The Problem
Nick Bouras is the Chief Financial Officer for All My Sons Moving & Storage (AMS), he joined the organization in 2011 and was tasked with guiding them through an organizational restructuring, where they moved their operations from a series of separately owned and managed entities across the United States to a consolidated holding company with centralized management, operations and accounting.
Nick Bouras explained, “When I first came on board there were over 40 entities that were all managed in separate QuickBooks Desktop files. Since each operator managed that file, there were a lot of customizations to the files that made consolidating the reports difficult. We hired one of the large national firms to help us get the books consolidated and handle the initial audit and after 9 months we didn’t have a lot to show for their efforts besides a conference room full of paper.”
All My Sons used a local CPA firm, the BaCo Group, to handle their tax filings and asked if they could help. Bouras went on to say, “We asked Ford Baker if he could step in and help us with the consolidation process and he agreed. After a lot of late nights and with the help of our IT department, we were able to pull together a consolidated balance sheet and income statement that we were then ready to include in our first audit.”
It was a tedious process but with Ford’s assistance, the developers created a tool that was capable of extracting information from the files in a very efficient manner. Baker explained, “We looked at a lot of the platforms that would handle the consolidation for us and they were always limited by how much data we could get at a time. Even if we ran it overnight, it would have taken a week just to extract current information out of every file and there was no way to work with that kind of timing, so we had to create our own solution.”
The Solution
Historically, the books were all historically run on a cash basis, so there was a lot of work to book accruals and adjust depreciation to a straight-line method for GAAP purposes, the constant need for updated data. All My Sons gave Ford access to something he had not had in the past, access to a talented development team, primarily Reuben Fine. “I would tell Reuben what information was needed, and he could quickly grab data for a range of accounts over any date range from all the companies.” Then they had an idea that changed the way Ford looked at workflow forever, why not just get every debit and every credit from every file? Then Ford and his team could get what they needed from one spreadsheet. We called the report “All the Transactions,” and Reuben began routinely running that report.
Eventually, they could pull trial balances or transactions from what was, ultimately, 70 QuickBooks files for the rapidly growing organization in 30 minutes. That data was dropped into a spreadsheet, balance sheets, income statements, cash flows, reports by location, budget comparisons, and key performance indicators the decision makers wanted to see.
Ford Baker explained, "We had to be efficient in the process, we weren’t a huge firm and this work initially had to be done in tax season, so we had to do the work and get the tax returns prepared at the same time. What I noticed was the effectiveness of what we were doing, and that effectiveness was built around two things, All My Sons let us set up standards and they let us simplify the processes, in fact they insisted on it.”
Bouras and the All My Sons team led by example. Bouras explained how, “Many of the offices maintained their insurance with a local agency and they all expired on different dates which made managing prepaid insurance for every office, not only did we have all these different schedules to maintain, but we would also get surprised at year end when someone made a change and because we didn’t have the policy, we didn’t record a prepaid. We made the unpopular decision to move every policy to have the same vendor and expiration date and we also set the expiration date as December, so the balance was as easy as possible to reconcile at year end.”
Solving the Payroll Problem
Simplifying was paramount because as the company grew to 70 offices, and weekly payroll had to be managed for thousands of employees. The company had a talented group of bookkeepers, but Bouras was the only degreed accountant on staff. He could not post the monthly payroll accruals by himself. Ford worked out a plan with management where they setup a separate accounts payable account named “Accrued Payroll,” and since the bookkeepers knew how to enter bills, they could record the weekly payroll as a bill and pay it when the money was drafted. They did the same thing every week, even when it did not impact month-end. The potentially massive task of recording payroll every month was now part of the routine of paying payroll.
A Change in Perspective
Baker went on to describe the impact this had on his perspective toward the “What did we do last year?” process he had at the firm. He said, “When we went out there, every office had a unique set of accounting records, and we could not get them consolidated until there was a standard. Then we simplified and a process that took hundreds of hours became something I did one afternoon a month. Nick and their team would post all of their adjustments, we extracted the data, and the consolidated report out of 70 offices was done, including a statement of cash flows and the compliance reports that management wanted to see.”
We standardized and simplified the process so intercompany transactions could be reviewed, reconciled, and an eliminating entry could be prepared. The payroll accruals went through 5 or 6 annual audits without an adjustment or error and were all entered and calculated by payroll clerks in their workflow instead of after year end.
New Software
Eventually, All My Sons purchased a more functional piece of accounting software, Microsoft NAV. This made Nick Bouras at All My Sons a little nervous about telling Ford, “Even as we grew and made changes, management at All My Sons has remained loyal to Ford and his team. He was an asset for us when we needed him but of all the changes we could have made, I thought this would be the one he objected to the most because of how much he had invested in this QuickBooks workflow, plus we all thought he really liked QuickBooks, but he took it fine. He was concerned about the timing, but that was about it, and after we made the change, he asked for the same information which it turns out we were already pulling twice a day, all the transactions.”
Ford explains why the change didn’t impact him as much as he thought it would, “Even though I couldn’t put my finger on it at the time, I realized that all of the efficiencies in my design and workflow came from having all the transactions, not a series of monthly trial balances. Like everyone in public accounting, my initial consolidation was based on a balance-based workflow, where we rely on year-end or month-end balances to start tax returns and financial statements. It was not until I had to start producing the monthly reports that I began to consolidate the information on a modified transaction basis. I essentially used the difference between the beginning of the month balance and the end of the month balance to create a monthly transaction for the monthly and quarterly reports. I, like every other accountant in public accounting, was so ingrained in a balance-based workflow that I was building financial statements out of balances at all costs. It was just last year that I finally realized that all the efficiencies I had were from the transactions I obtained, not the balances. In fact, all the inefficiencies in my spreadsheet and my firm’s workflow were built around calculating that difference and managing that massive table of differences. In fact, every CPA’s workflow is based on a balance-based workflow. We made an easy change at that time. Quit building my firm’s workflow around the balances and the changes in the balances and start using the transactions.”
That proved itself to be true when All My Sons moved to a more robust ERP. If the workflow had been based on the trial balances produced, the differences in how those reports were formatted and those accounts were styled would break any system he made, and his largest client would not have the same efficiency for tax preparation they had before.
A Simplified Chart of Accounts
The simplicity came in obtaining transactions instead of balances because unlike balances, transactions are consistently formatted across every platform. They have debits on the left and credits on the right, there are columns for dates, account numbers, account names, and other essential information. They are simple, they are consistent, they are portable, and they are the information you need to update a depreciation schedule or prepare a statement of cash flows in addition to using them to calculate the balance.
The BaCo Group discovered something when they uploaded that first trial balance for All My Sons because before they did that, they did something every CPA firm does. They combined the various accounts from a client’s general ledger that all go to the same line on the tax return. Many clients will have a repairs and maintenance account for the building and another one for their equipment, but they both go to one repairs and maintenance on the return, so a CPA aggregates them together. If clients have sub accounts under professional fees or advertising, they aggregate the parent and all the sub accounts into one line that ties to the number entered on the return. In this case, Ford had made a simplified trial balance and identified in excel which account to roll each account into so the actual adding together of the accounts would happen automatically. He had a simplified chart of accounts for the All My Sons returns.
What about Your Business?
Every firm has audit leads for reporting, A is the General Section, B is Cash, etc. So BaCo uses their unique software which allows for clients to set up their firm audit leads as well as setting up a standard tax lead. When a client is added to the platform, the chart of accounts is extracted first, and the software runs it through a set of rules. If an expense includes the word repair, put it in repairs and maintenance. If an account includes the word advertising in the parent or the sub, put it in advertising. They are easy to change but now every client has a predetermined path to the tax return. We export a trial balance with the firm standard leads and you only have to teach it one time what to do. Touch it once.
Simplify. Standardize. Touch it once. They are a great way to develop an efficiency in a workflow which is why the BaCo Group strives to do these things for every client using their unique software. That’s what makes the BaCo Group different from every other accounting firm.
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