How Fractional CFOs Can Tackle Bad Books

Hey, there. Welcome back. Today we're going to talk about what to do when you land a new CFO client, only to find that there are problems with their accounting or their bookkeeping. If you're new here. My name is Michael King. This is the Connected Accountant where I talk about starting, scaling and optimizing fractional CFO services. And like I said, today we're talking to one of my mastermind students named Ashley about what to do when you're onboarding a new client and you realize there are problems, sometimes significant problems, with the accounting or the bookkeeping. We're going to walk you through the how you can actually turn this into what I like to call the aha moment for the client. This is a great opportunity to show the client, to reinforce to the client why they hired you in the first place. So if you're a fractional or a virtual CFO, you're onboarding new clients going into 2023. You're absolutely going to want to check this out. Let's dive in.

So I onboarded a new client. They're my first ones that we're not doing bookkeeping for. I found in our, like, getting organized meeting that there were some things that the current bookkeeper had missed. And I felt like I probably could have caught it before if I had a different process to review someone's books that I am not in control of. So I just wanted to see if you guys had some feedback or what that process could look like the next time I own some onboard someone who we're not doing the bookkeeping for, but I don't know the business well enough to recognize that something's off.

I just want to recap the ask to make sure we're all on the same page. So you've got a new fractional CFO client, you're not doing the accounting or the bookkeeping for them. You got a couple months into it and realized that there were some things in the accounting that threw off some of the CFO kind of stuff. And your question is, is there a process or a way to proactively identify those issues earlier on in the relationship so that you're able to put mechanisms in place to get them corrected? Is that right?

I caught it in the first CFO call, but I feel like I could have called it and asked better questions in that, like getting organized. We call it a getting organized call, but it's the onboarding call. I feel like I could have called it then, but I just didn't know what necessarily to look for. And then she saw it and she's like, oh, this is way off. So just feedback on that.

You want me to chime in? Go ahead, Mike. Okay, so good segue because next month we're going to be talking about P and L and balance sheet analysis. So on the next TCA group coaching call. But to answer your question, yes, during the onboarding process, we do go through the books and you should have a process to kind of look at the different things that could create issues in the accounting both from a balance sheet perspective, a P and L perspective, and a statement of cash flows perspective. For example, in the statement of cash flows, if the client set up the chart of accounts on a long term liability as a short term liability, in the statement of cash flows, it shows as operating instead of financing. So those are the types of things that you catch when you have a process in the onboarding that you're reviewing the chart of accounts, you're reviewing the balance sheet, the P and L and the statement of cash flows. Now, one thing I would say is that I don't go immediately and fix those for the first CFO call. If there is something that is terribly off that will skew the numbers and that will not allow me to have a successful call. I will definitely point that out in the onboarding call so that when we get to the first CFO call, we have that fixed. But let's say I didn't catch it on the onboarding call because I was too focused on other issues that the client had. And I'm heading into the CFO call and it's, they're not big issues. They're not going to skew the numbers in any particular way that my analysis will be off because of it. I will still leave it there so that when we get in that first CFO call, they're getting more aha moments as we go through, right? So I'm going through the balance sheet and I'm explaining the balance sheet and I'm pointing out, you see this account, this account needs to be somewhere else or we need to reconcile this account because, you know, it's a balance that's been in the books for a couple of years. I don't think you're going to collect it. And then we start having conversations. But now the client understands that that's why I hired him, you know, because if not, who would have pointed that out? Now, if you fix it before the CFO call, then the aha moment is gone, right? Because you can't say, hey, there was something here and it's not there anymore. I put it where it belongs and it, it sort of loses the oomph behind the explanation. Right. So that's kind of how I would approach it. Again, if the books, when I do the onboarding, the books are skewed by something major that needs to be fixed before we get on a CFO call also depends. Right? So if it's going to take two months to fix, then we'll have our CFO call and I'll make it work. But let's get those cleared up before the CFO call because you created the aha moment in the onboarding call. And we just had a client like that, they are coaching and course creators and I'm looking at the bucks and they gave me access to stripe and all that kind of stuff. And I'm talking with them about, hey, do you have like receivables and things? Because I went in stripe and I see payment one, payment two, payment three, what does that look like? And they explained that. Yeah, they have payment plans but they get access to the whole course, the whole material right away. So it's not time spaced. There are no additional deliverables. They just have flexible payments. From a revenue recognition perspective, you can recognize that revenue right away. Then because you're only given terms, you already delivered the value so you can record that as revenue. And now we have an accounts receivable that we can track over time to see if we have write offs. Right now we don't have visibility to write offs. Right. So if a client stops paying, if they take out their, they cancel their credit card and all that kind of stuff, we don't have visibility into that because we don't have accounts receivable and a write off process and all that kind of stuff. So I'm explaining that in the onboarding call so that when we get to the CFO call, we have that figured out. Does that answer your question?

Yeah. And I think something you just said made me realize that it was a great aha moment for her because it was something that had been there that she didn't know was there. When I was doing my thing and having the conversation, she was like, oh, I didn't even know that was there. So. But for me, I felt it was my competence. I should have caught this. Like how did I miss this? But for her it was aha moment. So thanks for helping me to shift perspective on. I gave her something good and you know, going forward, I know something else to look for.

Absolutely. Now next time do it intentionally.

I will all right, thanks for being here. I hope you found this helpful. If you're interested in learning more about the CFO Mastermind, this is a mastermind I've built from the ground up, exclusively for virtual CFOs and fractional CFOs that are serious, that are committed about scaling their firms to multiple six or into the seven figures. If you'd like to learn more about that mastermind, I would encourage you to check out theconnectedaccountant.com mastermind. We'll be sure to include the link to that below. In the meantime, I hope you have a great week and I look forward to seeing you back next week. See you then.

Ra.