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The Difference between a Bookkeeper, Controller, and A CFO

When we work with companies on a consulting basis we work essentially at three levels; Bookkeeping, Controller, and CFO services. For most small companies these roles are merged. You have the brand new company started by one individual. He or She has an idea to sell a product or service. At this point already and without even realizing it in most cases this person is already assuming roles within their start-up company. This person is the CEO, COO, CFO, Controller, and Bookkeeper all in one. And for a company at this stage that is probably just fine. As the company grows the company will evolve and these roles will start dividing off. Perhaps the most common and logical evolution is for the bookkeeping function to break off from Controller and CFO. If the business owner recognizes that he or she does not really understand bookkeeping, but they generally understand that they want to see a profit and loss at least to see how they are doing, then the roles have just split off. So he/she goes out and hires a bookkeeper or hires a company like ours to come in and enter and reconcile once per month, then show him his Profit and Loss statement. At this point the business owner is assuming the roles of controller and maybe CFO, but it may be too soon for that. The bookkeeping is now a separate function.

As things evolve these roles become more defined and depending on the size of the company it eventually becomes necessary to break these roles up – at least in terms of definition. Why is it important to define these roles? It is important to define these roles because it is important to understand them so that their functions are implemented within or outside of the company. They are all very important for every company who hopes to succeed.

I’ve been writing and speaking a lot lately about working backwards. We see the end and work our way back from there to today so that we can see what our goals are and how we can reach them. The way I saw this article and video coming together was by doing just that. I see the CFO’s function as the one who sees the end in terms of the financial and then develops the plan for how to get there. In real world terms we call the CFO’s plan a financial model. The controller comes right before the CFO. That person’s role is to provide financial oversight. Make sure that the systems are in place to ensure that the accounting and bookkeeping information supports the following:

• Existence or Occurrence
  
  • If the Balance Sheet says we have a piece of equipment, does it really exist? Did the transaction underlying that asset really occur?
    
  • If the profit and loss shows that we made $100,000 are there really sales to support that?
    
• Completeness
  
  • Is everything that should be included in the financial information in fact included?
    
• Valuation or Allocation
  
  • Have we recorded everything at true fair market value and is the information allocated in the right category (e.g. principal vs. interest)?
    
• Rights and Obligations
  
  • Do we have the rights to collect what we say is owed to us and are we in fact obligated to pay our Liabilities?
    
  • Going back to completeness are all the liabilities that should be recorded in fact recorded on the books?
    
• Presentation and Disclosure
  
  • Is the information presented in proper form and have we given our readers all of the information they need to evaluate the financial statements?
    

The Controller needs to review and audit the financial information in order to be sure that the above outline is taken into account. Based on the foregoing, the controller is the one who really has to set up the chart of accounts for a company. I had this argument with a client once. He wanted to work with his bookkeeper on his chart of accounts instead of me. I tried to explain that this was a mistake – that the chart of accounts is the thing that will ultimately describe “Presentation”, and “Allocation”. This is not an area I would ever feel comfortable having a bookkeeper work on unless that bookkeeper really had a lot of experience preparing financial statements so that they can visualize what the end result must look like. In the end the client has to do what they feel comfortable with. I can only advise and guide as well as the client will let me.

Finally we have the bookkeeper! The poor bookkeeper J. He or she has to enter all of the data and it has to be entered correctly otherwise when the controller reviews the financial output they will have many corrections for the bookkeeper. This is why it is so important to have a bookkeeper who really understands the financial statements because after all, they are the ones who are really putting those financial statements together every time they hit “Save and Close” or “Save and New”. The minute those buttons are clicked the information posts to the balance sheet and/or the Profit and loss statement. Unfortunately I have encountered many bookkeepers who really do not understand this. They think that once they’ve entered and paid a bill they are finished, little realizing that what they have just done is provided information to the controller and then the CFO about what is happening with the company financially. Each individual transaction may in fact not be significant but all of the transactions collectively will be very significant. So you have to treat the pieces the same way as you treat the whole pie in order to be sure the pie comes together correctly.

Now let’s work forward again. Assuming the bookkeeper has done their job well, then all bank accounts are reconciled and so are all credit card accounts. This helps to ensure completeness and accuracy, and to some extent ensures Valuation. Next assuming that the controller has reviewed or audited and generally satisfied themselves as to the financial information and whether or not it fairly states the financial position of the company, now the CFO can do their job.

The CFO sets yard sticks out. Goals for the company to reach with really one basic thing in mind – how do I increase the net worth of my company? We set up the financial model which is management’s best guess as to how the company will perform in the future. The standard model is 5 years out. Personally I have always felt it was a waste to go beyond one year because so much can change during that year that even if it does turn out to be accurate 5 years out I think that can only be chalked up to coincidence or luck! These forecasts are reviewed regularly and compared with actual results of operations to be sure everything is moving along as expected and to determine if changes are needed to get/keep the company on course.

So let’s summarize by outlining each function and their roles in bullet point fashion:

• CFO: Financial Management of the company – looking forward, planning, projecting, measuring and tracking progress. How do I increase the net worth of my company?
  
  • Analyze monthly statements – Balance Sheet, Profit and Loss, and MOST importantly the Statement of Cash Flows.
    
  • Set up review and update financial projections
    
  • Secure financing with the right banks if/when needed to reach the goal of increasing net worth.
    
• Controller: provide internal assurance that the financial information is presented in a manner that fairly states the financial position of the company. Set up the systems (ie documentation and flow of the same) to be sure that information is captured completely and accurately. Review information to ensure valuation, allocation, presentation, and disclosure.
  
  • Audit, review, and present the financial information for the CFO, and CEO to manage their functions.
    
• Bookkeeper: Enter all transactions into the set of books with an eye towards proper classification and presentation on the Balance Sheet and Profit and Loss Statements.
  
  • Enter, Reconcile, and review bookkeeping data entry to be sure that the controller has what she needs.
    

At Nerd Enterprises, Inc. we can provide services at any or all of these levels. If you would like more information call us at (866) 945-8070 for a free ½ hour review of your balance sheet or business model. We can review your books, make sure that everything is entered properly and accurately then we can work with you to put the plan in place for increasing your businesses net worth.

Staying in Touch with your Customers and prospects in QuickBooks

• QuickBooks 2010 has an e-mail marketing feature that is worth looking into
  • This one is very cool, actually – it will track information from QuickBooks about your customers and then let you e-mail customers based on various criteria
  • Send a “We miss you” e-mail to customers who haven’t spent any money with you in a while.
  • Send a thank you to customers who have been spending a lot of money with you.
  • Send a welcome e-mail to new customers
• Or your can do it manually
  • Customer Center show columns and customize
  • Reports – customer lists
  • Customize
  • Export
• There are also programs like Constant Contact
  • Export your customers from QuickBooks
  • Import to Constant contact and create a list of “Customers”
• Best Practices when it comes to e-mailing customers and prospects
  • The rules – opt-out, complete contact info in all correspondence
  • Unofficial rules – how not to annoy people
  • In each e-mail you send you want to offer something that will make the reader want to get your e-mails. So using the QuickBooks E-mail Marketing feature in QuickBooks 2010 you can send a welcome e-mail to new customers and offer them something for free as an incentive to come back and spend more money with you. The top spending customers identified by the QuickBooks E-mail marketing feature might be an area where you simply offer them something for free, no purchase required as a thank you. This will of course encourage them to want to continue being a top spender at your business.

Please enjoy the video web cast by clicking the image here:

Loans To and From The Company

URL: Due To From Video

When a loan is made to your company you have to think of it from the company’s perspective:

• I am receiving money (increasing cash=Deposit)
  
• I have to pay that money back – Loan = Liability
• Is this loan being paid off within a year?
  
  • Yes = Current
    
  • No = Long Term
    

When I initially receive the loan I record a deposit for the money received and the account it goes to is a liability account (usually current). You can call it “Due To ____”. This can be applied to all loans received. Next I have to repay the loan.

When owner’s loan money to their own company there is usually no interest involved, especially if there is only one owner. So re-payment is pretty simple – you write checks to repay the loan and the account that the check is written to is the same liability account. But what if there is interest? There are really two ways to deal with the interest.

1. One is to split your check and write the principal amount of the payment to the “Due To ____” account with the second line in the check’s split going to Interest expense. If you choose to do it this way you of course have to know with each check you write what the correct split is, which means you either have a statement from the lender that tells you how it is split, or you have your own effective interest table. The calculation aside, this is a complicated way of doing it. Also you often won’t have that split until the next statement comes from the lender where they will show you the payment you made and how much was applied to principal vs. Interest. So when you write the check you have to make an assumption about the split (ie use last month’s split) and then you have to go back and fix it.
   
2. The second and frankly much simpler way is to write the check and book the entire amount to “Due To___”. Then separately book an entry for any interest. This is a journal entry and would look as follows:
   

Description		Debt	Credit
Interest Expense		$xxx.xx
Due To _____			$xx.xx

The second method above is a much cleaner way to do it. The video tutorial does not cover the interest part – we’ll have to post a “Part II” for that.

Oh and Hey! One more thing! There is a bonus tip in here that walks you through how to create a memorized, automatic, recurring transaction with a specified number of remaining recurrences! Exciting stuff!!

URL: Due To From Video

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Importing and Exporting Lists and Templates

Often times we find ourselves in the situation where we have a list or template in one QuickBooks Company File that we would love to be able to transfer to another QuickBooks Company file. The most common reason is someone has one company and they are starting another company in a related field, or they are closing one entity and starting another in the same business. Whatever the reason is you want to be able to use the same chart of accounts, the same invoice template(s), and maybe the same customers and vendors as well.

Happily you do have the ability in QuickBooks very easily in fact to export any/all lists and templates from one company file and then import them into another company file.

In QuickBooks 2010, you can easily copy and paste customers, vendors, and items from excel directly into your company file by using the Lists feature:

Figure 1 Add/Edit Multiple List Entries – click for a larger image in a new window

We do not go over this method in the video. If you play with it in QuickBooks it should be pretty straight forward. Feel free to post questions about it as a reply to this post.

In the video we show you how to export and then import lists and templates. They each work a little differently (lists vs. templates) in terms of how to do this.

Please enjoy the video web cast here:

Reply to this post with your questions about this web cast. For all other questions please see the post at the top (click the blog title).

Oh and Hey! Thanks for choosing the QuickBooks Help Blog brought to you by Nerd Enterprises, Inc.

Editing Your Forms and Printing Batches

This question just came in via E-mail:

Good Morning Seth,

When I email customers a statement an automatic greeting appears, how do I edit this?  We use QB Pro 2010.

Also while I’m asking…..do you know if there is a way for me to be able to print checks w/o seeing their check register?  I am able to print one at a time but not print a “batch”. 

Here’s my answer:

You can edit forms as follows:

• Click
  
  • Edit
    
  • Preferences
    
  • Send Forms (in the left margin with all of the topics, near the bottom)
    
  • Go to the Company Preferences Tab
    
    • Choose the drop-down for which “Form” you want to change the text for (one of the choices is “Statements”)
      

To print a batch of checks you first have to save them all with the box checked that says “To be Printed” or choose that option in the bill pay screen. Then in the “Write Checks” dialogue you click the drop down arrow immediately next to “Print” and there is an option to “Print Batch”. QuickBooks will prompt you for the first check number and increment all other checks from there.

Also while we are at it there is another option in there that is handy. Also in the ‘Preferences’ section under ‘Checking / Company Preferences’ There is an option you can check off (it is NOT checked off by default) that says “Change check date when check is printed”. This is handy when you might have added checks to the batch several days ago and you are first printing them today. QuickBooks will update the check date to today’s date when you print them.

Accounting for Leased or Rented Inventory

Please enjoy the video web cast by clicking on this link

Watch The Web Cast

When you lease or rent equipment you have an unusual challenge in QuickBooks.

Ordinarily with inventory you buy it, hopefully sell it and never see it again because your customers love your superior product and they would never dream of returning it!

• You have 4 things involved in the sale of inventory on the books:
  
  • Income (Yay we made a sale and now we have income)
  • We have a receivable (Someone has to pay)
  • We reduce inventory (because we just sold it)
  • We now recognize the cost of that inventory on the P&L (COGS)
• QuickBooks has two areas that touch inventory in terms of set up:
  
  • Item List
  • Balance Sheet

Everything you set up in QuickBooks has to be set up to mirror what happens in reality. So the core issue here is how do I account for inventory when, unlike what is described above I not only hope to see it again, that in fact is my full and complete expectation. In other words, when I rent inventory out I expect it to be returned. I need a way to account for it so that I am able to keep track of what is rented or leased out vs. what is in stock. This is especially important in terms of making sure that I do not promise a customer something I don’t have.

So there are two sections of inventory that need to be set up in two places in QuickBooks.

• Item List:
  • In Stock
  • Lease or Rented out
• Balance Sheet
  • In Stock
  • Lease or Rented out

The mapping of the items is a little tricky and I can go over that with you in a private session. The key is making sure that the item called inventory out of stock is mapped to the Balance sheet account called inventory out of stock. You also have to choose a COGS account to map the item to. This will not matter because as you will see in the video web cast the transactions involving the transfer of inventory from in stock to out of stock will zero out. You just need to make sure that you are consistent with all items going to the same COGS account so that it does properly zero out.

• Once you have the setup in place you need to record 2 invoices when you initially rent the car out or lease the equipment out
  
  • The first invoice is for the actual lease or rental contract.
    • This one is easy- you have a service item mapped to an income account for lease or rental income
  • The second one is a little more challenging. You have two line items:
    • One transfers inventory out of the “In Stock” category
    • The second line item transfers that inventory into the “Leased or Rented Out” category
• If you book this correctly then the inventory transfers from one category to the other at cost.
• Depreciation is calculated on the total inventory regardless of what is in or out of stock, so you will still have your “Accumulated Depreciation” account on the Balance Sheet, but you will not need to be concerned with transferring the inventory between categories at its book or net depreciated value. The inventory transfers at it’s historical cost. Your individual assets can be tracked separately in a fixed asset schedule which is usually what your CPA or tax preparer sets up for you for tax purposes anyway. Then you simply book the depreciation entry when your CPA gives it to you either monthly, quarterly or annually depending on how frequently you need to record it.

Please enjoy the video web cast by clicking on this link

Accountants Changes Pending

The QuickBooks Accountant’s Copy is being used more and more often now, especially since Inuit has made substantial improvements to how it functions, and they’ve even enabled you to send it through a free service provided by intuit. In this tutorial we will show you the basics, and then if you are interested, we offer the complete accountant’s copy video tutorial solution in our learning center. In the full version we show you the complete cycle involved in sending the accountant’s copy and round trip conversions until the accountant ultimately sends the changes back and you import them.

The quick and simple screenshot based tutorial is here. After you’ve reviewed this blog post be sure and click to watch the FREE INTERACTIVE VIDEO TUTORIAL on this. We’ll take you through the steps and then invite you to learn by doing. You participate directly clicking where we’ve shown you to review what you’ve just learned. This is our newest format for video software tutorials and I think you will agree that it really does the job in terms of teaching you the material in a way that you will remember what you’ve just learned. Try the free version and see for yourself.

When you create an accountant’s copy you set a dividing date on your books. Essentially you are able to enter things subsequent to that date, and your accountant will be able to work with their “Accountant’s” copy entering and changing things prior to that date. Until the accountant’s copy is restored to your copy (i.e. the accountant’s changes are imported) your copy will show a message in the top bar that says “Accountant’s Changes Pending.”

If you want to go directly to the video tutorial (much more fun J) click this link:

FREE VERSION – THE ACCOUNTANT’S COPY – INTERACTIVE VIDEO TUTORIAL

Or go directly to purchase the FULL VERSIONThe place where you want to go whenever you are doing anything having to do with a ‘File’ in QuickBooks is of course the “File” Menu:

Note – you can also click ‘Accountant’s Copy’ and there you will see an option to ’save file’. We review this way of doing it in the Video Tutorial.

Going about it this way you will next be presented with options for the type of backup you want to make.

Select Accountant’s Copy and then choose next.

Then you will be asked to confirm that the Accountant’s Copy is the most appropriate for your situation.

Choosing your dividing date

This is the critical part of creating the accountant’s copy. The dividing date is what will determine what you can change and what your accountant will be able to change once you send them the accountant’s copy. There are some default settings in the drop-down that you will see next, but in all likelihood you will simply want to use the custom option and enter the date manually.

Next you will browse to save the accountant’s transfer file “.QBX”. This of course is the file you are going to need to send to your accountant, so be sure and save it in a location where it will be easy to find.

One the file has been created you will get the following message:

This is when you will see the infamous message, which has raised so many questions. All kidding aside, QuickBooks lets you know when there is an accountant’s copy waiting to be returned (ie changes imported). There are only two ways to remove the ‘accountants changes pending’. One is of course to import the accountant’s changes. But what if you should decide you do not want to import the changes, or for that matter if you have no idea why the message is there?! Is there no way to remove this message and the related restriction from entering data prior to the dividing date?

Of course there is a way to remove this. Once you do there is no reversing it, so you have to be sure that you want to do this before you go through with it.

You will still be asked to confirm that you want to do this.

After you confirm you will see that the notice is gone from the QuickBooks Title Bar:

BONUS TIP – This is not covered in the video

I have had this situation happen. Let’s say you send your accountant and accountant’s copy and somehow your QuickBooks file crashes? Not to worry, the accountant’s copy can be converted to a full fledged company file “.QBW”. Of course this copy will have any changes the accountant has made, but it will of course not contain any changes you’ve made since sending the file to the accountant. Nevertheless in one case I was able to save a client from losing a ton of data by doing this in one case. Then I sent him the converted full company file and he sent me back a new accountant’s copy.

Please enjoy the free interactive video tutorial. This is the newest format for software training that we are now offering here and in our learning center.

FREE VERSION – THE ACCOUNTANT’S COPY – INTERACTIVE VIDEO TUTORIAL

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The reason we are able to bring you this is our Learning Center. Visit The Learning Center NOW to download full length tutorials from 1 – 3 hours. Just add a class to your cart, make your payment and our website shoots you an e-mail with a link to download what you need to watch your video class.

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