There are 4,550 non-image homework and exam questions across the 30 MIT math, electrical engineering, and computer science courses required for obtaining a degree. Researchers asked GPT-3.5 to solve them. It scored 33%. Researchers then asked GPT-4 to solve them. It scored 90%.
With prompt engineering, GPT-4 scored 100%.
Last month (May), GPT-4 passed all four major accounting exams with an average score of 85.1%:
If you run an engineering team, accounting business, or law firm and aren’t yet exploring ways to use AI to increase the productivity of your business, you’re falling behind.
If you want to start outsourcing work to AI but don’t know where to begin, email me through the form below and let me know what kind of business you have. I help professional service businesses with their AI strategy and implementation.
Texas Governor Wants to Eliminate Property Taxes. Can the State Afford It?
“Texans want to own their property, not rent it from the government.”
Texas Governor Abbott
The median Texas property value went up by over 40% during the pandemic, according to Zillow. That means property taxes are also through the roof, and property owners are feeling the burn. Texas legislators have already appropriated $17.6 billion of last year’s nearly $33 billion state budget surplus to help owners with their tax bill. However, Texas Governor Abbott wants to go even further and “make your property tax zero.”
In this article, I’m going to explore the feasibility of that plan and answer several key questions including:
How big is the Texas government budget?
Can Texas afford to eliminate property taxes?
If Texas DID eliminate property taxes, where would the money come from?
Would school funding be diminished if property taxes were eliminated?
How high would the sales tax need to be raised to make up the difference, and would that hurt low-income Texans?
Let’s jump in.
How Big is the Texas Government Budget?
The Texas state government spent $127.6 billion in 2022. That includes state dollars spent via programs administered by local governments but does not include local governments spending their own money raised via property taxes, local sales taxes, municipal bond sales, etc.
The most recent data I could find on the combined state and local government spending in Texas was from the Tax Policy Center which reported $312 billion of total expenditures and $333 billion of total revenue in 2020.
From the chart above, we can see that both revenue and expenditures have been growing over the last 2 decades. However, from the perspective of a Texas resident, total revenue and expenditures mean very little. Per-capita metrics are much more meaningful, so let’s look at inflation-adjusted state & local revenue per Texas resident:
As you can see, real Texas state & local government revenue per capita is trending upwards, but much more slowly than total real revenue (the red line from the last chart). That’s because Texas’ population is growing fast, and that population growth is the primary driver of Texas’ economic growth.
The two most important (from the perspective of Texas residents) contributions to Texas state & local government revenue are property taxes and sales taxes. These two revenue streams are visualized in the next chart.
Like all our charts so far, the chart above is using inflation-adjusted 2020 dollars. That means both property taxes and sales taxes grew faster than inflation for the 16 years from 2004 to 2020. However, property taxes grew the fastest. In 2020, the real cost of property taxes hit an all time high up until that point, whereas the real cost of sales taxes was about the same as it had been 6 years earlier in 2014. And that’s BEFORE the massive run in housing prices from 2020-2022 that far outpaced inflation.
According to Zillow, the median home value in Texas increased from $213,522 in January 2020 to $302,423 in January 2023. That’s a 42% increase! During the same period, total inflation (which drives increases in sales tax revenue) increased only 16%. With that in mind, it’s understandable why many politicians are contemplating lowering property tax rates and increasing sales tax rates.
Can Texas Afford to Eliminate All Property Taxes?
In a word: No. The pie chart below shows the breakdown of Texas’ tax revenue by source. As you can see, property taxes account for over half of all state & local tax revenue in Texas.
Aside: The pie chart above is only for tax revenue, not all revenue. That’s why the numbers add up to much less than the total revenue numbers discussed earlier. Now let’s get back to it.
Fortunately for Texas’ financial stability, nobody is actually suggesting eliminating all property taxes. Governor Abbott may be using that rhetoric (which is, in my opinion, somewhat deceptive), but what he is actually advocating for is an elimination of “M&O” (maintenance and operations) property taxes levied by school districts. In 2021, property taxes levied by school districts accounted for just under 53% of all property taxes collected in Texas, or roughly $39 billion. That’s bigger than the entire $32.7 billion budget surplus Texas’ state government had in 2022. So, how exactly does the Governor plan to eliminate all school district property taxes?
His plan has two parts:
Use the surplus from last year and future years to pay down property taxes first. The idea is that any surplus would essentially be applied towards reducing property taxes, and only once property taxes were zero would the state legislature be able to allocate additional funding anywhere else.
Increase the state sales tax.
Initially, the plan would not actually eliminate the property tax but only reduce it by 29%. However, once Texas’ 2022 budget surplus (which was generated from the surge in spending and inflation created by record-high federal Covid stimulus) is spent, it cannot realistically be counted on for future years. That means essentially the entire burden of school funding would fall on the state sales tax.
Currently, the Texas state sales tax rate is 6.25%, with local taxing units having the authority to impose additional sales taxes up to 2%, for a combined maximum rate of 8.25%.
In 2021, the Texas state sales tax generated $36 billion in revenue. That means to generate the $39 billion of additional revenue needed to make the Governor’s plan work, Texas would need to raise the state sales tax rate from 6.25% up to 13.02% (which, after some local jurisdictions added their sales tax, would reach 15.02%).
Except we’re not done. Many places were still shut down in 2021 due to the pandemic which mean consumers spent a record amount on “goods” rather than “services”, and that meant a lot more sales tax revenue than usual.
Additionally, the federal government was still providing stimulus checks to people in 2021 which also boosted consumer spending on physical goods subject to sales tax.
And one more thing. If you double or triple the sales tax, people will naturally buy less stuff. You have to factor that in when estimating how much revenue you’ll generate by hiking the sales tax rate.
If we try to adjust for all of those things, then a more realistic estimate for the necessary state sales tax rate would be 14-15%, which, in some local jurisdictions, would mean a total combined sales tax rate of 16-17%.
Consequences
Raising Texas’ state sales tax from 6.25% to 14.25% would be like having an instantaneous 7% inflation. It would sting (especially for lower income workers), but it wouldn’t necessarily be intolerable. After an initial adjustment period, it would pretty much just be normal. Additionally, Texas does not impose any sales tax on residential rent, groceries, medicine, medical care, or electricity so eliminating property tax in favor of a higher sales tax would not be nearly as unfair to low income Texans as some people are claiming. Rent is the biggest expense for most people, and landlords set the price of rent higher because they need to cover their property taxes. That means eliminating property taxes for landlords would likely slow the growth of rent prices which would actually help low income Texans.
In fact, many low-earning Americans spend over 50% of their income on rent, and the lowest income quartile of Americans spend just over 30% of their income on food. Altogether, low income Texans are quite likely to be spending 90% of their income on goods and services which are not subject to sales tax.
Now let’s run through a quick calculation.
The average effective property tax rate in Texas is 1.60%.
If a renter spends 50% of their income on rent and the rent price goes down by 1.60%, then they save 0.8% of their income.
If the same person also spends 10% of their income on taxable goods and services and the sales tax rate goes up by 7%, then that person pays an extra 0.7% of their income.
Altogether, they are actually saving 0.1% of their income. Of course, this is just one example with lots of baked in assumptions, but it goes to show that swapping a property tax for a higher sales tax isn’t necessary bad for low-income Texans.
Schools
Some educators oppose the Governor’s property tax elimination plan because they want the 2022 budget surplus to go towards education which they say is underfunded in Texas. Let’s see if that’s true.
You can always spend more money on education. In a world of trade-offs though, that doesn’t mean you always should. If we look at the graph below of inflation-adjusted government education spending per Texas resident, we see that school funding is not going down. The big bump around 2010 is an artifact of temporary deflation that happened during the financial crisis, but in reality, Texas residents are sending more money than ever towards education.
We don’t have access to local government data after 2020, but if we look at just state government data through 2022, we see the same trend continue.
(Data provided by the Texas Comptroller & FRED)
Now let’s look at another chart which shows Texas government education spending as a percentage of total personal income in Texas.
This shows that although Texans are sending more money to government-funded education, they are also making more money due to increased productivity and economic development. This is the ideal situation: People make enough money to keep more and fund schools more. Not everything has to go to schools for a society to prosper.
In 2020, the Texas Comptroller reported total revenue of $336.8 billion, including $120.6 billion from “operating fund transfers”. That’s substantially more than Texas’ revenue from federal income ($77.5 billion) or state sales tax ($34.1 billion). In fact, it’s the single largest contribution to Texas’ state revenue by far. So what is an operating fund transfer?
To answer that question, I first need to explain what a “fund” is.
A fund is a bucket of money that is set aside and used for a particular purpose. Funds are used by governments to restrict the uses to which certain cash flows can be used. For example, Texas has the General Revenue Fund (0001) and the Retired School Employee Group Insurance Trust Fund (0989).
An operating fund transfer is a transfer of money from one fund to another. That means that each operating fund transfer shows up as both a contribution to revenue AND as an expense. And if we check Texas’ 2020 budget, we indeed see that operating fund transfers are not only the largest contribution to revenue but also the largest expenditure ($115.0 billion out of $334.4 billion of total expenditures).
But hang on. If each operating fund transfer shows up as both revenue and expense, then how did Texas have $120.6 billion of revenue from operating fund transfers but only $115.0 billion of expenditures from operating fund transfers?
One possibility is that there was a delay between when a transfer was recognized as sent and when it was recognized as received. That hypothesis is supported by the fact that the two numbers are always close, as you can see in the chart below.
Texas has no state property tax. However, the Texas Constitution and statutory laws authorize local governments such as cities and counties to set and collect property taxes. Each local government which is authorized to set property taxes is called a “taxing unit”.
Each taxing unit has a unique 8-digit ID number, but does NOT necessarily have a unique name. For example, there are two taxing units with the name “Valley View ISD”.
Taxing Unit Number
Taxing Unit Name
Total Tax Rate
049-903-02
Valley View ISD
1.0841
108-916-02
Valley View ISD
1.2453
Taxing units can correspond to many different types of local governments, including:
Cities
Counties
Independent school districts (ISDs)
School equalization districts
Community college districts
Vocational districts
Economic development municipal management districts
Economic development districts (EDDs)
Hospital districts
Public utility districts
Municipal utility districts (MUDs)
Road utility districts
County utility districts
Water authorities
Watershed authorities
Water improvement districts
Water control and improvement districts (WCIDs)
Fresh water supply districts (FWSDs)
Water conservation districts (WCDs)
Groundwater conservation districts
Drainage districts
Levee improvement districts (LIDs)
Emergency services districts (ESDs)
Navigation districts
Public improvement districts (PIDs)
Any given property in Texas will typically fall within multiple different taxing units. Each taxing unit can set its own tax rate, but none of these taxing units can specify the property value. Instead, every taxing unit must use the same property value which is determined by the appraisal district which contains the property.
Unlike taxing units, appraisal districts do not overlap. There are a total of 254 appraisal districts in Texas. Each appraisal district has a chief appraiser who is responsible for appraising the value of each property in the district as of January 1st each year. Each appraisal district is governed by a board of directors whose members are elected by the local taxing units subject to the appraisal district’s property valuations.
Appraisal districts also process applications for tax exemptions, special agricultural appraisals, and other tax relief.
If a property owner disagrees with the property value assigned by the appraisal district, then they can appeal to the local appraisal review board (ARB) whose members are local citizens appointed to the board by a local administrative judge.
How High Are Property Taxes in Texas?
Texas ranks among the 5 states with the highest average property tax rates.
The taxing units with the highest total (property) tax rate in Texas are Fort Bend MUD #195 and Fort Bend MUD #198 which both had a total tax rate of 3% in 2022 according to the Texas Comptroller.
How Can Investors Avoid Property Taxes?
There are several strategies that Texas real estate investors can use to reduce their property tax bill, depending on the type of property, the location of the property, how the property was purchased, and what the property is used for. Some of the most useful tax strategies include:
Historic districts — Many cities and counties offer property tax abatement incentives for properties in designated historic districts. For example, in Austin, if you rehabilitate a “contributing property” in a historic district, investors are eligible for a 10-year, 100% abatement on all city property taxes on the added value of the property that resulted from the rehabilitation.
Historic landmarks — Some local governments offer tax incentives for investors who own and maintain historic landmarks. For example, the city of Austin, Travis County, and Austin Independent School District offer 100% tax exemptions.
Agricultural tax break — If you have at least 10 acres (although the exact amount varies by county) of land that has been used for at least 5 of the last 7 years for agricultural purposes (including farming, livestock raising, and beekeeping), then your property is likely eligible for a reduced property valuation for tax purposes.
Opportunity zones — Opportunity zones don’t affect property taxes, but they do affect capital gains taxes. If you invest in them the right way, you can not only defer capital gains (as you can with a 1031 exchange), but you can actually eliminate your capital gains entirely.
If you’re a real estate investor trying to develop a tax minimization strategy, reach out to me using the form below. I can help you find and structure tax-optimized deals. In fact, I can even help you identify possibilities you probably didn’t know existed, such as using opportunity zones to not only invest in real estate but also software and media businesses. Use the form below to tell me about your situation and what you want to accomplish.
60% of executives expect to replace more full-time employees with independent contractors, according to Mercer’s 2023 global talent trends survey.
The term “gig economy” was coined in 2009 (the same year that both Uber and Freelancer.com were founded), but the trend of replacing W-2 workers with 1099 workers actually predates that by at least 8 years.
An IRS study found that from 2001 to 2016, independent contractors’ share of the U.S. workforce rose from 6.6 percentage points to 8.1 percentage points (a 22% increase).
That doesn’t include self-employed individuals who operate “true” businesses which have their own employees or over $10k in non-travel deductions.
It also doesn’t include gig workers who misreport their 1099 income (but who, if included, would mean that ICs’ share of the workforce increased roughly 32% instead of 22% from 2001-2016).
Who the IRS study DOES include in the definition of independent contractor are:
Most travel nurses
Many cleaners & janitors
Most tutors
Most Uber drivers
Independent medical couriers
An increasing number of relatively unspecialized backoffice, administrative, and secretarial workers
Many graphic designers
Most part-time freelancers who report their 1099 income
And many others
I even have a friend who was hired as a data scientist for a large utility company in 2021, and she worked in that capacity for over a year as an independent contractor even though her role was essentially the same as the company’s data scientist employees.
Fast forward to 2023. The number of independent contractors is at an all time high, and the trend of replacing W-2 employees with 1099 contractors has been accelerated twice–first by the pandemic and then again by the subsequent economic slow-down which we are still going through.
The software tools and flexible management strategies that companies adopted to enable remote work during the pandemic are exactly the same tools and flexible management strategies needed to work with independent freelancers. And now that the economy is slowing, company executives are thinking about all the costs that come with a W-2 employee that DON’T come with a 1099 freelancer:
Health insurance
Dental insurance
Vision insurance
Unemployment insurance
Workers’ compensation insurance
Payroll taxes
Paid maternity/paternity leave
Paid sick leave
Paid vacation days
401k match
401k plan administration
Employee laptop & other equipment
Employee software subscriptions (e.g. Microsoft 365, Zoom, Slack, Asana)
On top of all the cost savings, contractors can be hired and fired much more elastically than traditional employees, which is very attractive to companies staring at an uncertain economy. And there are several recent studies which support that this trend is not slowing down any time soon:
In Mercer’s 2022 global talent survey, 60% of executives said they expected more full time workers to be replaced by gig workers.
A 2022 Forbes survey found that 41% of SMB financial decision-makers were relying more on independent contractors and freelancers than they used to, and that 38% expected to increase their outsourcing in the event of an economic downturn.
A 2022 MBO Partners survey found that contingent labor (defined as all non-permanent workers, including temp agency workers, internal temp workers, independent contractors, and statement-of-work consultants) constituted 28% of the average large corporation’s workforce. The survey also found that 67% of large corporations expected to increase their use of contingent labor over the next 18 months, and 13% expected to “substantially increase” their use. Interestingly, the survey found that once a company first “tested the waters” of contingent labor, they were much more likely to then double down on the strategy and outsource even more labor.
Business Opportunities Created by This Trend
Demand for information and recommendations regarding non-employer healthcare and dental insurance will increase over the next several years. That is an opportunity for media companies, content creators, and content marketers.
Independent contracting comes with personal finance problems that are different from those for people with traditional W-2s. For example, independent contractors will use more IRAs versus 401k’s. That implies growing demand for financial advisers who specialize in helping freelancers, for mortgage brokers who can help people with non-traditional income qualify for mortgages, and for IRA providers (while at the same time, decreasing relative demand for 401k providers).
Some percentage of freelancers will aspire to build “true” businesses which will increase demand for business formation services, business tax filing services, and other “basic” new business services.
This trend will degrade traditional worker protections such as paid maternity/paternity leave, paid sick leave, and unemployment insurance. That degradation will eventually (perhaps in 10-20 years) create sufficient political backlash that legislative reform on those topics is enacted.
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Construction & Real Estate: These are highly fragmented industries, but they have been independent contractor driven since before the internet became a part of daily life.
Appendix B: 2019 IRS Study
In 2019, an IRS study analyzed labor force trends regarding the relative usage of employees versus independent contractors (ICs) in the U.S. The study attempted to answer the following questions:
How many people in the U.S. work as independent contractors (excluding self-employed individuals who operate “true” businesses)? This would, for example, include Uber drivers, travel nurses, and lawyers whose only income is derived from 1099 work for a large law firm, but would exclude most doctors, lawyers, and consultants who rent an office space.
What percentage of the U.S. workforce consists of such independent contractors? And how does that percentage change when we look at the high-income vs low-income ends of the workforce?
How have those numbers trended over time?
The study distinguishes between two types of Form 1099-MISC/K recipients: (1) individuals and (2) non-sole proprietorship businesses.
Individuals are defined as 1099 recipients whose 1099s are issued to (1) a social security number or (2) a business EIN that is linked to an individual’s Schedule C tax return form. Other 1099 recipients are classified as non-sole proprietorship businesses.
In 2016, 82% of 1099-MISC/K recipients were individuals, according to those definitions.
The study’s “preferred definition of IC” is a 1099 recipient who is (1) an “individual” under the definition above, who (2) filed an individual tax return, (3) is not themselves an employer, and (4) has no more than $10k in annual Schedule C business deductions (in inflation-adjusted 2001 dollars). Notably, if non-filers are counted, then the increase in ICs’ share of the U.S. workforce from 2001 to 2016 would be larger than the increase reported in this study. In that way, the study is conservative.
A few stats from the study:
The number of people who only received IC income increased from 3.25 million in 2001 to 4.9 million in 2016.
The number of people who received both IC and W-2 income increased from 6.95 million in 2001 to 8.94 million in 2016.
The number of people who only received W-2 income (no IC income) increased from 144.30 million in 2001 to 158.08 million in 2016.
“We find that the number of workers with platform-based gig work payments grew dramatically around the pandemic… with a net increase of 3 million workers (approximately 150% growth).”
“Talent attraction and retention are also top of mind for executives… with 50% anticipating that their organization will struggle to meet demand with their current talent model.”
“In the event of an economic downturn, [57% of] executives would… increase use of AI and automation.”
“Six in 10 executives [expect] that gig workers will substantially replace full-time employees at their company by 2024 (in Japan, nearly nine in 10 executives make this prediction)…[74% of HR leaders] fear that leadership will have a strong incentive to move remote workers to a freelance model.”
“One in seven lawyers said their law firm or legal department planned to outsource more legal matters to attorneys on a contract or project basis in a 2018 [survey].”
According to another 2018 survey, 58% of law firms currently use part-time lawyers, and 55% employ contract lawyers.
[7] What is a PEO? National Association of Professional Employer Organizations.
Labor Economics: Extensive Margin vs Intensive Margin (with Formulas)
TL;DR: Extensive margin and intensive margin are both abstract concepts that lack universally agreed upon definitions. However, extensive margin usually means something like “the total number of people who work” and intensive margin usually means something like “how many hours people work, on average”.
“Labor supply” of a country is an abstract concept, and there are many different ways we could try to measure it:
Total number of workers
Average number of hours worked, per worker
Average efficiency of each worker (e.g. a worker who builds 1 desk every 60 minutes could be said to provide 33% more labor than another worker who builds the same desk using the same tools in 90 minutes)
Economists typically ignore the last option since it is difficult to measure worker output for many jobs and even more difficult to measure whether differences in worker output are due to differences in worker capability or differences in the tools available to workers. Consequently, economists usually account for such differences in a separate variable called “efficiency” and use the following standard definition for labor supply:
Labor supply is the total number of person-hours offered for hire during a given time period.
That’s a useful definition that is easier to measure, but it doesn’t tell us much about the causes of labor supply changes. For example, is the labor supply rising because people are working more hours or is the labor supply rising simply because the population of a country is growing?
To distinguish those two situations, economists defined the concepts of “extensive margin” and “intensive margin” of labor supply. Like labor supply, these are both abstract concepts that are ascribed different definitions by different economists.
Commonly though, extensive margin is defined as the total number of people available to work, and intensive margin is defined as the average number of hours that each of those people worked during a given period of time.
Alternative Definitions
In a paper comparing the labor supplies of the U.S., the UK, and France, the authors define the extensive margin of labor supply as the fraction E(X,T) of a reference period T during which individual X is employed or self-employed. The extensive margin of a population with N individuals is then just the average of the extensive margins of the individuals (as shown in the formulas below).
The authors then go on to define the intensive margin of labor supply as the ratio I(X,T) of the total number of hours worked by individual X during reference period T, to the extensive margin of that individual.
More Definitions
In an IRS study of independent contractor (IC) hiring, the authors define extensive margin IC usage as a number between 0 and 1 which represents the fraction of companies that hired at least one IC in a given tax year. The authors also define two different versions of intensive margin IC usage. Both definitions are continuous ratios which compare a company’s reliance on ICs relative to employees in a given tax year.
The first definition of intensive margin IC usage is the “Worker Ratio” defined as the ratio of ICs to the total number of workers (ICs and employees).
The second definition of intensive margin IC usage is the “Compensation Ratio” defined as the ratio of IC compensation (from 1099s) to aggregate worker compensation (the sum of compensation to ICs and employees).
There is a trend among American businesses towards more contractor hiring and less employee hiring, which is creating increasing demand for outsourced finance services ranging from basic bookkeeping to investor financial report preparation.
To satisfy this demand, some companies have packaged various combinations of bookkeeping, tax preparation, financial forecasting, pricing strategy optimization, expense management, payroll management, financial statement preparation, and fundraising assistance as bundled service offerings labeled as “fractional CFO services” or “virtual CFO services”. These can be high-margin offerings, and the market for them is highly fragmented which means there is an opportunity for almost anyone to start a business that provides them.
In this article, I’m going to break down the packages and prices of nine different fractional CFO service providers. Use these as reference points when deciding what niche of businesses to target as customers for your own fractional CFO business and how to package and price your services for them.
1. airCFO
AirCFO is probably the most well known brand in the fractional CFO market. Here’s a screenshot of the airCFO landing page which shows how the company is communicating with its target customers (VC-backed startups).
Nothing fancy — just fulfilling your accounting and tax needs. Here are the packages airCFO offers:
Target Customer
Base Monthly Price
Package Structure
Launchpad Package
– Funded startups – Raised less than $2 million – Monthly expenses less than $50k
$1,563
Accounting – Month-end close management – Investor reporting by Day 25 – Async email support
People Ops – Payroll management – Payroll compliance guidance – Async email support
Tax – 1 Federal return – 1 State return – Year-end meeting
Launch Package
– Funded startups – Raised $2-10 million – Monthly expenses of $50-200k
$4,367
Everything in Launchpad, plus:
Accounting – Month-end reporting package – AP & vendor management support – Balance sheet schedule maintenance – Annual controller review & “lite” systems diagnostics
Finance – 6 hours of advisory support from a dedicated finance expert each month – Monthly model update and executive summary – Monthly check-in call – Help with quarterly board meeting prep – Annual budget build – Help with key metric tracking setup
Tax – Return walkthrough – Estimates based on extension calc
People Ops – 10 hours of advisory & support from a dedicated People expert, including: * Federal & multi-state compliance advisory * Onboarding & offboarding support & administration * Basic benefit system administration * People policy and procedure guidance
Iterate Package
– Raised $10-30 million – Monthly expenses of $200-400k
$6,883
Everything in Launch, plus:
Finance – Monthly model update & deep-dive analysis – Biweekly check-in call – Ongoing investor relations support – Budget-setting support and budget vs actuals tracking – Detailed cashflow projections – Metric benchmarking – Scenario planning
People Ops – 20 hours of advisory and support from a dedicated People expert (total, not in addition to 10 Launchpad hours), including: * Performance management advisory * Annual engagement survey & advisory
Tax – Common federal forms: 4562, 1125E, Pg 1 of M-3, and 6765 – 3 state/city returns (total, not in addition to the 1 in Launchpad) – Mid-year advisory meeting – Up to 5 hours of tax advisory/research support/ad-hoc projections
Scale Package
– Raised more than $30 million – Monthly expenses over $400k
Custom
Custom
AirCFO says that most of their clients have raised at least $1 million or are generating over $500k in annual revenue.
Paro advertises by emphasizing the experience of its “carefully vetted” CFOs and the big names of the clients that trust Paro (e.g. JPMorgan, FedEx, Morgan Stanley, the Harvard Business School, General Electric, etc). Those names are plastered on its landing page. The company does not provide a single, clear value proposition on its landing page, instead opting for a list of 12 different types of CFO services that it offers.
Types of CFO & Strategic Advisory Services
Description
Buy-Side M&A
– Analysis of the industry, competitive landscape and company positioning – Identify targets with operations, product lines, service offerings, and geographical footprints to complement the current business
Investor Relations
– Tasks related to meeting investors, managing investor communications, and maintaining investor relations – Tight coordination with executive team as well as the accounting and legal departments
Go-To-Market Plan
– Assessment of existing financial strategies, plans for new product launches, and market – May include the development of new plans including marketing & sales strategy, budget creation and financial forecasts
Business Valuation
– Integrated income statement, cash flow and balance sheet projections and valuation model – Macro, operational and valuation framework scenario analysis
Market Research
– Analysis of the Total Addressable Market, assessments of demographics, and the competitive landscape and company positioning – Identify and recommend target markets that align with the companies strategic advantages and priorities
Roadmap & Planning
– Data collection, analysis and identification of long-term business goals and objectives – Development of a plan outlining goals, milestones and objectives over a set timeline
Systems Assessment
– Document and assess current-state finance and accounting systems – Identify the biggest risks as well as the largest opportunities for improvement
Process Assessment
– Document and assess current-state finance and accounting processes as well as identification of the biggest risks and largest opportunities for improvement
Employee Benefits
– Apply financial insight and rigor to benefits strategy – Negotiate with benefits vendors and forecast financial implications
Raising Debt
– Financial modeling to support a debt fund or bank to lend money – May include 3-5+ years of projects and KPI modeling to demonstrate satisfaction of repayment obligations
Fundraising Guidance
– Leadership and skills required to support specific fundraising goals, including but not limited to pitch deck development and supporting investor due diligence
Exit Strategy
– Support in identifying exit goals and timelines – Identification of optimum financial and leadership conditions necessary to maximize exit value
3. Pilot
Pilot targets three types of companies to be its customers:
Startups
Consumer goods & retail companies
Professional services companies (e.g. consulting firms)
And it targets these prospective customers with a simple value proposition:
“We’re the last accounting firm you’ll ever need to hire.”
Pilot can also help startups claim R&D tax credits and provide financial models in support of 409A valuations.
Target Customer
Base Monthly Price
Package Structure
Bookkeeping Core Package
– Startups – Pre-revenue – Monthly expenses under $15k
Orba offers virtual CFO services to ecommerce businesses, real estate investors, SaaS companies, cannabis companies, and nonprofits.
Base Monthly Price
Package Structure
Monthly Package
$500
– Bookkeeping (code & reconcile transactions) – Accrual basis accounting – Monthly financials – Codefine and monitor KPIs – Coordinate external audit and tax work with your CPA as needed
VCFO is a virtual CFO services, recruiting, and HR services company. Across those categories of services, VCFO has over 5,000 past and present client companies. However, the company is not licensed as a CPA firm in any jurisdiction.
Value proposition:
Get expert help with fundraising (e.g. through refining your pricing strategy, preparing financial forecasts, and producing investor-friendly records)
VCFO does not provide transparent pricing, however. You have to request a consultation in order to get pricing information.
7. InDinero
Target Customer
Base Monthly Price
Package Structure
Essential Package
– Early-stage startups
$750
*Only a “starting at” price
– Monthly reconciliations – Employee reimbursements – Inventory reconciliation – Payroll support – P&L and balance sheet reporting – Cash flow statement and forecast – Support of Quickbooks Online or Netsuite – Handling of multiple entities and consolidation – Board reports + presentations – Financial projections + models – Business analytics + KPIs
Michigan CFO Associates targets Midwest small to medium businesses as customers, rather than fast-growing startups. Many customers are moderately established manufacturing companies with less than $50 million in sales.
Target Customer
Base Monthly Price
Package Structure
Level 1 Package
Businesses with less than 10 people
$2,100
– One day a month check up – CFO will set up, measure, and record KPIs – Analyze KPIs and profit points to identify growth opportunities – Create financial models to forecast likely outcomes & present alternatives for growth – Modeling new sales strategies and product offerings to draw in reliable income streams – Budgeting revision to help you adjust your spending to maximize returns and minimize costs
Level 2 Package
Small but growing companies
$3,200
Same as Level 1, with:
– Twice a month check up
Level 3 Package
*Most common level of engagement
not revealed
$6,300
Same as Level 2, with:
– Weekly CFO support
Level 4 Package
not revealed
$11,500
Same as Level 3, with:
– Twice weekly meetings when needed (otherwise weekly)
9. Oak Business Consultant
Oak Business Consultant serves a variety of industries including:
