Q: Our accountant only does our taxes, what else could they do?

Q:

I own a small manufacturer, around  $5M in sales. We do all accounting functions in-house on our accounting system except payroll which I have a service for. Our accountants are used only to do our tax returns at year end. The nagging question is: is there something else they could be doing for me? Apparently they have plenty of work to keep themselves busy year-round. But what are they doing that I should be tapping into?

Obviously, I could just ask but I want to go in with some prior knowledge before I do that.
1) What is your accountant doing for you besides taxes?
2) How often are you meeting with them?
3) Do they have direct access to your accounting system?

Whatever insights you could offer would be greatly appreciated.
John

A:

John, this is a great question. I find that many small/mid businesses use very little financial help in ways the can cause their business to grow successfully. I also find that CPAs see the world through tax glasses, which limits their perspective. Every day companies get great value from broader financial expertise. The part-time, contract CFO model is affordable for any size company. I have several $1M – $5M revenue businesses I work with regularly.

Most companies do not rely on their CPA to be proactive in providing strategic, senior level executive experience in management accounting, business, leadership and financial matters. Here’s why: Most CPAs in CPA firms have never been a senior executive CFO or divisional controller at any company. That’s quite different than having a CPA license with tax experience and an accounting degree.

I have seen hundreds of times where companies from $500K to $10M have used their CPA as their only trusted financial advisor for years. The company’s books are mostly setup with tax basis accounting methods, which is useful mostly for the tax people and not very useful to provide the CEO with management level information and decision-making.

I have to spend weeks and months working with the CPA and accountant to clean up the books and move them away from tax basis accounting to methods useful for tracking and running the business. When was the last time your CPA asked you to sit in your office and walk through the monthly financial reports with you, looking for problem areas and problem solving together? How often do you see your actual CPA, especially between the months of January and April? How many times have you been turned down for loans or lines of credit, and you weren’t really sure why? If the lender sees tax basis financial reports, what they can see is limited to, well, tax information. It requires extra work to glean business information from that.

The word “accountant” is so very general because there are so many different functions in accounting and financial management. Many people call these functions their “accountant”: CPA, Controller, Tax Preparer, Accounting Director, Staff Accountant, Bookkeeper, Data Entry Clerk, etc.  Some even call their CFO their accountant.

Independent CPAs and CPA firms need to maintain a certain distance from the day-to-day operations of their clients (thank Enron, MCI, etc.). There is a small percentage of CPAs and CPA firms that engage at a peer level with the CEO on a regular weekly, bi-weekly or monthly basis to perform financial management activities. But a true CFO offers these valuable activities including:
•    Producing timely and accurate financial reports
•    Cash flow analysis and planning
•    Profit improvement
•    Strategic planning
•    Increasing Sales
•    Funding and compliance
•    Exit strategies
•    Working capital and treasury management
•    Overseeing the accounting staff, CPA relationship, business lawyer relationship and
•    Financial modeling and what-if scenarios to make good business decisions

Most small businesses are not exposed to these things, or don’t know how to address problems in these areas. How can you tell if you need help? Call me. 303.995.4523

I hope this helps you get an idea of how the role of an affordable, part-time, contract CFO helps a company like yours grow and succeed.
Best wishes for a successful 2009!

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  • KirkWard

    Marty,

    You might recommend that the outside firm spend some time educating the manufacturer in business operations. It would seem to me that the outside firm is in an excellent position to begin offering training and mentoring to your hypothetical (or real) firm and others in their community. Blatant plug here … I manage a membership website where I recommend this process to small startup accountants. If the firm your example uses is older and more established, they can develop this type of program on their own. It is an absolutely powerful help to local businesses, much like the local SBDC.

  • http://www.martykoenig.com/blog martykoenig

    More like discovering and sharing with the readers the differences between what a CPA and a CFO can do, as well as what they should do given their focus and experience. I’ve seen that many CPAs can do some of what a CFO does, and many CFOs can do some of what CPAs can.

    As a CFO and not a CPA, the IRS laws are not something I focus a lot of time on, and I help my clients engage good people like you that have your outstanding tax experience to maintain expertise in that important business area. Not many can do all of what a CPA needs to do and all of what a CFO can do. I find most CPAs don't have CFO experience and do not wish to provide those type services. Hats off to those that can and do.

    In my experience companies are more successful when they have excellent trusted advisor relationships with both a competent CPA/Tax Advisor/EA AND a seasoned senior executive level CFO. That’s my whole point. I apologize for being less clear than I could have in my post.

    When I start working with a new client that does not have a good relationship with their CPA, or has not seen them or heard from them for a long time, or just takes files every quarter without engaging the client in tax-centric business decisions, I introduce them to a new CPA that will be proactive in their strategic involvement with the company. The smart companies that use both a competent CPA and CFO have proven time and again to have much better results.

  • http://www.martykoenig.com/blog martykoenig

    Kirk, I agree. Most small manufacturers have learned the hard way, and not in the “best practices” way from experts in operations or manufacturing. I have seen many companies go to the next levels with not a lot of cost, but using experts in the right ways. BTW, I like your member website.

  • http://louisvillesoup.blogspot.com Mike Campbell

    Nice post Marty. You hit the nail on the head. I was in public accounting for ten years before becoming a CFO of a small business. Public accounting prepared me very well for the job, but your are so right that “Most CPAs in CPA firms have never been a senior executive CFO.” I'll be the first to admit that I could not have provided the same level of advice before being a CFO.

  • Pingback: What Services Can You Offer? | Kirk's Blog()

  • http://www.martykoenig.com/blog martykoenig

    Kirk Ward made a nice post on his blog, to which I responded: http://kirk-ward.com/what-services-can-you-offer

  • http://www.martykoenig.com/blog martykoenig

    John replied to my posting on StartupNation:

    Hmmm…. Which brings up something else: Is there a downside to having your CPA doing your CFO work? I would imagine that though the disciplines are initially similar, the added background that a CPA possesses would skew, perhaps make more complex, the thought process and solutions involved in true CFO type work.

    There’s also the potentially sticky matter of having all your eggs in one basket in case you have to terminate someone. Having the CFO and CPA totally independent of each other allows for an easy transition in case you have to give someone the boot. Or your CPA isn’t working out in a CFO role. You don’t want to sour the original relationship. Also, the subtle dynamics of an independent CFO thinking of themselves as working for you as opposed to a CPA/CFO working for the firm. Hmmm….

    My response: You absolutely want two different people doing CPA work and CFO work. They are wired differently and solve different problems. A good CFO will have a similar relationship with you like you have with your CPA and attorney trusted advisors. CPAs have an ethical obligation to stay at arms-length and not be materially involved in the day to day operations of a business (think Enron and Arthur Anderson).

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