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50+ CFO/Controller Best Practices for the
Big Picture
Juan Padilla, CPA Shareholder, Doeren Mayhew
• Strategist – Sit at the table to influence future direction of the company. Provides financial leadership by aligning business and finances to grow the company.
• Catalyst for change in the finance department and company through finances such cost reductions, procurement, pricing execution and other process improvement that provide value to the company
• Steward – protect the vital assets of the company, ensure compliance financial regulations and communicate risk to owners, investors and boards.
Your Role
• Service provider – provide services to owners/investors/board such as financial planning and analysis, treasury, tax and finance operations.
Today is about learning some best practices to help you find the time to be focused on the things you would like to do, rather than what you have to do.
Your Role
Strategist
A. Meet and discuss KPI’s with company stakeholders (owners, investors and board).
B. Attend industry seminars to better align finances with general business and industry risks.
C. Periodically meet with your business partners (accountants, bankers, insurance brokers, vendors and customers).
D. Develop budgets and forecast for the company.
E. Identify M&A, Capital Markets and other financing strategies for the appropriate stage of the company.
F. Constantly analyze the direction and state of the company at every stage of the business.
Change Catalyst
A. Process improvements not only in finance but company wide
a. Pricing strategies
b. Procurement strategies
c. Cost reductions
Steward
A. Create and meet deadlines for closing books and records of the company.
B. Ensure the company is compliance with financial regulations such as reporting requirements, covenants, contractual arrangements, etc.
C. Create and monitor policies such as internal controls, credit, collections, vendor relationship, etc.
D. Identify and communicate risk to the company stakeholders.
Service Provider
A. Maintain financial records of the company.
B. Prepare budgets and forecast.
C. Be the liaison between the company and its business providers.
Blocking and Tackling
Cash Management
1. Perform daily reconciliation or review of cash balances:
Online capability
Book any adjustments real-time in your system.
2. Consider consolidating bank accounts.
3. If keeping a cash worksheet, determine how to keep your cash balance in your accounting software … hopefully daily, or weekly at a minimum.
Cash Management
Daily deposits and transfers of cash: 4. Be sure to record these real-time.
5. Consider alternate systems of deposit, such as remote deposit capture.
6. If you are using a lockbox, evaluate the following: – Track the time it takes to get deposits processed – is it taking
too long?
– Is it worth the cost?
– Could you automate cash receipts by using this function?
Cash Management
If you have a line of credit: 7. Assess paying it down regularly – makes the bank feel it’s
revolving. 8. Evaluate if a sweep account would work for your organization. 9. If too costly, consider having certain direct deposits paid to the line
rather than deposited. 10. If worried about your borrowing base calculation and it’s impact on
availability over the next 30 days, consider: Inventory purchases When you are billing – especially large or progress billings Cash receipts posting Payments on accounts payable
11. For lines with continuous/fairly continuous outstanding amounts, consider a term loan to match timing on long-term purchases.
Cash Management
12.Review bank fees versus income for overall effectiveness of cash management.
13.Question rate received on savings or money market accounts.
Cash Management
14.Cash-flow projections: What level of cash and tracking/planning is needed for
your organization? Consider how much time is needed to alert the
business owner(s) if you are low on cash.
15.Consider ways to shorten the overall cash cycle:
Match timing of payables and invoicing. Look at invoice timing. Consistent collection efforts. If weekly, change payroll to every two weeks or twice a
month.
Accounts Receivable Management
16.Accept, or even require, credit cards for certain order sizes. 17.Require wire transfers on payments from overseas
customers. 18.Encourage electronic payments. 19.Have a weekly meeting or review of aging with updates and
plan of action; include salespeople. 20.Have an administrative person call on 30 days (or even
better, prior to the due date) to make sure the invoice was received, questions answered, etc. Provides great sales follow-up information. Keep a log of collection notes so your caller can update what
was communicated at the time of call.
Accounts Receivable Management
21.Have whoever is applying payments note exceptions, skipped payments, etc.
22.Create a log for unresolved credits to customers who are beyond accounting department control. Schedule the review of the log to be part of an internal meeting you already have.
23.Determine the best way to send invoices for prompt payment. Email invoices and consider tighter deadlines on due dates.
24.Create the same sense of urgency to get an invoice out as getting a bill paid and the payment applied.
25.Establish strong credit policies that are clear and well known through out the company.
Prepaids
26.Set a threshold and only create prepaids over that amount.
27.Create a monthly entry and reconcile once a year – either a month before year end or when annually renews,
28.Create recurring entries through you accounting system to record monthly activity
29.Create a worksheet to tie the balances easily and streamline your adjustment(s).
Inventory
• Depends greatly on your accounting software and the information you have available.
• Some systems are much better than others.
Key Issues: • Cycle counts versus wall-to-wall counts. • Month-end cutoff procedures. • Allowances for obsolescence/physical adjustments – make sure it is
written off by the end of the year for tax, if appropriate. • Analysis of profit margins – use analytical procedures on major
categories. • Un-reconciled receipts/received not invoiced.
Inventory
31.Count all inventory – finished goods, work-in-process, raw materials pulled awaiting production, raw materials.
32.Analyze freight and overtime for cost savings regularly. 33.Analyze inventory and costs variances. 34.Walk through all variance accounts to understand software. 35.Understand all major variances to determine if there is a
process change that should be suggested. 36.Review the accounting of inventory returned (one of the
more common sources of problems). 37.Turn slow-moving inventory into cash. 38.Analyze unit levels and costs. 39.Review cost trends. 40.Review material scrap levels and rejections by quality
control.
Fixed Assets
41. Determine a monthly depreciation expense entry for the current year.
42. Capitalize items over a set amount. 43. Record individually, not as a group. 44. Only set up one accumulated depreciation account and, at
most, two depreciation expense accounts – only for cost of goods and operations.
45. Only set up a few asset accounts. 46. Maintain detailed description of assets (serial number or
other identification on major assets) 47. Work with operations team on cost/benefit assessments of
new equipment 48. Look at buy versus borrow or lease on major purchases.
Accounts Payable
49. Have a strict cutoff at month-end – create accounting calendar with set dates that communicates cutoffs.
50. If your system is modular, close the sub-ledgers. 51. Limit access to setup of new vendors – evaluate reducing the
supplier base. 52. Create a G/L “cheat sheet” for your payables processors. 53. Enter terms for payment correctly. 54. Review sub-ledgers for items such as dummy check numbers and
miscellaneous accounts. 55. Electronically store supporting information. 56. Route all invoices directly to accounts payable first. 57. Review credit card purchases for applicable sales tax, and self
assess as needed; typical issue in a sales tax audit.
Check Processing
58. Only pay bills at a set time each week, or twice a month.
59. Limit the number of manual checks processed – be assertive and relate this to their area of the company.
60. Consider implementing positive pay and automate if your accounting system allows for it.
61. Destroy the rubber stamp.
Paying Bills With a Credit Card 62.Continue to enter bills in A/P as you normally
would. 63.Set up a “Credit Card” account (if possible, a bank
account). 64.Pay the bills in A/P using the “Credit Card” account. 65.Enter credit card bill and debit the “Credit Card”
account. 66.Set up auto payments for repetitive payments on
the credit card rather than the bank account when possible.
Bill-Paying Approval Process
67. Use stamps or forms that have spaces for information that you or the approver will need to see or fill out. Stamp or form should include: Approved by Date approved Account coded to Amount actually paying Amount paid last month and why higher or lower
68. If you pass bills out, be sure to track to whom and when in a worksheet. Use colored files so they stand out and have some urgency. Include in weekly operations meetings.
69. Consider negative assurance for invoice approval.
Company Credit Cards
70. Create separate expense reports for charges on company credit cards versus reimbursable expenses.
71. Set limits on cards, both per day and per card. 72. Consider moving credit risk to individual if not getting
the employee’s expense reports in a timely manner. 73. If all else fails, threaten to remove company credit
card. 74. Get all the cards on one monthly statement or double
check all account numbers, regularly. 75. Cash advances for travel – do not do this!
Purchase Orders
76. Use PO variance accounts to review dollar amounts going here; for anything over a set amount, review PO, voucher, etc.
77. Review outstanding POs monthly. 78. Consider using non-inventory POs to approve purchases:
Pre-approved POs allow you to just process the invoice. Helps the owner review also.
79. Consider issuing yearly blanketed purchase orders to supply vendors to fix annual costs: Benefits – reduces number of PO issues; can award based on yearly bid for
business; may get better pricing. Cons – doesn’t always allow for adjustment of quantities; could be considered a
longer-term commitment if business conditions or ownership are likely to change.
Late Fees
80.Ask: Was it caused by the vendor? What leverage do you have to get it waived? Are there any late-payment clauses in the credit
agreement? Can you negotiate to drop the fee if you send an
overnight check or pay electronically?
Vendor Returns
81.Work with inventory management or operations to know when to expect a credit and the amounts due back to the company.
82.Use return log or find ways to isolate returned items in your system.
83.Create a separate inventory location for returned items to track until credit is issued.
Notes Payable 84.If you track the current portion, use contra
accounts – don’t set up two accounts for each loan.
85.Give the person who posts the payment an amortization schedule.
86.Always analyze agreements to understand covenants and track these regularly.
87.Prepare borrowing base reports in advance so no surprises – manage timing of reporting periods.
Month-End
88. Do real-time accounting for: Cash Intercompany activity and entries Reversing entries Posting sub-ledgers Payroll entry Payables Expense reports
89. Post all transactions as they occur vs. the end of the month: Helps you find issues while everyone still remembers them. Helps you implement changes that don’t last multiple months.
Month-End
90. Use the system cash reconciliation. 91. Download bank data directly into system, if possible. 92. Use a checklist to eliminate errors and file in your monthly binder. 93. Run a report out of your system of all journal entries when done – this
will be the source you can rely on when you need to go back and research an entry you made.
94. Never make entries to any account with a subledger (even if your auditor tells you to) – use other asset or accrual accounts to handle; they can be grouped together on reports.
95. Require some type of support for every entry – either backup or a completed form. Be sure to include this data in a month-end folder or binder.
96. Reconcile large accounts weekly or daily to reduce workload at month or year end and identify issues timely.
Accruals
Payroll accrual: 97.To close early, just use last payroll of prior
month. 98.Consider adjusting your pay cycles to limit the
need for an accrual. 99.Prorate on number of days – do not get hyper-
detailed on exact hours per day.
All accruals: 100.Use reversing entries if your system has them –
if not, post the reversal at the same time as the month-end entry.
Long-Term Contracts
101.If your cycle for certain projects lasts longer, consider collecting deposits up front or at certain stages of the project.
102.Evaluate your revenue recognition policy. 103.Consider how this affects your service and/or
manufacturing business.
Helps financial strength and reporting to look at best way to handle these.
Communications
104.Understand what the owner/investors/board is asking for and why.
105.Try to incorporate information you already have.
106.Be sure and meet with owners/investors/board on whatever you give them, don’t just leave information on their desk or send an email.
107.Periodically meet with your business partners (accountants, bank, insurance providers, etc.)
108.Set and meet expectations.
How We Can Help
1. Review reports we provide, such as: 1. Dashboard of trends 2. Management overview 3. Other key information/project plan
2. Discipline of process 3. Documentation of key functions
Conclusion
Questions? Please take a moment to complete an
evaluation.
Contact Information
Juan Padilla, CPA Shareholder
Doeren Mayhew 713.789.7077
More CFO/Controller insight on our blog: doeren.com/blog
