece in place, consider your accounting department at full strength.

Outsourced accounting services handle the most ordinary (and therefore most important) aspects of your business finances. They are the time and labor-intensive obligations your in-house accountant may not have enough resources to complete on time or in full. For example, an accounting service might provide the following:

Consider accounting services as your basic financial obligations – the things your company must do to keep the books in order and the bottom line in the black. 

An outsourced CFO is exactly what it sounds like. Instead of hiring a financial executive for your company, you partner with a service provider that can replicate their responsibilities. CFO services typically provide higher-level accounting functions focused on your organization’s financials. Their support might include:

Consider CFO services as the company’s strategic brain – the source of ideas and insights that decision-makers use to create projections, forecast disruptions, engineer growth, and plan for the future. 

Here’s a helpful way to think about your two outsourcing options: Accounting services are backward-looking, examining what a company has already done. On the other hand, CFO services are forward-looking, studying what companies have yet to do. 

Which direction do you need help with? Could you use some assistance with the day-to-day aspects of accounting, or do you need someone to bring the big picture into perspective? Maybe you need a little of both? Our team is happy to customize an outsourcing option around your needs. When you’re ready to continue this conversation, don’t hesitate to contact us.

Reviewed by: Elizabeth Houseman

Outsourced accounting, or the practice of transferring accounting functions to a third-party provider, has increased in popularity due to world-shifting events like the pandemic and the Great Resignation. The reason for the change? As available resources diminish, more and more companies are moving to the cloud. Outsourced accounting is a cost-effective, flexible solution that provides access to the tools and expertise needed to meet the growing demands of businesses.

Outsourcing accounting and financial analysis functions to an established CPA firm offers a cost-effective way for growing companies or firms with specialized needs to obtain financial management expertise when needed — without incurring additional overhead and ongoing expenses.

Depending on the complexity of the business and the level of support required, outsourced accounting services may include:

Hiring an outsourced accounting firm instead of having a full-fledged in-house team provides several potential benefits that can help you grow your business.

A significant benefit of outsourcing accounting functions is accessing qualified accounting staff, which may be challenging in today’s labor market. As remote work gained momentum, companies realized the benefit of outsourced services. Now, businesses can access accounting and financial management professionals without making expensive investments in full-time hires.

Having a certain level of flexibility is especially valuable for growing small businesses that may not need a full finance team but can benefit from specialized expertise at specific times during the financial cycle or to help them manage organizational milestones. For example, a growing mid-sized company may choose a staffing schedule that calls for the following:

This staffing schedule would provide the company with the right level of staff to perform various functions and financial oversight without overburdening the company’s budget with extra resources during downtime.

Outsourcing accounting and financial services can also help companies meet specific accounting and financial needs for situations as they arise. For instance, pursuing latter-stage funding rounds or debt will require more robust financial statements and a stronger degree of oversight than the company can produce on its own. Bringing in specialized expertise can help the company prepare reports for investors or lenders while preparing the company for further growth.

Turning to outsourced accounting services also helps an organization maintain consistent staffing levels because the outside provider is responsible for ensuring the proper headcount for the company’s needs. Outsourcing can ebb and flow with your needs. The outside firm handles vacation or sickness outages, eliminating the concern that the client organization will be short-handed during important periods.

Enlisting support from an outside provider can also help a growing company access the latest accounting systems and financial management tools without having to purchase expensive software and provide ongoing training on its own. The outsourced provider will likely use sophisticated financial data tools to perform work on its clients’ behalf, giving those clients the benefits of a more robust system, increased efficiency, and lower costs.

For businesses looking for expertise on everything from their day-to-day transaction processing to forecasting cash needs and future insights, outsourced accounting and finance services can offer a flexible solution to meet various business needs.

If you’re considering outsourced accounting and financial services and want to understand your options, contact us for an expectation-free consultation.

Have you started thinking about your month and year-end closing? This time of year, we turn our focus to the calendar year-end and start to plan the rest of our year. It might seem early to begin, but we’re operating in an environment that is not “business as usual”. Some questions you might start asking yourself to prepare include:

We don’t see the “work world” returning to normal soon. Most clients come to us with similar problems. They’re not using cloud-based software. Their systems work but could be better. They aren’t documenting their processes well, and their employees are not cross-trained. For many, it would be difficult to return from losing an employee who plays a crucial role in the closing process. Most month and year-end closing pain points come down to three key areas: software, systems, and staffing.

There is still an overwhelming number of companies using on-premise software. One example of on-premise software is Quickbooks Desktop. Transitioning to software like Sage Intacct or Quickbooks Online can solve many problems. Working on web-based software allows us to work more efficiently and effectively and do that work from anywhere.

Beyond the remote work benefit, cloud-based technology integrates better with other systems like banking platforms, bill pay, payroll, and Point of Sales. This reduces the human touch on the close process, helping to reduce errors.

Cloud-based software may be slightly more expensive to set up and maintain than on-premise software, but it will reduce file storage needs and transform how your financial function operates. You’ll be able to get more done with fewer resources. It also makes it easier to share your financials with your tax professionals. Many companies are discontinuing their desktop platforms and will no longer offer tech support for their retired programs.

You can have the best systems in the world, but if your people don’t know how to use them or don’t have clear directions, you can still find your financial records in disarray. Financial documentation isn’t new. We’ve always recommended companies document the who, what, where, and why of their financial processes.

But it’s more important than ever to keep up documentation. It does take a lot of time to create this documentation, but there is a lot of value in it. The reality is people leave companies and take their knowledge with them. If you document that knowledge, it stays within the company. It’s much easier to document while your employees are there than to scramble when dealing with turnover. Process documentation allows for easier cross-training and emergency backfills.

The “Great Resignation” has not made our world any easier. We don’t see the tight labor market improving in the accounting world. Many experienced professionals retired earlier than expected due to the pandemic. We have also seen fewer college students getting certified as a CPA after completing their degrees. This is why process documentation and cross-training are so crucial to mitigating risk.

These pain points are fixable. Improving your software, process documentation, and staffing is possible. We recommend proactively creating contingency plans for continuous operations and improved financials. If you’d love to be prepared but don’t have the time, our outsourced accounting group can provide support during transition periods. Contact our team today to start discussing your financial goals and how we can support you with your month and year-end closing.

It’s incredible how basic each of these five items sound, yet often one or more are absent in family offices. The result is frustration by the family, stress in the team, and a high likelihood that families might overlook opportunities to strengthen their returns, mitigate risk, and sleep better at night. It turns out that managing wealth can be quite stressful.

At a minimum:

We have the experience and expertise to assist the family in creating meaningful cash flows and reporting that allow the family to leverage net worth, and we can implement technology that will impact the family enterprise’s effectiveness. For more information on how we can help you and your family office, reach out to arrange an introduction.

Outlining your goals, setting a budget, and choosing the best technology are keys to establishing and running an effective family office.

A family office is an organization that’s created to serve a variety of administration and management needs in a structured way for families. These responsibilities vary because each family’s situation and needs are unique, but most family offices tend to have one of the following broad categories as a central focus:

Another decision the family will need to consider is how involved they want to be in the office’s daily operations. Some principals may wish to be active managers, while others may prefer a hands-off role as they devote more attention to philanthropic or personal pursuits. Other questions: How many generations will be involved in the office? What is their background? How can they best contribute to the success of the family?

These factors may help dictate the types of professionals or outsourced services required to support the family office effectively.

After you’ve outlined the family office’s structure and responsibilities, it’s important to create a budget for staffing and services. A bottom-up approach to budgeting, for instance, will involve totaling the cost for your desired staff. These team members can include a bookkeeper, an administrative assistant, an office manager, a controller, and other professionals.

An alternative approach is deciding how much you want to spend annually and identifying the people or services you can afford within that budget. Most likely, a bottom-up and top-down process will be used to generate a reasonable annual cost.

The next step in setting up a family office will be deciding where your staff will work. Some family offices are completely virtual. Others operate out of dedicated office space or within the principal’s business, separate family office, or home. In a recent article published by TheStreet, it was noted that companies can save up to $11,000 per employee in terms of overhead costs if they switch to remote work. This decision can influence hiring, overhead costs, and the family’s sense of privacy, so it’s important to consider this factor carefully.

Another important consideration is choosing the right family office software to support your financial management and administrative needs. An investment-oriented family office will need a more sophisticated system to integrate data from several custodians and generate performance reports. In contrast, an office focused on paying bills will need a fairly basic accounting platform.

Regardless of your approach, it’s vital to outline job qualifications carefully to reduce the risk of placing staff in the wrong roles. A common mistake, for instance, is hiring a bookkeeper and expecting that individual to perform the role of a controller or a chief financial officer. Or, similarly, paying for a CFO when you need someone to perform basic bookkeeping and accounting.

For some roles, hiring someone on an outsourced basis may make more sense for your family office than retaining a professional whose services you may not need full-time. In creating a new family office, using consulting services that help you determine the most effective approach for your family situation and preferences may be a good investment.

If you would like assistance reviewing your situation and implementing a roadmap to meet your family office’s goals, schedule an introductory call with our team.

As families and their professional advisors begin discussing the potential benefits of creating a family office to manage their affairs, a number of challenges need to be considered to ensure the office meets the family’s goals.

Are you looking primarily for administrative support to conduct activities such as paying bills and personal asset management? Are you hoping to coordinate professional investment management? Are you looking to maximize investment performance? To safeguard assets? To coordinate insurance and legal protection? Do you want to create a spending budget? Are you looking to set up a structure to provide a smooth transition to a younger generation?

Asking questions like this and identifying your goals will provide important guideposts in staffing and structuring an effective family office.

Some individuals want the same degree of control over the administrative aspects of running a family office as they do in their business and insist on approving every transaction. At the other end of the spectrum, some people prefer a hands-off approach with most of the day-to-day functions being left in the hands of professional advisors.

Either approach can work if the expectations of the principals, the family, and the staff are aligned as the family office begins operating.

Are you looking to hire an outsourced staff to provide the family office’s functions as a service? Do you plan to outsource specific elements, such as investment management or financial reporting? How much direct oversight do you want?

Once you’ve identified your goals, you need to work with the office’s staff and advisors to establish an appropriate governance and reporting framework. How detailed do you want your financial reports to be? Who will monitor the spending plan? How often do you want updates? Do you want consolidated reporting dashboards? What internal controls do we need to reduce the risk of fraud and malfeasance? Which technologies will support the family office operations? Who will provide that technology?

Having careful conversations with family members and advisers about the functions the family office will provide can help you create an operating and governance framework to help ensure the office meets your goals and serves your family effectively. For more information and guidance on structuring your family office, reach out to arrange an introduction with our team.

In a virtual family office, most professionals serving the family are not in a physical office, which means the family office team can be situated almost anywhere. Additionally, these virtual family offices can comprise employees, individual professionals, a remotely-based multi-family office, or any combination thereof.

Depending on the complexity of its principals’ needs, a virtual family office can offer a cost-effective alternative to a fully staffed and officed employee structure.

The best family office structure for your situation will consider elements such as the type of family’s assets, net worth, origin, the frequency with which the principals intend to communicate with their experts, the family office budget, and how much specialized knowledge is required.

As a general guideline, the following ranges serve as a practical framework for a family office structure:

If you believe a virtual family office is appropriate, you have considerable flexibility in choosing your structure. For instance, some families are well-served by multi-family offices staffed with experts providing administrative, financial management, accounting and reporting, and other services for many similar families.

A potential advantage of a multi-family office is that specialized expertise or investment ideas can be shared among several families. While the family office team will respect each client’s privacy, they can discuss situations in general terms and exchange ideas in a way that’s not possible within a single-family office structure.

Additionally, the multi-family office structure offers added protection because the family is not relying heavily on just one professional for its administrative needs. Sharing these responsibilities among several people can provide continuity when the family’s primary provider takes a vacation or is otherwise unavailable.

In other situations, a family will combine employing a full-time professional to provide essential services, such as bookkeeping and bill payment, while outsourcing specialized expertise in accounting and reporting, investment management, and real-estate management. This approach allows the family office to manage its administrative, investment, and accounting needs, often for significantly less than the cost of a dedicated professional team.

Perhaps the most significant challenge a virtual family office presents is coordinating the various professionals and ensuring required services, such as paying bills, preparing financial reports, and the more strategic investment and family issues are being performed and addressed on a timely basis.

In most situations, families rely on an experienced and trusted professional to coordinate and oversee the family office’s team, including their investment, legal, tax, accounting, and administrative professionals. This can be a family member, a full-time employee, or a contracted professional providing services on a virtual or outsourced basis.

Our recent article, Why the Right Quarterback is Critical to Your Family Office, covers this in-depth, but to summarize, this role is critical in ensuring a family office’s operations and responsibilities fit together and are communicated appropriately.

Need help determining if a virtual family office is right for you? Contact our team for assistance reviewing your situation and implementing a roadmap to meet your family office’s goals.

One of the most important factors in determining the success and effectiveness of a family office is creating a structure that supports the family and its objectives. This is typically a personalized decision that addresses several factors, such as the family’s situation, goals, and relationships.

It’s important for the family to decide what its office will do, who will have the authority for various decisions, and how the office will be staffed.

Common problems that can hinder not only the performance of the family office but also relationships within a family include:

It’s important for family office principals to identify which activities are best aligned with their skills, interests, and goals for the family office. These may include, for instance, investing, managing real estate, philanthropic activities, or travel. The family office principals should identify which activities they want to perform on a hands-on basis, and who will perform others.

Routine tasks often outsourced include paying the family bills, investment management, accounting and reporting, tax planning, and managing the technology that helps the principals and advisers manage the family office. Many principals prefer to outsource routine functions and allow professionals to create and manage budgets so they can focus more on living their lives than managing day-to-day tasks.

Another critical consideration is discussing what the family office structure will be and how the family office will be governed. After outlining what needs to be done, you must identify who has the appropriate authority and accountability for those functions continuously.

Most family offices have a variety of operating frameworks that may include:

Regardless of the operating structure, the family office needs internal controls that place limits on the authority of your professional advisors. Typical measures include requiring two signatures on checks above a certain amount, outlining who can approve major purchases, and other measures to help protect the family against fraud and financial misconduct.

Beyond the monthly and quarterly reports, it’s important to consider the appropriate types and levels of information that will be shared with the family’s heirs. Some families promote early involvement and training in financial management, stewardship, and philanthropic practices to help the younger generation understand the sources and management of the family’s wealth. This involvement and preparation can help ensure a smooth transfer of wealth and other assets at the appropriate time.

Addressing these considerations as a family office is established and revisiting your assumptions annually can help ensure the family office is meeting its desired goals and serving the family effectively. For more information or assistance with establishing the structure, internal controls, and reporting of your family office, reach out to arrange an introduction with our team.

The size and complexity of your business and family offices, the skills of your finance team, and a desire to protect your privacy can all help determine whether your business and family offices needs separate financial leadership.

A shared responsibility can result in the company and family being well-served by a unified approach in some situations, while potentially causing challenges for both in others.

In many situations, the business and the family offices share a chief financial officer. For example, the business CFO will typically have an intimate understanding of the company’s finances and their role in generating wealth for the shareholders. This will likely lead to insights into the potential effects of family office investments and other decisions on the company’s financial assets (and vice versa).

Similarly, a long-serving business CFO may enjoy significant trust from the family principles. By understanding their tolerance of risk, investing style and preferences, and their personalities, the business CFO can oversee the family finances effectively.

Entrusting a finance professional with oversight over the business and the family offices can also reduce administrative costs paid separately by the family.

This shared responsibility arrangement is typically most effective during the growth stages of the business while the family is building wealth. It’s also best suited for families with relatively straightforward investment and tax strategies that don’t require specialized expertise to evaluate or monitor.

On the other hand, significant challenges can make separating the company and family finances a prudent strategy.

Sometimes, the business CFO may be too immersed in the company’s finances to offer objective advice to the family. For example, it may be in the family’s interest to remove some assets from the business to diversify their investments. However, if doing so would pressure the company’s cash management requirements, the CFO may advise against diversification to avoid extra work or other complications at the business.

More mundanely, a busy CFO may not have the time to give the family’s financial position the time and attention it requires.

In addition, a CFO with experience in the company and its industry may not have similar expertise in the proposed investments and may be unable to provide informed advice on the suitability of the investment for the family.

Another potential challenge is privacy. The family may prefer to maintain the privacy of their financial situation. Some business owners, understandably, may not want company employees to know their spending and investment plans outside the company.

For instance, it can cause hard feelings and resentment when the family makes difficult decisions at the business, such as cutting staff or salaries, without making similar cutbacks in their personal spending. That’s their right, but it can still cause issues among the company’s financial staff.

Company owners must also understand the potential tax implications of blending the business and family’s financial leadership. There are ways to create a tax-deductible family office under very specific facts and circumstances — but without this structure, the cost of time spent by the CFO or other accounting staff outside the company may be non-deductible.

Another circumstance to consider is the CFO’s willingness to be involved in potentially complex or awkward family situations. For instance, if there are disagreements among family members about investment or spending, or questions about investment returns, the CFO may prefer not to be involved. Working with various family members within the business itself may be challenging enough without adding family office responsibilities to the mix

Because each family’s situation is unique, it’s important to craft the best structure to support the company’s and the family’s needs. For some families, this may mean combining the roles and adding outsourced services such as bill pay and investment management. Others may wish to separate the roles or find a combination of expertise and services best suited for their situation.

If you would like assistance reviewing your current situation and implementing a roadmap to meet your family’s goals, schedule an introductory call with our team.

If you own a business, then you have likely heard the buzz around the new lease accounting standard ASC 842 and the significant impact it will have on the way you record leases. For construction and other lease-heavy industries, we can expect to see major changes in not only balance sheets, but how investors, sureties, and lenders use this pertinent information to assess businesses.

In fast-paced industries like construction, analyzing accounting standards and tracking leases understandably fall low on the day-to-day priority list. However, proactive planning will be key to successfully implementing the new lease standard while ensuring your bonding and financial lending remain unaffected.

Running a business in today’s globalized world often results in receiving attention from domestic and international investors. This has led to a need for investors to have consistent standards with which to compare businesses. The new lease accounting standard ASC 842 is an effort to bridge one of the largest inconsistencies between the U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).

Under current GAAP, some leases are recorded on the balance sheet and other leases are simply disclosed in the footnotes. The new lease accounting rules will require that all leases over one year be recorded on the balance sheet. The increase in liabilities listed on the balance sheet will have an inherently negative effect on how those numbers are perceived.

Lease-heavy industries should start collecting their leases as soon as possible. For construction companies, leases include equipment, trucks, storage and yard space, and office facilities. All of these leases will need to be collected and have their terms identified and values recorded on the balance sheet. For facility leases not previously recorded on the balance sheet, the values must be recorded as a “right to use” asset at their present value of the lease payments.

To obtain a line of credit or term loan through a bank, a business must maintain certain financial metrics. This could include a minimum working capital or a maximum debt-to-equity ratio. The bank uses these ratios to determine the amount of equity and, therefore, risk you have in the business as well as measure the company’s ability to make payments on time — both of which greatly influence a lender’s decision-making process. Sureties use many of the same ratios and financial metrics to determine a construction business’ bonding capacity.

Since these ratios will be negatively impacted by the increase in liabilities on the balance sheet, it’s best to consult with your bank and surety now so they understand the changes to come. This will allow time to make any necessary adjustments to previously agreed-upon ratios.

Your CPA can help facilitate these conversations and help clear up any confusion regarding your balance sheet. A CPA can also proactively work with your bank and surety to create a pro forma of what your balance sheet will look like once your leases are recorded.

Considering the magnitude of these changes, it’s best to start preparing as early as possible, be extra cautious and bring in a professional if needed. Act early to get the most flexibility and cooperation from your bank and surety and make necessary adjustments. If your business is particularly lease-heavy, you may consider the help of a software package to help track your leases and automatically calculate depreciation on the related assets.

Remember, the new lease standard will affect virtually every business in every industry. Questions, struggles, and successes will be widely shared throughout the construction community, particularly among public companies facing an implementation deadline of December 15. If you are a privately-owned construction business, pay extra attention to lender, surety, and investor reactions and learn from some public filings before the private company implementation date of December 15, 2021.

If you need assistance implementing the new lease accounting standard, contact our team or visit our lease accounting resource page for more information or upcoming events.