I work with a number of health care and other types of clients.  In the last two years, I’ve been blessed to work with more clients than I can count on my two hands.  One thing I continually encounter is a very dry but important subject - chart of accounts (“COA”) structure. 

Too many companies know their books do not capture financial information in the way they should but they avoid the challenge of changing their COA.  That’s not a very interesting subject but it drives financial reporting so thoroughly, I thought we should talk about it. Very often, the COA was originally developed from a canned package or frankly by somebody that simply didn’t plan well enough.  As businesses grow in size or complexity or simply seek to increase their level of sophistication, a change in the COA structure may be warranted.

The following is a short list of leading indicators that there may be a need for a change:

1. Does accounting leadership routinely say “That’s the way we’ve grouped costs for years” in response to people being confused about reporting?
2. Do account descriptions not seem obvious as to what transactions they are capturing?
3. Does the COA capture all departments in the way the organization “talks” about its departments?  Maybe the health center has a department that everybody talks about as being important but it is not represented in the COA.  There probably is a good reason for it – new program, things changed, etc. – however, it may be worthwhile to at least add the new department.
4. Are there components of financial reporting that seem less important?
5. Are overhead departments organized in a way to effectively distribute to budget owners and manage effectively?

If any of these questions trigger further questions, it may be worthwhile to invest in the time necessary to revise the COA.  The following is a short list of things to consider:

1. COA should align with your operations – take the time to step away from the numbers and ask how should reports be set up?  What needs to be captured? What are the major service line departments? Is there consistency of accounts within each department?  i.e., each department should have accounts for salaries, benefits, contracted costs, purchased services, other costs, etc.
   
2. Decide what’s important and set up COA to capture in alignment with needs. The COA may have external reporting that could dictate the COA structure.  Frankly, health care companies that file Medicare and Medicaid cost reports should strongly consider structuring their COA in alignment with the way costs and charges are captured for cost reporting.  That is a very common best practice for well planned out COA structure.
3. Plan for future change – ensure that there are enough segments in the structure to plan for growth and change.  For example, setting up the structure with three sectors for department, account activity and location that looks like: “001-4321-02 Dental – Non-billable Medical Supplies – Main Street” - gives more flexibility than a simple one segment account, such as 4321 – Non-billable Medical supplies.  With the former, it is possible to break down data by service line, type of activity and location.  With the single segment, it will be much more difficult to analyze data by department/service line or location.
4. Capture necessary transactions – sometimes costs of note are commingled and sometimes unimportant costs are separated. See immediately above for example of multi-service lines being commingled.  Primary care and dental costs will likely be commingled.  I also see very immaterial costs oftentimes captured separately.  Does a $30 million community health center need to be separately capturing costs for purchasing pencils vs. pens or could both be captured as office supplies?  That’s a simple example of similar setup I see all the time.
5. Capture what you do – for example, community health centers likely provide the following selection services: primary care, dental, optometry, mental health provider services.  Each service is funded from multiple sources.  The COA should reflect that reality. I see numerous companies that report revenues based on payor source but not necessarily services or departments.  Again, if a company aligns with cost reporting, then the COA should reflect charges by service not by payor, and the payor discounts are quantified in the contractual adjustment accounts.  This set up will help with cost reporting, and will also help with aligning service metrics to revenues.  Gross and net charge per visit can be more easily captured and consistently analyzed.
6. Can accounting system handle the change?  Of course, there may be limits placed on the ability to make changes based on the accounting system in place.  However, that could trigger questions about whether the health center is using the right software.
7. Of course, keep generally accepted accounting principles (“GAAP”) in mind – there are changes pending in very near future for leases, revenue recognition, etc.
8. Overhead allocations – After the company has decided upon the appropriate overhead accounts, a best practice is to determine a reasonable allocation method, and then journalize monthly allocations by setting up “overhead allocation” and “allocation contra” accounts for each department such that the net total of these accounts sums to zero.  Each department will then will have a simple allocation account in their departmental reports.  

These are a few thoughts addressing wholesale changes.  Maybe the health center does not need a wholesale change; perhaps an effective change would be to simply add some accounts or departments.  I’ve seen that approach work very effectively to enhance the reporting.

​What’s most important is to step back away from details, remove oneself from the resistance to spend the time, and think about the gaps in your data analysis. Improvement in the COA can be necessary to become more data driven, which is usually the difference between an effectively managed health center and one that is struggling financially (as long as there is the will to respond to the data but that is a different topic!). 

Said no business owner, ever.  Though it may be a popular method of ordering by adventurous customers at restaurants, no business owner wants to be surprised by financial matters that are within our control to avoid such surprises. 

In the nature of the work we do at Baker CFO Advisory, LLC, we evaluate company processes, internal controls, and financial reporting.  Sometimes it may take a while, but unfortunately, we find matters within pre-existing systems, processes and controls that may surprise our business owner clients, and then we put plans in place to help mitigate that risk of future problems.  Often times it answers the questions the owner had about challenges that they couldn’t quite figure out.

Do any of the following challenges sound familiar to you:

• Your accounting team tells you a draw on the line of credit is all of a sudden necessary.
  
• Sales seem to be strong yet cash in the bank seems low.
  
• Your monthly bottom line just doesn’t seem to make sense, meaning it’s too low.
  
• Perhaps more importantly, your monthly bottom line just doesn’t seem to make sense, because it’s too high.If it’s too good to be true, it probably is.
  
• Unexpected hiring is necessary just to get all the work done.
  
• Total revenues on your income statement seems out of whack with how you know things are going.
  
• You come to the end of year, and a year’s worth of profitability is wiped out due to year end adjustments your accounting team tells you is necessary to close the books for the year.
  

I could go on.  With the proper expertise, planning, systems, and implementation of technology, it is possible to avoid these surprises.  There are enough challenges in running a business, that adding stability and expertise in the business office will eliminate at least one challenge. 

The above list can be mitigated with proper best practices. 

Revenues and Collections: You should be evaluating the recording of revenues and outstanding charges in accordance with cash collections, contracts and sales agreements to ensure your books reflect the economic realities of your sales and collections. 

Cash flow: Additionally, regular cash flow projections should be set up to help anticipate cash flow challenges, helping to plan for seasonality of sales, debt payments, payroll, etc.  If cash is particularly tight, daily cash management may be necessary, but it’s unlikely that anything less frequent than weekly cash projections will suffice, looking out 60-90 days.

Expense management and other accruals: You should be evaluating your system to assess whether all liabilities, including trade payables, customer credits, or other accrual risks are properly recorded. Depending on the nature of your business, it’s quite possible that significant estimates are necessary.  We have worked with companies that had very significant IBNR (incurred but not reported) liability risks with such a material impact on the overall finances of the organizations, that it made the difference between overall profitability and near-bankruptcy mitigation.  Imagine the surprise at these companies if they had poor systems in place to properly calculate those liabilities.

Staffing: Is workflow as efficient as possible?  Is the company making proper use of technology to make work life as efficient as possible?

Budgeting: It is important to have a financial plan that is always looking forward, evaluating the basics, such as ongoing operations, but also such things as “same store” sales and profitability, service line finances, return on investment in growth ventures, research and development, etc. 

Back to surprises… they’re great in gift giving and celebrations, but can be the downfall of a business when it comes to managing its finances.  If you’ve recently been surprised due to accounting and reporting issues, we would welcome the opportunity to help.

The moment you buy a new big screen television, it’s obsolete due to new products constantly coming on the market.  The moment you buy a new laptop computer it’s also instantly obsolete.   Why?  Technology resources are advancing at an incredibly fast pace, getting better seemingly every week.  What else is getting better?  Fraudsters.  They’re constantly trying to trick their victims.

I’ve seen multiple instances of fraudulent checks presented to banks for payment. Somehow, these criminals will prepare a very authentic-looking check from the company, with full and complete bank account information that is written to themselves and will even have an authentic looking signature from and authorized signer on the bank account! 

If you take only one thing from this brief article, it’s this: talk to your banker about whether you’re taking advantage of the right tools for your business to protect yourself. 

One available resource has been available to business customers for many years, but I’ve been surprised to find the number of clients that do not take advantage of the resource.  That tip is to sign up for positive pay with your bank. 

Some of my readers may ask, “Who writes checks with the number of electronic resources available?”  It’s a reality that many companies are still using paper checks to pay their bills.  Until our society transitions to a fully paperless society, it’s still a valid mode of paying vendors.

Without positive pay, a company (payor) sends out checks and each payee presents their check to their bank, which eventually passes through the payor’s bank. Assuming there are no obvious errors, the bank honors the check and passes the cash to the payee. 

Positive pay is a service available from banks in which the company (payor) after issuing a check batch, will submit a list of the checks issued to their bank.  The bank will store the information in their systems, and as checks are presented to the bank for payment, the check is compared to their list.  If discrepancies are noticed, they present those discrepancies to the payor for research or to confirm payment denial.  If a fraudulent check comes through, the check will be denied and the payor’s cash is preserved.

Somebody may say, “Well, if that happens to me, since it’s not my error, my bank will just cover it for me, since they allowed the check to be processed.”  Not so fast.  Very possibly the bank has given you an opportunity to sign up for positive pay with the disclaimer that should you choose to decline the available service, any fraudulent checks that don’t get caught will not be covered by the bank.  I’ve seen instances where they will stand by that disclaimer when the inevitable check is paid.

Additionally, it’s very likely your insurance carrier will deny a claim.

This type of fraud is happening regularly and you may lose thousands and thousands and thousands of dollars.  I’ve talked to enough people to know that not everybody is using this resource.  There may be other ideas your banker has for you that is specific to your unique circumstances, but my tip is to start that conversation.  It will save you some headaches.
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Ahhhhhh, fall is in the air in New England.   The air suddenly turned crisp, leaves are turning and even falling, baseball playoffs have started, football season is in full swing, basketball and hockey preseason has started, and in the name of “it seems to start earlier every year”, stores have put out Valentine’s day merchandise! Ok, probably not on the latter.
 
For many of you, it’s also budget prep season – perfunctory sigh.  Yes that time of year, where the accounting department, realizing it’s running behind, dusts off last year’s spreadsheets and knocks out a budget in time for an upcoming board meeting.  Upon approval, they hand it to department managers and say “Here, follow this.”  Sound familiar? With that scenario, I ask, “How is the reputation of the accounting department?” Probably not so good.  
 
Maybe it’s not that overtly mechanical.  Instead of rolling last year’s budget forward or converting projected annual results to be next year’s budget, maybe there’s a quick manager meeting. 
 
Perhaps there’s a more meaningful way.  If you want to improve the accounting department’s reputation as “bean counters”, have improved collaboration, and more importantly, more than likely have a better budget, I suggest engaging the departments that are responsible to carryout the budget to be involved. The time could be well spent to think about strategy, investment needs, capital projects, refreshed view of the business, and overall open the lines of communication between the accounting department and other departments.  I’m a big believer in having the accounting department leadership facilitating regular meetings with other departments to accomplish a current objective but also to establish rapport.  Those monthly calls with department managers asking them to hurry up and approve those invoices so they can be paid will go much more smoothly. Those meetings really help to establish relationships and open lines of communication. 
 
I suggest a plan such as the following:
 

1. Start earlier.
2. Establish a timeframe, working backwards from an agreed upon deadline.
3. Understand the impact of the current strategic plan on the budget and plan for potential changes to budget.
4. Involve department managers in the budget process.If never done before, this may take some education and may even include some “phasing in” of this approach.
    
   Once the budget managers know what’s in their budget, they can be an integral part of the process.  Upon understanding the goals and strategy, they likely know best how to run their department.  Therefore, working with the operating managers, you’ll more likely come up with an operating plan that is workable, reasonable, and achievable.  Additionally, managers will feel empowered with ownership.  They are being asked to follow the budget that they developed.  I’ve seen situations where employee morale improves simply by involving them in this process.  People are looking to have a sense of ownership, be involved, and contribute to the success of their organization. 
5. Of course appropriate vetting, review and approval is still necessary.
6. Once the year comes, and you’re living by the budget, financial leaders should remain in touch with departments to understand how inevitable unplanned circumstances and scenarios are impacting the budget.

 
Developing the budget will never be as fun as October baseball but with proper planning, and staff engagement, it can be an effective tool that fosters improved relationships, an improved sense of ownership, improved morale, and will likely spark some ideas that can contribute to more success.

“Well it’s getting close to year end and oh man, the audit is coming up next week. I guess we had better start to get ready.”  The shakes set in at that moment.  Want to not feel that way? 
 
There are several leading indicators that perhaps there is room for improvement in the audit process. These include an inordinate number of bookkeeping-oriented journal entries, variances from the pre-established plan that seem to happen every year, inability to finish the audit in a reasonable time frame, such as in time to meet required covenant deadlines, out of scope fees, and significant amount of timeframe between on-site auditor fieldwork and delivery of audited financial statements.  Do these matters sound familiar?
 
These delays are caused by significant bookkeeping issues not addressed by management during the year end process, inefficient or ineffective responses to auditor requests for information, and/or time lags in receipt of requests for information.
 
I’d like to offer a few suggestions to make the audit a much more manageable event for both you and the auditor. 
 
Why - My initial advice is to understand WHY the auditor is doing what they’re doing, WHY they’re asking the questions they’re asking.  If you understand the “WHY”, responses will be more accurate and targeted, mitigating the “back and forth” that tends to take place, and the efficiency will vastly improve.  If you don’t have somebody on board that has previously been an auditor, have an open dialogue with the auditors to express the desire to better understand the audit process with the goal of improving the process. 
 
Other questions to ask involve taking ownership in the entire set of books.  Many auditors know that certain clients struggle with certain accounting matters and without violating any independence matters, they will include as part of their scope preparation of an annual workpaper that helps the organization with the accounting for that particular matter.  For example, the auditor may maintain fixed asset records or prepare a prepaid expenses workpaper for the client.  Talk to the auditors about these matters, obtain an understanding of the accounting and develop a plan for preparing the workpapers as a part of the monthly or annual close process.  This will likely save the auditors time and possibly money.
 
Evaluate and develop a plan to perform the year end close - A full review and reconciliations of all balance sheet accounts especially should be performed. Of course, having a great understanding of revenues and expenses is essential too.  Many organizations only perform the necessary reconciliations of certain accounts in the general ledger once per year (or as stated above, they seek the help of the auditors) instead of monthly. Common examples include updating various receivable allowances, prepaid assets, inventory, various accrued expenses. In the world of financial reporting, that could be problematic if any of these areas have material transactions throughout the year.  The organization’s interim financial statements are likely to be inaccurate.  As far as how it impacts the audit effectiveness, the annual assessment may be much less efficient as ongoing review.
 
Identify significant “one time” events - These may include major new contracts, leases, debt, or new accounting pronouncements.  Make sure the accounting and reporting for these matters have been properly addressed.  It is a best practice to have an early discussion with the auditors. 
 
Identify internal or third party contacts that auditors need - Sometimes delays in the audit are caused by simple matters that could be mitigated with proper planning.  Examples include receiving back various audit confirmations from third parties that are traditionally hard to reach.  Identify past “problems” and put together a plan to reach out to these parties.  Coordinate necessary meetings with various executives or board members. 
 
Internal controls - Evaluate whether there have been any major changes in your internal controls or processes to record transactions. 
 
Evaluate the original requests for information (RFI) - You will receive a list from the auditor.  If nothing major changes, the list will likely be similar year after year.  Use that list to evaluate ways to prepare for the audit year round and prepare records on an on-going basis.  Take ownership for all tasks on the list, delegate tasks, include deadlines, and then stick to it.  Finally, and this seems insignificant or perhaps catering to the auditors too much, but organize your packet and titled responses in order of the auditor’s checklist.  They gave you a list, and you could respond with the information in the same organized fashion.  Believe it or not, this will help the process.
 
Process - As the audit progresses, there are inevitable questions and requests for additional information.  Keep a list and work diligently from that list. Audit teams will often “drive” this process by sending daily lists.  If they do not do that, then suggest it as a best practice.  Once an item is on a list, trust me it’s not coming off the list until the auditor is satisfied that the issue is addressed. Therefore, it’s best to take ownership in the daily list and treat each item as a “deliverable” to be addressed.  I’ve seen many times where an organization will respond to two out of five things on the list, for example,  and then ask for an updated list.  Next they act surprised when the other three items are still on the list. 
 
In this same category, keep lines of communication open about wrap up. When are draft deliverables going to be delivered? When is a final meeting with the owners or board of directors going to take place? 
 
Debrief after the audit - As soon as possible after the audit is completed and the audited financial statements are delivered, have a quick meeting or phone call to discuss the results of the process of the audit.  It will be fresh on everybody’s mind.  To be honest, there are likely other matters to discuss anyway, such as tax returns, other reporting, or even other audits, such as employee benefit plan audits.
 
These are a few high-level matters to address.   Implement these steps, and the process is likely to be a more gratifying process for both parties, and the value of the audit will increase with improved collaboration, communication, and hopefully higher-level feedback from the audit firm. 
 
If you are especially struggling with this process, some planning with your auditors will be very helpful.  If you want assistance as a representative of the organization, of course, I’m available to offer audit process assistance or coaching. 

If you have other ideas that would be helpful to others, please feel free to post comments on this site. 

I meet with a lot of executives, nonprofit board members, peers and members of the business community.  Everybody waits.  Besides waiting in traffic (especially here in Boston!), waiting in line, waiting for tonight’s game, and waiting for the weekend, we wait for the next round of financial reporting – weekly dashboards, monthly financial statements, quarterlies, and “the audit”. Hey even AC/DC wasn’t havin' no fun waiting round to be a millionaire!  So much waiting.
 
Meanwhile, decisions need to be made with or without timely data.  Some decisions can’t wait. Decisions around product pricing, when to press collection issues, staffing, purchasing, and strategic decisions such as acquisitions, expansion, financing, etc.  Timeliness impacts all these matters, either by making decisions without the data, or delaying progress until the data is available. 
 
Why? What’s the struggle, and what can be done?
 
First, understanding what’s a reasonable schedule will help. Secondly, having the right system in place to efficiently and accurately generate data, and thirdly, having the right people in place to help stick to the schedule. I think the first point sets the tone.  If you’re a CEO, owner, or board member, you SHOULD expect timely financial information.  Significant delays usually indicates there is something wrong in the system somewhere.
 
If all this sounds familiar and you want to do something about it, it is very reasonable to set expectations and implement a plan to accomplish the goals you’ve set.  What makes sense for a reasonable deadline for a monthly close and delivery of a financial statement package for an average company? “It depends”.  I hate that answer, so I think a general rule of thumb is somewhere between 15 and 30 days, depending on the complexity, and if you’re not seeing that timeline, it may take a few cycles to get there. I’ve seen some companies close their books as quickly as 10-15 days, but I do think it’s difficult for the “everyday” company.  Incidentally, for public filers, a quarterly 10-Q is due 45 days after quarter end, and that report is incredibly comprehensive, so for a non-public filing, I think the above timeline makes sense.
 
Is your company closing their books with accurate data within this rule of thumb?  If not, and you would like to do that, I think you start with setting expectations, and work backwards to set mini deadlines needed for all the major milestones needed in order to close the books. 
 
An overly simple example may look like the following, in reverse order, in terms of the number of days after month end:
 
25 Days          Issuance
22-25 Days     Final Review
20-22 Days     Preparation of “Management Discussion & Analysis” or CFO Report
17-20 Days     Preparation of financial statements package
17 Days          Initial review by Controller and/or CFO
5-17 Days       General Ledger reconciliations and Other Journalizing
10-15 Days     Close Accounts Payable
3-5 Days         Close Accounts Receivable and Revenues
 
If this sort of timeline does not seem feasible, then the company’s leadership group should assess barriers. 
 
-What is holding us up? 
-What can be done?
-Are there ways to accelerate the process, such as use of estimates?
-Are vendors holding us up, and can we have a conversation with them about the problems they’re creating?
-Is additional training necessary?
-Do we have the right people?
-Is there technology available that can help us?
-Is there unnecessary work being done that could be eliminated to accelerate the process?
 
Sometimes a fresh set of eyes can help assess the processes and barriers, as well as nudge the team towards different expectations.
 
While we’re on the topic, what should be in a standard regular reporting package?  That could be a standalone subject.  To truly understand a company’s entire financial condition, leadership should be reviewing a balance sheet, income statement, statement of cash flows, and possibly a schedule of equity activity.  Certain corporate structures have different names for these statements, but hopefully this is clear.  I frequently encounter companies that have standard reporting packages that do not provide the reader with the opportunity to understand all of the financial issues of the company. I oftentimes find that companies will monitor income statements but again, that may not review the full picture.  If the company is enduring collections issues, that’s not going to come up in a review of the income statement, as an example. 
 
Other key components of a quality monthly financial reporting package may include some sort of dashboard with key performance indicators that helps financial statement users understand the story behind the numbers. 
 
By the way, I’ve focused on monthly financial statements, but certainly, there is certain helpful data that may be available more quickly, such as drivers of the business – certain inventory turnover, widget sales, other customer encounters, etc.  As the financial statements are being generated, data starts to come together for review.  Therefore, leadership should not have to “wait” for all the data. 
 
A lot of companies struggle with this, and they don’t even know they’re struggling.  They may think it’s normal to wait 90 days for normal financial data. It’s not. It doesn’t have to be that way.  With some planning, you can have the data you need to run your business when you need it.
 
“No Waiting” signs are awesome.  Flock to those checkout lanes.  What are you waiting for?
 
 

You’re just getting out of college and starting a career.  Congratulations!  Perhaps you’ve been in a career for a while but you have questions.  What’s next?  How do you pursue what you’re meant to do?  I want to encourage you to don’t stop thinking about it.
I’ve thought about a few things that I hope encourages even one person to step out of their comfort zone.  I’ve tried to tie this using an acrostic for the word CAREER.  Hey, maybe some of the words are a bit of a stretch but hopefully there’s a thought within the message that can resonate at least a little.

C – Career goals (ok really could not find a synonym for Goal that starts with a C. Email me with ideas) - Figure out how to articulate your goals that once achieved will give you satisfaction. Of course, I could talk about money and how to earn the money you want, but the earnings alone will not give the satisfaction.  Doing what you’re meant to do and helping people using your talents – that’s the stuff. 

A – Ask a mentor - Find a mentor that can talk to.  This is a hard topic.  Finding a person you can have open conversations with is key.  This is probably not a immediate boss, but it could be if you think that person can set aside their biases of trying to keep you on staff at your current employment above all other counsel. Family member? Friend?  I hope you can find somebody that will be an encouragement to you. I’ve recently been around a lot of entrepreneurs. Some “young”; some “young-at-heart”.  It’s an impressive population: people building businesses from scratch!  They all have mentors though.  They’re finding people that have gone ahead of them and they ask questions!  

R – (be) Regarded - add value – learn technical skills that help you be the best you can be. You’ll know it in your heart. Are you learning skills that somebody else is telling you that you need or are you thriving in developing a skillset that you’re excited about?  There’s no doubt that work life can be a grind. You’re probably not going to “love” every minute of your work day, but are you excited about your workday in the mornings? How about Sunday afternoons when you know Monday is coming?  Are you excited about tomorrow’s upcoming meeting?  Does the work energize you?  Ask those questions and respond.

E – Excellence - Work hard! No matter what!

E – Engage - Keep talking to your mentor.  Days turn into months, which turns into years.  These are likely ongoing thoughts and you’ll always want to be talking about these matters with somebody that can help you.  Don’t let others define “it” for you, but do let them give counsel.

R – Reach! Go for it!  Take a risk, think outside the box. No regrets.  Maybe it’s being the best you can be at your current setting. Maybe it’s making a change.  Maybe it’s an even BIGGER change.  I don’t know what that means for you, but you will. 

I hope that you keep thinking, keep challenging and pursue the career that you’re meant to have.