Monday, March 2, 2009

Why Isn't My CPA Asking These Questions?

A surprising number of business owners think their CPA is watching their books for things to be concerned about. In my experience, that's rarely the case. Here's what some Chief Executive Boards International members discovered about that assumption:

In my business coaching practice, I generally find myself drilling into a client's financials, asking questions like "What's this?", "Why did you book it that way?", "Why is gross margin % bouncing around month-to-month like a random number generator?" etc. And as I explain why those things are important, it's almost predictable that the client will ask, "Why hasn't my CPA ever asked me any of this stuff?"

And my now-practiced response is, "Did you hire him to do that?" They look at me quizzically, and then I ask, "Did you hire him to coach you, to help you improve your business, or did you hire him just to do your taxes (and perhaps an audit)?" At that point they realize that, as conventionally defined, a CPA is not a CFO. There is a huge difference between the two. Let's take a look at a quick comparison between them:

Compiles financial statements from client-provided dataPlans, considers and decides how financial transactions will be booked, consistent with the objectives and strategies of the business
Works mostly in the past -- from historical dataPlans, forecasts, budgets and projects the future financial performance of the company, in light of the company's objectives, strategies and capacity to perform
Delivers financials weeks or months after the close of the accounting period (month, quarter, or year)Focuses on a clean, quick, and solid closing of the books within days of the end of the period. Generally has daily or weekly real-time key indicators of performance or trouble, shared with key players in the company.
Compiles financial statements in accordance with statutes and practices consistent with the type of businessAnalyzes results in the context of the company's objectives, strategies, and owners' intent for the business. Establishes key indicators that provide early warning for management

Compiles financial statements that can be relied upon by 3rd parties, such as banks, creditors and investors

Works to maximize the value of the business to the owners, including investors, while remaining within loan covenants, creditor requirements, etc.
Assumes you (the owner or CEO) are going to read and understand the financial statements as deliveredMakes certain you (the owner or CEO) understand the financials, the trends and the issues they identify. Reads them to you, if necessary.

Does what he's hired to do -- generally Taxes and Audits -- including mid-year tax planning, quarterly estimates, and appropriate posting of expenses

Does what he's hired to do -- help you strategize, plan and operate your business to your maximum financial advantage, within the law.

In reviewing the above, it's probably obvious why your CPA probably can't be your CFO. He's not in the game. You haven't been paying him to come over, sit in your planning and management staff meetings, and get fully engaged in the business. He has, in most cases, no perspective by which to help you plan, forecast or monitor financial performance. Because you haven't invited him in (and paid him to come).

Now, please don't misunderstand -- I'm not saying the services of your CPA aren't valuable -- they are. And I'm not saying you can't engage your CPA or someone else from his firm as a part-time CFO. Most CPAs would be thrilled to have a client actually engage them to help improve the performance of the business.

You'll have to pay him to do that -- probably a monthly retainer. You'll have to spend time with him, and you'll have to think to schedule and invite him to meetings where strategic or major tactical initiatives are going to be debated and decided. In the case of most of my coaching clients, I find myself filling that role, at least partially. I have one client who has a former corporate CFO, who now works for the client's CPA firm, on a monthly retainer to perform the duties and services in the "CFO" column above.

In this case, he's hired the same guy to wear both hats, and the two engagements are explicitly different -- a part-time CFO on retainer, and a CPA working on a conventional fee schedule, doing conventional reporting, tax and audit work.

Think about it -- is your company without a CFO? Can you really afford that (or do you know how much it's costing you):?

If you've either hired a full-time or engaged a part-time CFO in addition to your CPA, please click "Comments" below and let us know how it's working out for you.

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Terry Weaver

Chief Executive Boards International

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it


  1. This is a very powerful example of the differences between the perpspectives and services that an external CPA and an internal CFO (even if they are outsourced) will bring to an organization. Thanks for putting this together.

  2. What about a CPA's requirement for Independence?

  3. Good Insights and well must say you have definitely made a good differentiation on CPA and CFO. Keep it up.


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