The Virtual CFO

State of the Virtual CFO Blog – I’ve Been Really Busy!

At any given time, there are between 25 to 50 daily readers of the Virtual CFO Blog. I am very grateful that you take the time to read my blog and that the topics I write about are useful to you. This is why I periodically write "State of the CFO Blog" posts.

My goal is to post two to three times a week. I know I haven’t been as diligent with this in 2007 as I was in 2006.

Towards the end of October, I felt that I would have the time in November and December to spend a day or two writing the rest of the Construction Project Budgeting series (these two months are normally slow in public accounting). This would let me get a few weeks ahead on my blog posts, which would allow me to post two to three times a week even when I’m busy.

Fortunately, I didn’t have time to do this because I’ve had a really good November and December. There have been a several large and small projects I’ve completed for clients and I have picked up a number of new small business clients during this period.

These two months have been a very pleasant surprise to me. Thank you to my current and new clients for the business and for choosing CPA for Small Business to be your public accounting firm! (I really like working with my clients)

The only downsize to this is that I haven’t posted to the Virtual CFO Blog as much as I’ve wanted to.

In 2008, I will try to post more regularly. For those of you who have been reading the Budgeting for Profit Maximization of Construction Projects series, I will complete this series during the first part of the year. I will also post at least twice a week with accounting and financial management information that relevant to blog readers and clients.

Thank you for reading the Virtual CFO Blog!

Merry Christmas

To all my clients and readers, I hope that you have had a very merry and enjoyable Christmas.

Thank you for reading my blog! I really do appreciate it.

CPA Mortgage Lenders Letter Rant

(Disclaimer: If you are a CPA for Small Business client whose taxes I have prepared, I have no problem working with you to provide the documentation you need for a mortgage application. This post concerns those who are not clients who ask me to prepare a mortgage lenders letter.)

This month, I have received several calls from individuals who needed a letter from a CPA for a mortgage application affirming that the income they have reported on Schedule C of their 1040 federal tax returns was correct. Schedule C is where individuals report their sole proprietor business profit and loss.

These inquiries were related to what CPA’s call a "CPA Lenders Letter", which is an attempt by a lender to shift the responsibility of verifying an applicant’s income from the lender to the CPA. If the lender suffers a loss as a result of fraudulently reported income by the applicant, the lender can hold the CPA responsible because the CPA provided the income verification.

In the last six months, I have received inquires about lenders letters where I was asked to attest to information that I have no comfort attesting too. Two individuals asked if I would affirm the income they would make in a certain profession if they lived in another city. Another person told me that almost one-half of his income was "under the table" and that this is normal for the industry he worked in. I told this person: (1) I will only provide existing clients with lenders letters, and (2) if he were an existing client I would only be able to attest to the income reported on his tax return and not the "under the table" income.

It is obvious that these individuals need the letter because mortgage lenders are questioning the income reported on the application. Unfortunately, over the last few years some mortgage companies have turned a blind eye to the income applicants are declaring on applications. BusinessWeek recently ran an article entitled "Bonfire Of The Builders" that discussed how applicants income was fraudulently overstated so the mortgage loan would be approved. (I subscribe to BusinessWeek and I highly recommend it to anyone in business)

This is part of the reason the United States is currently experiencing a meltdown in the mortgage industry. Individuals fraudulently inflate their income on a mortgage application, they get a loan, and then *** "surprise" *** they don’t have enough income to pay the note.

What is funny to me about this is that I’ve never had a client ask me to help them overstate income on a tax return. I have never had a client say to me:

"Scot, I’ve been reviewing the tax return you prepared and I don’t think I’m paying enough taxes. Are there any IRS rules that would allow me to knock $10,000 or so off my company’s expenses so I can pay more taxes this year?" <grin>

This is why I am willing to help an existing client with a mortgage application.

The Virtual CFO Attends Pandora's Nashville Get Together

I had the privilege of participating in a get together with the founder of Pandora Radio, Tim Westergren, at Bongo Java’s in Nashville last Thursday evening. I was extremely impressed that Tim would arrange a meeting like this to tell the Pandora story and to answer questions from the audience. He spoke for approximately thirty minutes and then fielded questions from the audience for over an hour.

I attended the function because I like to hear successful entrepreneurs speak. Before the event, I didn’t consider that Nashville is Music City and that most of the attendees would be involved in the music industry. This made for a packed house and many of the questions concerned the music business side of Pandora. The discussions were very interesting.

I believe that it is important for entrepreneurs to hear the stories of other successful entrepreneurs. Every time I attend a function like this, I walk away inspired and I usually pick up a few business related tidbits that I can use at CPA for Small Business.

Requirement 2 for Successfully Implementing Construction Project Budgeting: Project Managers Understanding How Budgets Can Benefit Them, Part 2

As I mentioned in the previous post, project managers essentially run their own business within a construction company. This is why it is imperative that project managers understand how budgeting projects will benefit them.

First, the project manager must understand that budgeting can help increase their income. As mentioned in the Revised Assumptions for the Construction Project Budgeting Series post earlier in this series, the project manager’s compensation must be directly tied to the financial performance of their projects for project budgeting to be successful. By monitoring expenses through budget variance reports, a project manager will know what expenses can be cut and when certain expense categories are becoming a problem. This is the primary selling point of budgeting to project managers.

Secondly, completed project budgeting variance reports can help the project manager become more proficient at estimating the costs of projects for future bids. This in turn will help the project manager make more money because his compensation is directly tied to the performance of the jobs.