Financial Service Case #1 – When a Bookkeeper is Not Enough

A $10 million service business faces headaches and wasteful expenses when an overwhelmed bookkeeper is left to fend for herself.

Background: A $10 million service business was using a bookkeeper and an external consultant to manage the company’s finances. The consultant moved on, leaving the bookkeeper who was trained in QuickBooks and had about three years of part-time experience with the company on their own.

Problem: While she had exhibited a basic understanding of the accounting process prior to taking control, the bookkeeper became overwhelmed by some of the more complex aspects of the job. The company owner did not realize how badly the accounting system had been compromised until it was too late.

– The bookkeeper had not made payroll tax deposits for approximately five months!

– She became delinquent in paying vendors.

– The client started to notice inconsistencies but the extent of the problem was not recognized until I was contacted to conduct an annual audit.

Resolution: The bookkeeper was quickly replaced, but the problems she had created took months to resolve. The client was forced to hire an attorney, at great expense, to negotiate the assessed penalties. The client had to call angry vendors and make arrangements to get their payments current. Our team had to do substantial confirmation of loans and payables to re-establish the integrity of the accounting system.

Lesson Learned: This is a perfect example of how critical it can be for small business owners to have a CFO consultant with a higher level of financial acumen to oversee their accounting department. In this instance, the penalties, fees and hours spent to correct the situation far surpassed the perceived annual savings of using a bookkeeper alone.

Financial Service Case #2 – A Construction Acquisition Gone Bad

When a client ignores their CFO consultant’s advice, it results in a financial disaster.

Background: A client was contemplating the acquisition of a construction company that specialized in remodeling service stations, including removing old fuel tanks and contaminated dirt. I was part of a team that went to interview the current president and establish the existence of assets that were to be included in the purchase price.

Problem: The president was a graduate of a renowned university and was running his father-in-law’s construction business. He was always reluctant to volunteer any concrete information that would substantiate the valuation claims being made. When I asked him “How do you know whether your jobs are profitable or not?” he replied that “he made 10 percent on his jobs.” I said “How do you know?” He responded “I bid 10 percent over my cost.”

Resolution: From my experience in the construction industry I know that there is often a large difference between bid cost and actual cost. It was clear to me that the president gave no consideration to what the actual results might have been on any particular job and was therefore likely losing money on many of the jobs. His reluctance to provide supporting documentation confirmed my suspicion and I advised the client not to move forward with the acquisition.

Lesson Learned: Since in this case the client ignored our advice, and still purchased the business, the lesson is… listen to your CFO! The acquired company was bankrupt within a year, and sadly, forced the acquiring company into bankruptcy shortly thereafter.

Financial Service Case #3 – QuickBooks Isn’t a Miracle Worker

A hard lesson is learned when a client overestimates the power of accounting software.

Background: I met with a client for whom I prepared an annual tax return. I asked the bookkeeper for the books and records.

Problem: After a quick review of the balance sheet, I asked the bookkeeper if she reconciled the bank account at the end of the year. She replied “Yes. QuickBooks reconciles the bank account automatically.” “Great, I said, has the bank been calling you?” Suddenly her expression turned nervous. “No, why do you ask?”

Resolution: I told her that the general ledger shows a $125,000 overdraft. She insisted that the bank balance was correct because “QuickBooks says so.” We eventually reconciled the bank account after recording a number of missing transactions.

Lesson Learned: An accounting software system is only as good as the information inputted. No business should operate without regular oversight from someone qualified to analyze and reconcile the balance sheet, cash flow and profit and loss statement.

Financial Service Case #4 – Timely Reporting for Current Projects Does Not Come From an Accounting System

A mason contractor struggles with maintaining sufficient supplies and labor for current jobs.

Background: One morning a client complained that his accounting system is “no good.”

Problem: The client tells me that “I do not get information until the 20th day after month end. That’s too late to be of any good in managing my jobs.”

Resolution: I told the client that, as a business owner, he needs to recognize that his accounting system captures historical accounting information to provide documented support for financial statements, tax returns, and cost history. It’s usually segregated annually.

If you are a mason contractor, you cannot use your accounting system to monitor a job in progress! You need to keep material and labor shortages at a minimum to run profitable jobs. You need a simple method to get relevant information from the field.

Lesson Learned: Your accounting system does many things well, including supplying you with historical information to test and refine your bids. However, when it comes to running current jobs you need a system to manage your jobs on a daily basis.

It could be as simple as how many bricks are being laid per day, and how many men are on the job. You should be able to use this system to monitor how close you are to your bid logic. If you need to get the information into the office each day (highly recommended!), you can have your superintendents email, phone or fax the information into the office.