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QuickBooks CPA discusses using your Bookkeeping to Calculate a Bankruptcy Indicator

CPA Firm in Wilmington NC

Gary Bode, CPA: your QuickBooks bookkeeping can be turned into powerful managerial tools like the Z Factor (a Bankruptcy alarm indicator). (910) 399-2705.

I think QuickBooks CPAs should help Clients use their bookkeeping for managerial purposes. The Fortune 500 companies hire CPAs to do just that. It always seemed unfair to me that small companies don’t have access to these same tools. They really make a difference.

Your QuickBooks bookkeeping components can build powerful managerial tools, like those used by Fortune 500 companies. Most of the information required is on your Intuit QuickBooks bookkeeping reports.  Sometimes you might have to export your QuickBooks reports into Excel.

Some of these QuickBooks bookkeeping calculations act as alarms, warning about potential financial danger. Days Cash on Hand is one of these.  Another is the Z Factor which uncannily predicts if and when a company will go bankrupt, done through a calculation based on profitability and financial position.  Such tools can be part of a Performance Dashboard ued for managerial decisions.  The process usually involves customizing an existing QuickBooks bookkeeping report and then exporting it into Excel for further refinement.  Like producing graphs for trend analysis.

“I don’t recommend running a company strictly “by the numbers”, but accurate and timely QuickBooks bookkeeping can construct powerful managerial tools like the Fortune 500 companies use.”   
Gary Bode, QuickBooks CPA accountant

This Z Factor has been around since the 1960’s.  First developed by Dr. Robert Altman, it was originally used in public companies, as part of Financial Statement analysis by potential investors.  Later, it was modified for private companies.  But sadly, most small business accounting doesn’t use these tools.

Here’s the Z Factor calculation for private companies:

  • A = [(Current Assets – Current Liabilities)/Total Assets] × 6.56 = ________.
  • B = (Retained Earnings/Total Assets) × 3.26 = ________.
  • C = (Earnings before Interest. & Taxes/Total Assets) × 6.72 = ________.
  • D = (Equity/Total Liabilities) × 1.05 = ________.
  • The sum of (A + B + C + D) equals your Z-score.

Note all components for the Z Factor can be directly taken from Intuit QuickBooks bookkeeping reports if:

  • Your QuickBooks setup includes an appropriate chart of accounts.
  • Your data entry is consistent.
  • The QuickBooks bookkeeping is timely.

Again, generally the QuickBooks reports are exported into Excel for semi automated preparation of a monthly Performance Dashboard.

I’m a QuickBooks CPA with a virtual office to help Clients beyond my Wilmington, NC locale. Local clients find the virtual office more convenient as well. I offer a free phone consult at (910) 399-2705.



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