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Minnesota recently enacted a new rule governing contractors and employees. This rule took effect on July 1, 2024. 

These new regulations will primarily impact employees in the construction industry and contractors that operate in this sector. If you misclassify employees as independent contractors, you could incur severe penalties and reputational damage.

Repeat offenders could incur personal liability. Therefore, you must familiarize yourself with what’s changing and what’s remaining the same so you can make sure workers are classified appropriately. Here’s what you need to know. 

Fine Amounts Got Steeper

Minnesota increased the fines for contractor misclassification violations. These increases apply to both construction and general workers. If your business misclassifies workers, it can incur a fine of up to $10,000 per violation.

That’s not all. You could also incur personal liability for repeat violations. This means that the state could fine you directly, and misclassified workers may have grounds to file a lawsuit. Even a single lawsuit could cost your business tens of thousands in legal fees and tarnish your reputation. 

What About the Five-Factor Test?

Minnesota will continue to use the five-factor test to determine whether a non-construction worker is an employee or an independent contractor. You should consider the following variables to determine how to classify a worker: 

• Control over the means and manner of performance
• Mode of payment
• Furnishing of tools and materials 
• Control over the location where the work was done
• Right of discharge

The Minnesota Department of Labor and Industry (DOLI) has established 34 different industry-specific tests for workers’ comp purposes. These tests are used to determine whether a person is eligible for workers’ comp benefits in the event of an injury.

It’s a good idea to consult with a legal professional to ensure that you are in compliance with state laws. Failing to classify workers correctly can lead to significant financial penalties and reputational damage. 

The New 14-Factor Test

The construction industry will face the most significant changes as a result of the new rule. DOLI replaced the existing 9-factor test with a 14-factor variant that draws attention to the timing of the services provided. This new test introduces more specific rules regarding business registration and tax reporting. 

To quality as an independent contractor, the person must:

1. Establish and maintain a separate business from the person who received the services
2. Own, rent, or lease tools and equipment to perform construction services
3. Provide construction services to multiple persons 
4. Hold federal and Minnesota tax identification numbers, file business or self-employment income tax returns, and receive 1099 forms
5. Be in good standing with DOLI
6. Have a Minnesota unemployment insurance account (if required by law)
7. Obtain workers’ comp insurance
8. Hold current business licenses and certifications 
9. Operate under a written contract
10. Submit invoices and receive payments
11. Retain control over the means of providing specified services
12. Incur the main expenses and costs
13. Assume responsibility for the completion of services
14. Be able to realize additional profit or suffer a loss 

These additional provisions also specify that the worker must meet all of these conditions at the time they provide services. This change to the law’s verbiage is especially important because it makes misclassification an ongoing concern throughout the project.

Suppose that you hire a subcontractor to remodel a kitchen. If they fail to renew any state-mandated licenses during the project, the worker will no longer meet all 14 criteria of an independent contractor. Therefore, you must do your part to ensure that all subcontractors remain compliant with the new law. 

How You Can Stay Compliant

You must be proactive about maintaining compliance with the new rules. Regularly review worker classifications and all relevant paperwork to verify that they meet the criteria of the 14-factor test. Make sure your contracts and tax reporting practices meet the new requirements as well.

If you’re unsure about how these changes will impact your business, Zabel & Co. can help. Our team of consulting professionals can identify key areas of concern and implement strategies to mitigate risks of non-compliance. Contact our team today, and let’s chat about your workforce management needs.

Small to medium companies have been near the core of American business for decades and remain there today. It’s more important than ever for these businesses to develop financial management skills and habits for the prospect of success. Here are a few actionable, powerful steps your business can take for financial well-being.

Keep Detailed Records

Accurate and thorough record-keeping is crucial in developing a business. Set up a wide-ranging base of financial records, including income, expenses, cash flow, budget management, tax information, and other categories pertinent to your business.

A detailed record system helps business owners make informed decisions and maintain compliance. It also helps to cut down calculation errors and inefficiency.

Reconcile Bank Statements Every Month

Reconciling your financial records with your bank statements every month bolsters accuracy and finds discrepancies that need to be fixed. Look over both to find errors, unapproved or duplicated transactions, missing payments, and other fiscal details.

This step can help you maintain a steady cash flow, prevent fraud, and develop a clear picture of your financial growth over time.

Prepare a Monthly Profit and Loss Statement

A monthly profit and loss (P&L) statement gives you a clear overview of business operations and financial performance. A solid P&L report tracks revenue, cost, and expenses that help you find profit opportunities, discover market trends, and improve your decision-making. It can also help you build a budget and make better projections.

Manage Cash Flow With a Fractional CFO

A fractional CFO — something Zabel & Co. can help you with — is a part-time financial specialist who builds business strategies from an objective standpoint. They analyze business data to improve cash flow and liquidity. This gives a small business the opportunity for advanced financial knowledge without having to commit to a full-time employee.

Plan for Unexpected Expenses and Slow Customer Payments

Unforeseen events happen in every business but may have outsized effects on smaller companies. Delayed customer payments can also affect your bottom line.

Create strategies and contingencies for dealing with surprise expenses and shortfalls. These can include building an emergency fund, offering incentives for prompt customer payments, and laying out clear payment terms.

Re-Invest in Your Business

Small and medium businesses rely on reinvestment. It allows them to fund upgraded equipment, business expansion, employee training, and other important business practices. Reinvesting can also strengthen your market presence and competitive edge by fostering innovation, better performance, and sustained growth. Adjust your reinvestment allocations from time to time.

Evaluate Cost Savings Measures

Review your expenses to find opportunities for savings. Find budgeted items that can be reduced, cut, or optimized. This can include upgrading or renegotiating vendor agreements, reducing overhead, and slimming down or streamlining operations. Cost savings evaluation is another area where a fractional CFO can be of great assistance.

Keep Separate Accounts for Business and Personal Finances

Maintaining separate bank accounts for company and personal finances is crucial. Tracking each separately can eliminate budget mix-ups and back you up should any legal problems arise. It can also make tax preparation much easier.

Put Yourself on the Payroll

Some business owners leave themselves off the company payroll to accelerate business growth and mitigate taxes. However, in most cases, owners should put themselves on the payroll to earn dependable, documentary income. It can help you build transparency and streamline planning efforts.

Let a Professional CPA Handle Your Taxes

Business owners should be focused on finding ways to earn revenue and expand. Tax planning can get in the way of that process, however. Enlisting a professional CPA lets you refocus on business operations. CPAs also have experience and knowledge that can help you avoid audits, find deductions and tax credits, and meet compliance regulations.

Zabel & Co.: Steering Companies Toward Success Zabel & Co. helps small to medium companies build a successful framework for profitability and growth. We support business owners by coaching business growth, advising on technology and taxes, and serving as fractional CFOs. Our goal is to drive you toward success in both business and life. Contact us to find out more.

Running a successful business requires planning. Even though a business owner might have excellent instincts and a hearty work ethic, these traits are far more functional in the context of well-designed blueprints. One of the most important topics that planning can address is how your business will turn a profit, both now and in the future.

Profit planning establishes how your business will earn revenue over a designated time. It entails objectively assessing your current status, outlining your business goals, and designing sustainable cash flow. A solid profit plan will also include a strategy for monitoring progress and allocating resources. It’s a virtual roadmap for success.

What Is Profit Planning? Profit planning is setting up a financial outline of how a business owner aims to become profitable over a given time. The plan takes several financial elements under consideration to project future earnings. It helps business owners and managers set goals and milestones to reach, and it serves as a reference point for business decisions.

A good profit plan identifies core metrics and data collection methods. It also specifies how managers and employees use the results to point the way forward.

The plan doesn’t need to be unnecessarily complex or overthought. At the outset, you just need a few measurable goals that you can aim for over a year or so. What’s most important is that these goals are defined and written down, along with details about how progress will be monitored and measured.

Depending on your business structure, there are many ways you can plan how your business will handle profit. For example, you may broaden your offerings or services, expand to other regions, ramp up your marketing and sales strategies, or enhance customer retention.

Your profit plan should also address how you can control expenses to protect profits. This can include streamlining operations, negotiating with suppliers and vendors, and implementing cost-effective technology. It’s important to know how much money and capacity you need to improve production. This can make it easier to plan for expansion and growth.

Why Is Profit Planning Important?

Profit planning builds a strategic foundation for attaining your business goals. It accounts for strategic resource allocation to support your business objectives, setting

realistic forecasts for revenue and expenses. This information guides your decision-making so you can anticipate obstacles and take advantage of opportunities.

A complete profit plan includes methods for monitoring and recording performance metrics. This data sets a standard for production rate and can show deviations from normal operations. Businesses use this information to enact corrective actions to maintain consistency.

Profit planning sets up a framework for financial stability and success. It can include strategies for increasing liquidity and contingency planning for unexpected events. A solid profit plan also establishes a sense of accountability in the organization for maintaining long-term sustainability and continued success.

Steps for Creating a Profit Plan

To get you started, here are the basic steps for building a comprehensive profit plan.

· Set Profit Goals: Define realistic, achievable, and detailed financial targets you want to reach

· Project Revenue: Use market analysis and past performance data to estimate future sales

· Budget for Expenses: Outline all anticipated operational and material costs, both fixed and variable

· Analyze Break-Even Points: Figure how much sales volume you need just to cover expenses

· Project Cash Flow: Estimate cash inflow and outflow to maximize liquidity

· Set Performance Metrics: Implement key performance indicators (KPIs) to monitor progress and make modifications as needed

· Make Contingency Plans: Set backup plans for dealing with risks and business changes

· Review the Finished Plan: Evaluate your profit plan from time to time and update it as needed.

By following these steps and shaping them to your specific needs, you can create a solid profit plan with achievable goals and growth plans.

Turn to Zabel & Co. for Help Whether your business is just about to launch or has been around for years, Zabel & Co. can help you plan for its success. We offer a no-cost profit acceleration analysis, which takes about 45 minutes of your time. Email Todd Zabel to set up your call with our team!

Your business is only as healthy as its finances. And while it’s easy enough to talk about reaching financial wellness or optimizing your business’s financials, strategizing how to do so can be a lot more complex. Not sure where to start? Here are five steps to optimize your company financials in 2024.

Monthly Accounts Analysis

Before you make any changes, you should always start by taking a close look at your accounts. Analyzing your financial statements each month might not sound like a big deal, but it’s the best way to catch problems and inaccuracies early. 

When you have one or more financial experts poring over your accounts every month, your company can enjoy a whole host of benefits, including:

• Correcting small discrepancies before they become major issues
• Ensuring regulatory compliance
• Forecasting future performance
• Building trust with partners and customers
• Ensuring accurate tax planning

Of course, to make sure your company reaps all the benefits of each analysis, you should make sure you have a strategy for implementing any changes your team decides on.

Reconciling Bank Statements

Reconciling your bank statements is a critical part of auditing your finances, so it’s something you should include in your monthly account analysis. 

When you reconcile your statements, you make sure that your internal records match those kept by your financial institution. This process helps you make sure your records are accurate at all times. It’s also critical when it comes to identifying embezzlement and other kinds of internal fraud.

Assessing Outstanding Invoices

If your business deals with a large number of invoices each month, it’s easy to forget one or two. If that becomes a habit, your business misses out on revenue. And if that revenue goes on your books before the invoice has actually been paid, you might think you have more capital to work with than you do.

To maximize your company’s financial health, you should make it a priority to assess outstanding invoices each month. If invoices are past due, make sure you reach out to clients to collect payment. 

If late payments are becoming a significant issue, it might be time to implement new policies like:

• Early payment discounts
• Late fees
• Automatic payment reminders
• Upfront billing

In cases where a client persistently refuses to pay, you may need to weigh the costs of taking legal action or hiring a debt collector.

Understanding Cash Flow

For many business owners, cash flow is the first thing that comes to mind when they think of optimizing financials. “Cash flow optimization” is a very broad goal, but it can be broken down into three key elements:

• Increasing your cash inflow
• Decreasing your cash outflow
• Improving the timing of cash inflows

The larger and more complex your company is, the more challenging it becomes to understand and optimize cash flow. Hiring a financial expert — even part-time or temporarily — is essential if you want a clear understanding of your current cash flow and how to improve it.

Working With a Fractional CFO

Generally, larger businesses seem to have an easier time organizing and optimizing their finances. That might seem counterintuitive, but larger companies have a major advantage over smaller companies when it comes to leadership — they often have a dedicated chief financial officer (CFO). 

Unfortunately, for startups and smaller companies, hiring a full-time CFO simply isn’t practical, but that doesn’t mean you have to do without. 

A fractional CFO is a contracted CFO who can work with your business on a part-time or even per-project basis. With the right fractional CFO, you get the benefit of expert guidance without having to pay a full-time salary and benefits.

Make Your Business Financially Stronger Than Ever

When it comes to optimizing your financials, nothing matters quite as much as having a strong financial leader. Fortunately, this doesn’t mean you need to hire a full-time CFO. At Zabel & Co., we take pride in connecting your company with the resources and expertise needed to grow. If you’re looking for a fractional CFO or want to see what else we can achieve together, get in touch with us today.

Tax policies vary from state to state. As such, many Americans think about moving from states with high tax implications, like Minnesota, to states with lower tax burdens, like Texas, Nevada, Wyoming, and others.

That said, there are other factors worth considering before making such a move. Here are a few of the most important.

Cost of Living

A new state’s light tax policies may be alluring, but living expenses like housing, groceries, utilities, fuel, and healthcare might be higher in the exchange. Take a deep dive into how these cost-of-living adjustments may come into play in your new location. 

Employment Opportunities

Your targeted state may or may not have opportunities that line up with your professional goals and abilities. For this reason, it’s a good idea to research the employment situation in the new state. Are there enough opportunities you can take advantage of? Will your compensation be sufficient? You need to know before you go.

Quality of Life

A state with low taxes may be disadvantageous in other respects. Access to healthcare, educational resources, crime rates, and recreational opportunities are all worth thinking about, as they’ll play a major role in your life. Consider your preferred lifestyle and what adjustments you might need to make to have it before relocating.

Weather and Climate

A new area’s climate can affect more than just your comfort level. States with extreme temperatures, poor air quality, and more sun exposure can affect your overall physical and mental health. They may also pose challenges when it comes to heating and cooling costs, driving, and enjoying outdoor activities.

Take the time to learn about your target state’s annual weather patterns and evaluate how they may impact you.

Tax Implications

State taxes may be lower in the new location, but your federal income tax burden won’t be. You could also face variable rates in sales, property, excise, estate, and local taxes. Perform a complete accounting of what tax responsibilities you may incur beyond the state level and decide whether you can afford them. If not, it may be best to stay put.

Real Estate Market

What housing opportunities are available in the place you’re thinking about moving to? What market trends might you have to account for? Furthermore, what’s going on with your current state’s seller market?

Talk to a qualified realtor or financial expert for detailed information on real estate opportunities, new housing costs, and projected income for selling your current property. If you don’t intend to buy anytime soon, find out the typical rental charges in your new area.

Moving Costs

The cost of relocating can be surprising. Moving services, transportation fees, temporary storage, packing supplies, cleaning expenses, and new utilities may cut into your moving budget. Before you make arrangements, take stock of everything you’ll need and determine whether it’s worth the cost.

Community and Culture

Local customs, population diversity, amenities, school quality, and public transportation are just a few of the factors that can impact your decision to move to a new area. That’s on top of economic issues, healthcare access, and community standards that may be starkly different than what you’re used to.

Ask others familiar with the locale you’re looking into about what changes you may expect as you carry out your planned move. That way, you’ll have a better idea of what you’re getting into.

Proximity to Family and Friends

Personal relationships are extremely important to think about. If you leave your current state, you may be more removed from your personal support network. Of course, the opposite may also be true — you could be moving to be closer to the family and friends you love.

Think clearly about how the nature and availability of your support network will be impacted by your move, whether it’s closer or further away.

Reach Out for More Information and Advice

Zabel & Co. helps clients through transitional times, including relocating to other areas for tax reasons.

Our advisors have authoritative knowledge about how moving to a new state may affect crucial aspects of your life, occupation, and relationships. More importantly, we offer resources that can be highly valuable if you decide to follow through with a move.

Ready to learn more? Contact us today using our online form to set up a consultation.

In times of economic stress, all companies must contend with financial challenges. A qualified Chief Financial Officer can help business leaders navigate the chaos and make wiser decisions. However, some companies may find a permanent, full-time CFO to be a strain on their books.

The gig economy has given rise to an alternative option: the fractional CFO. This part-time, contracted occupation can be a good solution for organizations that need financial clarity but are reluctant to commit to a full-time position.

Could a fractional CFO be the answer for your company?

What Is a Fractional CFO?

A fractional CFO is a business consultant who offers financial guidance to businesses of all sizes. Rather than working full-time, a fractional CFO is hired on a part-time, project or contract basis. Many fractional CFOs work with multiple companies at once.

Fractional CFOs perform the same duties as dedicated, full-time CFOs. They guide businesses through threatening economic times, empowering leaders to make better decisions and steering their efforts in raising capital, driving financial growth, facilitating audits, and negotiating with vendors and partners.

A fractional CFO can provide the knowledge and resources needed to help a company weather the storm, especially in times of uncertainty. Startups or struggling businesses can realize all the benefits of a full-time CFO without committing to a full-time salary or benefits package.

Facing Economic Reality

During times of economic hardship, major corporations are forced to lay off workers, and small-to-medium-sized companies must deal with tighter budgets and organizational structures. Here are some key points:

• Startups and small businesses often can’t afford to retain a full-time CFO 
• The average salary for a full-time CFO in a small, private company topped $194,000 in 2023, according to Driven Insights
• Larger businesses hired CFOs for an average base salary of more than $306,000, not including benefits, stock options, or bonuses

Location also plays a role. Companies in large metropolitan areas like New York, Los Angeles, San Francisco, and Chicago pay more for full-time CFOs than those in smaller cities.

Retaining fractional CFOs can make a lot of sense for companies. These professionals have the requisite knowledge to keep businesses moving in slow economies and are skilled at finding opportunities for savings and investments that can shore up their finances.

Benefits of Hiring a Fractional CFO

A fractional CFO can offer a company several distinct advantages, including the following.

Cost-Effectiveness

Fractional CFOs typically charge by the hour, meaning companies don’t have to commit to a full-time salary that might include downtime. Fractional CFOs are paid only for the time they actively work on business matters, making them more cost-effective for smaller businesses.

Flexibility

Fractional CFOs are also easier to work with from an operational standpoint. Company leaders can hire them on a part-time or project basis, so they can work with multiple businesses at once. They also give hiring managers a great deal of freedom when it comes to staffing.

Expertise

Since many fractional CFOs work with more than one company at any given time, they often have a wide range of business knowledge that spans numerous sectors. This makes it easier for them to develop “outside the box” strategies that a full-time CFO might not come up with.

Networking

Fractional CFOs frequently partner with other finance professionals, including accountants, bankers, business attorneys, tax consultants, and insurance brokers. They can rely on their networks to serve the businesses they work for and help them fill other roles.

Hiring a Fractional CFO

Fractional CFO rates are contingent on several factors, including:

• The amount of time they work
• Their depth of knowledge and experience
• The sectors they’re familiar with
• Their specialized skills

The cost of hiring a fractional CFO might be a flat fee or a monthly retainer, and some charge more than others. This means that hiring managers have some leeway when it comes to compensation.

Make the Right Choice for Your Business

Ultimately, there’s no right or wrong answer to what kind of CFO your business hires. 

There may be good reasons to take on a full-time worker. In this era of economic instability, however, it may make more sense to consider working with a fractional CFO.

The knowledgeable professionals at Zabel & Co. can tell you more about the responsibilities and advantages of fractional CFOs. Contact us using our convenient online form, call us at 651-605-2301, or email us at info@zabelco.com today.

Startups and small businesses often face great pressure to quickly generate income. That said, is making consistent revenue the key to enduring business success? Or is it better to create sustainable growth for the future, even if it means making sacrifices in the present?

The answers aren’t quite as cut and dry as you may expect, and they largely depend on the current stage and ambition of the business. Generally, though, after a business has established its model for revenue growth, it’s better served by scaling to create a durable, broadened business model.

Revenue vs. Profitability

While the two words may appear to define the same thing, “revenue” and “profitability” imply different money-earning approaches. 

“Revenue” (or “gross revenue”) refers to the income that your business generates through its normal operations. Sales, fees, charges, donations, and other transactions represent revenue streams. However, earning more revenue doesn’t necessarily mean a company is maximizing its potential.

“Profitability,” on the other hand, measures how much income your business makes after deducting its typical expenses and business costs. In addition to setting a price for the goods or services it offers, a business needs to control and limit the expenses it incurs in making or providing its product. That reflects its potential for sustained growth: its scalability.

Four Business Stages

The lifespan of an independent business can be laid out in four general stages:

• Launch: The official start of business operations
• Growth: Establishing a system for revenue and income
• Sustainability: Achieving stability through efficiency and risk management
• Scalability: Increasing expansion and volume of activity or transactions

Most businesses follow this general flow of development. Some are content to stop when they’ve reached a level of sustainability, while others seek to expand their potential and explore scalability.

Comparing Growth and Scalability Mindsets

Business owners all want to achieve a level of success, but where they go after they’ve reached that point depends on their ambition and risk tolerance.

Choosing Growth

Every business owner wants to grow, and some hit a point of comfort and profitability that makes them happy. They’ve hit a work-life balance they’re satisfied with, filled an in-demand niche, or provided services to a client base that keeps coming back.

In any case, for the owners of these types of businesses, staying profitable is enough. There may be trade-offs, like working longer hours and limiting expenses, but it’s certainly possible to maintain a satisfactory life.

Choosing Scalability

Other business owners want to increase their business value. They seek to produce more growth by capping expenses, increasing efficiency, and adding more features or capabilities. They also build internal processes to streamline production and customer service, hiring more employees and attracting more investors to facilitate expansion.

The scalability mindset is a framework for keeping a business relevant long after its founders have moved on. It’s a method to track customers through the entire cycle of using their products, year after year, one that involves significant reinvestments of work and capital for extended periods.

Which Mindset Is Better?

Neither mindset is inherently better or worse than the other. Millions of small businesses in America have served their local communities without scaling upward and enjoy staying within those parameters.

That said, the American model of entrepreneurial success is driven by economies of scale. Business dynamics focus on competition, innovation, reinvestment, and collaboration. Growing in scale has an impact on job creation, technological progress, access to capital, and global presence.

Strategies for Scaling Profitability

How do you start thinking in terms of scalability for your small business? Here are a few steps to take in the transition:

Set Realistic Goals

Document your ability to increase workloads, budgets, and staff to meet scalability needs, then set reachable benchmarks for your products and your customer base.

Adjust Your Work Standards

Take a look at your processes to evaluate your production efficiency. Wherever possible, set prescribed routines and streamline operations to save money, time, and energy.

Build a Collaborative Network

The small business community has specialists, colleagues, resources, and potential collaborators who regularly help each other meet their needs. Start with local contacts and grow your business network organically.

Re-Establish Your Priorities

You started your company because you wanted to do what you’re best at. And now that you’ve reached a modicum of success, you need to start thinking about your product or service as something the world needs. Build your aims around that global reach.

Revenue Is for Now — Profit Is Forever

Generating more revenue is important, but it’s not necessarily the smarter way to keep your business relevant or operational. By learning how to retain and grow income across different revenue streams, you can build a business that’s profitable, influential, and sustainable. Connect with Zabel & Co. today to get started.