Accounting Roundtable - 2012

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June 18, 2012 • An Advertising Supplement to the Los Angeles Business Journal

The Business of Accounting*

* Dennis L. Duban, CPA Managing Partner Duban Sattler and Associates LLP

Thomas D. Leaper, CPA Co-Partner In-Charge, RBZ Middle Market Group RBZ LLP

Ron Friedman, CPA Partner-in-Charge, Southern California Marcum LLP

Steve Milner, CPA Managing Partner Squar Milner, CPAs

A ROUNDTABLE DISCUSSION

Selwyn Gerber, CPA Managing Director Gerber & Co.

Kevin O’Connell, CPA CEO & Managing Partner Macias Gini & O’Connell LLP

David Krajanowski, CPA Managing Partner SingerLewak LLP

Todd Van der Wel, CPA Office Managing Partner, Los Angeles & Woodland Hills Moss Adams LLP

This special advertising supplement did not involve the reporting or editing staff of the Los Angeles Business Journal.

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AN ADVERTISING SUPPLEMENT TO THE LOS ANGELES BUSINESS JOURNAL

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Business of Accounting Roundtable

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ROUNDTABLE PARTICIPANTS:

S our economy

and its challenges continue to present new and complex climbs and dips, the Los Angeles Business Journal has once again turned to a selection of leading accountants in the greater

Los Angeles area to get their assessments regarding the current state of business accounting in the region and the various trends that they have been observing, and in some cases, driving.

Following is a series of questions the Los Angeles Business Journal posed to these financial stewards of Los Angeles County and the unique responses they provided – offering a glimpse into the state of business accounting in 2012 – from the perspective of those in the trenches delivering financial advice and leadership to the businesses of our region and beyond.

Dennis L. Duban, CPA Managing Partner Duban Sattler and Associates LLP Ron Friedman, CPA Partner-in-Charge, Southern California Marcum LLP

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have the changes in the economy affected your clients and what advice have you given to help them?

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Kevin O’Connell, CPA CEO & Managing Partner Macias Gini & O’Connell LLP

GERBER: Our clients have become more cautious and far less reliant on banking relationships, because even the most secure of those relationships has proven to be worthless in the face of more stringent directives from the regulators and changes in lending criteria. Previously, our clients had banking relationships that transcended the loan document. In today’s environment, lines of credit are arbitrarily withdrawn, and maturing loans are not being extended. Also, document banking and contract-based banking have, in most cases, taken the place of relationship banking as we once knew it. We advise our clients to be proactive, and not wait for their bank to re-define the relationship. We urge them to seek loan extensions and alternative financing arrangements well before their current loans expire. With respect to their private investments, our clients are revisiting their family portfolios and we are assisting in objective evaluations of the performance of their wealth managers and their asset allocations to respond to a radically altered economic landscape.

Todd Van der Wel, CPA Office Managing Partner, Los Angeles & Woodland Hills Moss Adams LLP

MILNER: The biggest problem with the US economy has been, and will continue to be, the lack of certainty. Are the so-called “Bush tax cuts” expiring? Will they be renewed? If so, what will the

Selwyn Gerber, CPA Managing Director Gerber & Co. David Krajanowski, CPA Managing Partner SingerLewak LLP Thomas D. Leaper, CPA Co-Partner In-Charge, RBZ Middle Market Group RBZ LLP Steve Milner, CPA Managing Partner Squar Milner, CPAs

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Prior to the recession in 2008, and for some time into it, many clients really did not actively monitor and actively manage cash flow. The situation is much different now, clients have become more pro-active and forward looking.

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We’ve seen changes in all industries.

Clients are far more aggressive in terms of collections, and more judicious in extending credit.

SELWYN GERBER

THOMAS LEAPER

Continued from page 46 taxes on business owners be? Certainly, no deal will be made between Congress and the President until after the election. This uncertainty has justifiably caused great apprehension in the business community.

They want to push forward, but they need to know what the rules of engagement are.

Our advice to clients: proceed cautiously.

LABJ: Have you seen a change in the way your clients monitor cash flow and what are some examples you can share?

MILNER: Clients have become more cautious in their management and monitoring of cash flows. They are generally projecting longer receivable conversion cycles, and accordingly, are delaying the payment of accounts payable and have become very cautious in managing inventories. The net result of these policies has been a reduction in inventory levels to the extent that some of our clients are sacrificing sales growth in order to minimize liquidity risks. In addition, due to expected longer receivable conversion cycles, clients have put more emphasis on credit and collection efforts. Credit criteria has been tightened and changes in deployment of accounting personnel have been instituted to devote additional time to contact with customers with balances.

LEAPER: Prior to the recession in 2008, and for some time into it, many clients really did not actively monitor and actively manage cash flow. The situation is much different now, clients have become more proactive and forward looking – and it’s necessary. I feel the most important element to this is to anticipate problems so there is adequate time to react. An example of this would be to increase management of accounts receivable by working more closely with customers. This would include monitoring aged receivables on a more frequent basis and talking with customers to understand when payments will arrive so that you can anticipate any potential prob-

lems. I have also seen clients weeding out bad customers and changing payment terms to boost cash flow. Inventory is another area that can burn lots of cash if not managed well. Similar to receivables, clients are monitoring their inventory levels more closely and stocking only the items that are necessary. And in some cases they are eliminating product lines that are not as profitable as others. A focus on lean and efficient operations is defiantly the trend.

Clients are also developing better management reporting so they can be more on top of their operations. Examples include financial dashboards that measure specific key performance indicators on a daily or weekly basis and cash flow forecasts based on sales orders, accounts receivable, purchase orders and accounts payable. These tools give management more visibility into their operations so they can anticipate issues and have the time to take corrective action.

GERBER: Yes, we’ve seen changes in all industries. Clients are far more aggressive in terms of collections, and more judicious in extending credit. For many, receivables management has now become a key element of administering their enterprises.

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has going green impacted your practice and your clients’ businesses?

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VAN DER WEL: Over the past several years, companies have increasingly recognized the need to focus more on the environment, the well-being of their communities, and the sustainability of their business practices.

Major companies such as Walmart, Costco, and Microsoft are now “greening” their supply chains by demanding that their suppliers

regularly report on “codes of conduct,” which often contain many items included in traditional Corporate Social Responsibility (CSR) reports. The supply chain reporting phenomenon has been given additional impetus by the California Transparency in Supply Chains Act, which took effect January 1 of this year. This law requires all retailers and manufacturers doing business in California and having total worldwide revenues in excess of $100 million to formally publish their policies and safeguards to prevent the use of slave labor and human trafficking in their product supply chains.

The California attorney general estimates that 3,200 companies will be required to report under this law. As an independent auditor, we are well suited to conduct the verification of these reports, which frequently address personnel-and payroll-related matters, environmental and factory conditions, and other requirements that may overlap with financial statement audits.

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has the use of technology impacted how your clients run their business? Are they willing to make the investment in this economy?

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KRAJANOWSKI: Technology is a game changer for many businesses. When done right, it creates a strategic differentiator. When technology is leveraged effectively, management makes better decisions, managers manage their work areas with better information and visibility, and people communicate far better – all in order to better service the customer and/or client of the business. Web technology has added strategic value in the

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Continued from page 48 ways that businesses touch their constituents, and has mitigated the dependency on geographic proximity at the same time. When there is a clear ROI (return on investment), clients do invest in technology, even in this economy.

GERBER: Technology is to business today what steam power was to the industrial revolution. Hardly any aspect of any of our clients’ businesses is un-impacted by new technologies. Working with clients, we see a great keenness to make any necessary investment. The return on these enhancements – when carefully planned – is generally extraordinary.

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is the best success story you have seen and what have you learned from it?

HAT

O’CONNELL: We have a client that was able to transfer the ownership of their business to their heirs with minimal estate and gift taxes. The value of the business was in the hundreds of millions, so the tax savings were considerable. This success was the result of more than 25 years of work for all of us – proper planning, tough decisions, airtight strategy, sophisticated estate planning methodology, knowledge of complex business structures, buy-in from all family members involved, and diligent execution. The client understood that effective planning is a committed process. This story stands out because of the scope, duration and complexity of the planning efforts. However, after all these years we’re most proud of the relationship we’ve developed, because it is much more than a client-accountant relationship – it’s really all about trust.

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are common difficulties that you are observing and what have you learned from them? How have your clients managed them?

HAT

GERBER: The common denominator in terms of challenges to our clients is the shrinking consumer base. For those who are vendors to the State of California or the cities, transactions are often hamstrung by frequent renegotiations and severe delays in payment.

LEAPER: In general, our clients have seen sales or profit margins decline and have taken steps to be more efficient by managing direct costs, including product costs, and managing cash flow better. These have been the biggest difficulties. We have been helping them by recommending things like monitoring aged receivables on a more frequent basis, keeping a close eye on inventory levels, ordering only what is absolutely needed, and shifting their focus on products lines that are the most profitable for them while phasing out others that are not.

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has international commerce impacted your local client businesses?

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O’CONNELL: We have many clients that have international operations, source from foreign suppliers, sell overseas or all of the above. This adds additional complexity in that supply chains must be validated or tested, local jurisdiction regulations must be complied with and foreign currency exposure must be managed. To assist our clients we have expanded our international expertise and have a presence in approximately 100 countries through the BDO Alliance.

Our participation in the BDO Alliance allows us to offer our clients global resources while maintaining the strength and energy behind our local commitment to meeting their service needs here in the states.

GERBER: The world has indeed become flat – the internet has meant that sourcing products in other countries can easily be conducted on the web, and many intermediary companies are now out of business. For most of our clients, doing business internationally has been a natural evolution. Inbound investors require a comprehensive tax plan which harmonizes the various tax treaties and minimizes overall tax impact.

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have you done to prepare your clients for the International Financial Reporting Standards (IFRS) and how do you think it will affect your clients’ business?

HAT

FRIEDMAN: We have advised our clients that these standards are coming. Most of our clients haven’t done much at this point to prepare due to the continued delay of the standards. Once we confirm that the standards will be adopted and identify the related timeline, we will work with our clients and the banking community to ensure they understand the changes that will be taking place.

DUBAN: Many of our clients were unaware of the international reporting requirements and of the aggressive enforcement that has increased over the last several years.

Reporting not only includes foreign bank accounts with over $10,000 balances but also interests in foreign corporations and companies and interests in foreign assets.

This year we have sent out detailed questionnaires to each client. We are requiring 100% compliance in connection with those returned questionnaires so that there is no possibility that a client did not receive one or did not understand the requirements.

We are informing our clients of the significant penalties to taxpayers AND to tax preparers for non-compliance and also of the vast amount of information that is required for foreign corporation interests and foreign

asset interests. We are also stressing that there is no tax due as a result of having a foreign bank account, provided that the interest earned is properly reported. We have also informed our clients that if they cannot provide the information required we cannot represent them as their certified public accountants. Although the actual impact on their businesses is minimal, this will once again result in additional costs to them to prepare the information, get it to the CPA and have the CPA prepare yet additional returns and reports to provide this information to the appropriate government agencies. And these increased costs come at a time when businesses can least afford them.

KRAJANOWSKI: This is an interesting question since it assumes that our clients need to be prepared for IFRS. Though the SEC has indicated that they may require IFRS reporting at some point in the future, no deadline is set and there are no equivalent movements for privately held companies. Current FASB projects (and there are many) are joint projects with the IASB. Statements emerging from this collaboration should be both US GAAP and IFRS compliant. So, it is entirely possible, that our clients will become literate regarding IFRS over time by simply adopting the new FASB statements as they are issued.

Our clients’ operations are, increasingly, international and IFRS statements of subsidiaries are becoming more prevalent. We have several partners that have been trained in IFRS, but, more importantly, we have a large international base of affiliates that can help our clients with their compliance requirements as they arise.

O’CONNELL: To assist our clients in anticipating the impact of IFRS, we provide periodic status updates on the timeframe and impact of adoption; identify contract terms such as loan covenants or compensation arrangements that might be impacted; identify client specific issues, such as consolidating entities previously excluded from the company’s financial statements; and work with management and owners to develop an implementation plan so that critical areas are addressed early on.

Regardless of the eventual method and manner of implementation in the U.S., we believe that adoption of IFRS for most companies will cause a moderate and temporary increase in financial reporting compliance costs with little impact on the ongoing costs. For larger entities with companies in multiple foreign locations, the implementation costs will be significantly higher, but paradoxically may result in lower costs over time (assuming a single set of accounting standards is accepted in each of its reporting locations.)

MILNER: There is a lot of talk in the business community regarding IFRS. Certainly, this is the case with companies that either do significant business internationally or have international investors. They have been asking: “When do I need to change?”

At present, as I understand matters, the US Financial Accounting Standards Board and the International Accounting Standards Board are trying to reconcile the different standards. There is some expectation that the reconciliation will occur by 2016. What that means at this point is unclear. In the

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Whether it is the economy, tax law changes, government regulations, banking and credit; clients just want to know what the rules of the game are.

DAVID KRAJANOWSKI

Continued from page 50 meantime, many clients are not waiting. In fact, many clients have been requested to produce financial statements under IFRS as a requirement of their foreign investors. We expect to see more of this.

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federal/state regulations appear to have the most significant impact on your clients’ business? Why? HAT

VAN DER WEL: Currently, the most pressing issue affecting our clients is the long list of taxes set to sharply rise at the end of the year. For businesses, one of the central concerns is that tax rates on gains from longterm capital transactions—currently at 15 percent—will revert to the previous 20 percent level if no congressional action is taken. This applies to gains on sales of capital property, including stock. It also includes dividend income, which, for the most part, is currently taxed at the 15 percent rate. In the past, dividend income was taxed at a higher rate, just like ordinary income. On top of these possible increases, a Medicare surtax of 3.8 percent takes effect in early 2013. The surtax applies to investment income such as interest, dividends, and capital gains.

O’CONNELL: Federal and California governmental regulations coupled with uncertainty and future Federal Income and Estate Tax and California Income Tax changes have had a disquieting effect on companies and individuals trying to conduct business in California which, according to a recent survey, ranked last in terms of businessfriendly environments for the eighth straight year among all 50 states. While we enjoy a high quality of life here, taxes and other regulatory requirements make it difficult to conduct business. Our state used to offer one of the most attractive business environments in the country, but we are now falling deeper into a regulatory well with no real promise of reform on the horizon. We see these challenges affecting our clients across the board. It’s staggering to think that between 45–55 percent of the income generated by our high net worth

clients is eaten up in taxes of one kind or another. Beyond California’s challenging tax and regulatory environment, our small to mid-sized business clients are very concerned that the new Obama Care regulations to provide health care for all employees will create a significant financial strain for them and possibly threaten to put them out of business.

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issues keep your clients up at night?

HAT

FRIEDMAN: Cash flow and meeting their budget.

KRAJANOWSKI: Uncertainty, plain and simple. Whether it is the economy, tax law changes, government regulations, banking and credit; clients just want to know what the rules of the game are. Once known, businesses are capable of navigating over, around or through good and bad times, no matter how rough the seas are. What they can’t deal with is navigating one way, only to find out the rules have just been changed and they have to start all over again if not make up ground that they lost.

DUBAN: This year more than ever before our clients worry about potential tax increases.

With promised increases by both the Federal and State governments, our clients, many of whom had difficult years during the recession and are now just coming out of unprofitable years, worry that the modest increases in their bottom line will be nominal after the increased taxes are levied. Many need their profits to pay off debts incurred during the recession in order to stay alive, and the increase in taxes threaten to make the debt reduction that their financing arrangements require impossible. And since California taxpayers cannot offset profitable years and loss years, the state increase in income taxes becomes even more ominous.

O’CONNELL: Closely held family businesses face a number of unique challenges that keep them up at night: Governance-what is the appropriate structure that balances the needs of the business and the interests of the family? Succession planning-who will take over the leadership of the company?

How will they be selected and groomed?

How can the business attract the best talent

from both inside and outside the family ranks? Our daily focus is to use our expertise and years of experience to help clients navigate these challenges and address the dramatic level of uncertainty they face in today’s environment.

LEAPER: In today’s economic and political climate, there are many issues to which business owners should be paying close attention. Internally, the main thing that concerns our clients is cash flow. They all need the ability to cover current liabilities while still putting food on the table. The secret here is to monitor your key figures – those financial balances, ratios or other statistics that you use to make decisions. For starters, do you know how your customers are doing? What are your average days in accounts receivable? Have you checked your current and quick ratios recently? Knowing this information can help you manage your cash in a way that will allow you to sleep through the night. What about external factors such as litigation or regulatory changes?

Sometimes there is nothing that can be done about these but often times business owners can have some control over their own fate. For instance, workers compensation claims increase during tough economic times, as do instances of fraud. Policies and incentives related to employee safety and satisfaction can not only decrease the number of actual claims but also help protect against disgruntled employees attempting to defraud your company. It may seem that as a business owner there is nothing you can do about regulatory changes, and this may be true, however, your ability to respond will let you keep a leg up on your competition. How do taxes and regulation impact you? Do you know your margins? Is there room to pass on increased taxes? Keeping close tabs on your product performance can help you manage these changes in your operating environment. For organizations who receive government funding, it’s important to know your options. If your funding disappears, are there other avenues to get the cash you need? It’s on you, the business owner to develop contingency plans. To put it plainly, there are a million things that keep our clients up at night but our advice to them and all those reading is this: “Have a plan.” Know what drives your business and how it’s performing and you’ll find you can navigate through even the most unexpected circumstances.

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KEVIN O’CONNELL

Continued from page 52 GERBER: Fundamental economic uncertainty is the black cloud hovering over everything.

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does a company plan for tax changes given California’s political landscape?

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MILNER: With respect to California taxes, planning is not all that difficult.

Unfortunately, we are a one party state with a big budget problem. Planning is simple: Taxes are not going down, and at best they are staying the same. We may not like that, but we can plan for it. There are two competing ballot initiatives this fall which will attempt to raise taxes on those with higher incomes. In other words, if you own a profitable business that is in a flow through entity such as LLC or S Corporation you will likely be paying more tax. This means that you will need to distribute more cash to the owners to pay the tax, which in turn means businesses will have to get by on less capital. Welcome to California.

VAN DER WEL: It’s hard to foresee what will happen at the end of this year given the present political environment. As a result, it’s probably best to assume tax increases will take place. This possibility has been changing the inner dynamics of M&A deals.

Buyers, aware of the potential rise in tax rates, are using it as leverage in negotiations with sellers, who can hold on to a greater portion of the sale proceeds with the lower 2012 tax rates still in effect. A possible increase in taxes has also intensified the constant tug-of-war over selling assets versus selling stock. Buyers often want to purchase assets to receive a step-up in basis and gain the opportunity for a write-off over time.

Sellers, however, frequently want to sell stock to benefit from the low 15 percent tax rate on gains from long-term capital transactions that’s now in place.

GERBER: Our core tax philosophy is summed up in the philosophy: “Surprises are for birthdays not for tax time.” We continuously keep our clients apprised of impending tax changes and provide frequent tax projections throughout the year.

This way, they are well-positioned to plan ahead and take full advantage of savings opportunities.

O’CONNELL: You can only safely plan around the rules and regulations and income tax laws in place at the present time. In California, the Legislature persists in passing expensive new regulations for businesses, particularly in the environmental arena. The California Revenue and Taxation Code is highly complicated and unduly complex in its non-conformity to the Internal Revenue Code. In these challenging economic times, California’s businesses are partially or even completely limited from using prior years’ losses to offset their current year income. So, for example, many businesses that struggled to survive in 2008 and 2009 were precluded from utilizing their loss carryovers to offset even meager gains in 2010 and 2011 as the State’s “reward” for staying the course and righting their ship. Recent Bills passed by the California Legislature and looming California tax increases on the November ballot create an environment of financial uncertainty, giving California one of the most challenging tax climates for entrepreneurship and small businesses in the U.S. It’s a significant understatement to say that California is not a business friendly-environment. Unfortunately, sometimes the only way for clients to address the tax changes is to leave and do business in another state.

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should companies evaluate value from an accounting firm?

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O’CONNELL: We see a lot of firms that want to be all things to all people. In fact, some firms won’t even call themselves “accounting” firms anymore because they feel it’s too limiting. We believe what’s really best for our clients is working with CPAs who have the type of deep, specialized expertise that’s only found in an accounting firm. We’re not trying to be your investment advisor or sell you insurance. We’re not joking when we say we’re proud to be boring accountants.

DUBAN: The value provided by one’s accounting firm should be directly related to the quality of the advice it receives.

Compliance and technical expertise should be a given; but over and above the ability to correctly prepare income taxes and review financial statements, an accounting firm should provide advisory services that assist the individual or company in making sound business and investment decisions,

minimizing their tax liabilities, attracting capital and new business and should be the result of open communication wherein the CPA is able to focus in on the clients’ needs and provide valuable input.

MILNER: Most business clients want a sounding board and a trusted advisor. They want to know they have someone to call when they have a major transaction or for something like, the toilettes don’t flush, do you know a good plumber? While your accountant will never know as much about your business as you do, they can give you insight from their experience which will help you make the right decisions. Most all, look for a firm that is practical. Picking the right accounting firm is just like Goldilocks going from bed to bed. One is too hard and one is too soft, but somewhere there is one that is just right.

KRAJANOWSKI: Forget the compliance side (audits and tax return preparation) and seeking the lowest price. Lowest price is not the lowest cost. Find a firm that can be your business partner, challenging you with new ideas, providing up- to-date alternatives in dealing with accounting and tax law changes. True value comes from a CPA that isn’t afraid to tell you you what you don’t want to hear but should hear, bring resources to you that you can’t get yourself, including industry knowledge, so-called local knowledge and contacts to other likeminded service providers. Most importantly, how do you feel about the partner and staff assigned to your account – can you build a relationship with them?

FRIEDMAN: It is important to look at the team the accounting firm puts together for you. Did they take time to match you with experts in your industry? Do you feel comfortable with the team? Simply put, all accountants know how to do the accounting work so the differentiator is whether they will go beyond that to provide you with good advice and solutions specific to your needs, your business and your industry. Ask yourself “do they handle similar clients and are those clients successful?”

Don’t hesitate to ask the accounting firm(s) you’re considering hiring to provide references from current clients.

LEAPER: Like all professional service firms, companies should be looking for “added value” from their accounting firm. As part of my normal marketing activities, I have

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Taxes are not going down, and at best they are staying the same.

We may not like that, but we can plan for it.

STEVE MILNER

Continued from page 54 had many initial prospect meetings with the owners or CFO’s of many types of companies. I don’t remember ever leaving one of those meetings without the prospect asking me, “What can you do for us over and above your basic services?” In other words, what value added services can you provide – how can we help make the company better or more competitive? I don’t believe there is a single way to quantify the value of your accounting firm. What I can tell you is that in my role of a service provider there are things I strive to achieve in an effort to provide additional value to my clients. I call all of my clients before they have a need to call me. I maintain contact with key client personnel throughout the year – especially when I am not typically needed. When I see an article that pertains to a client I get it to them immediately. I strive to be the first person they call when a business issue comes up or when even their favorite [sports] team has a big win – yes, your business relationships can become personal and fun. I think what it comes down to, if you only speak with your accounting firm contact once a year when the work is done, your evaluation score for your accounting firm should be, “No Value.”

Gerber: “Value” implies going beyond filling forms, preparing tax returns, and providing audited financial statements.

VAN DER WEL: Value is not an abstract concept. In any business relationship, you want to know you’re getting a good return on your investment. We take this very seriously. This means going beyond just producing an audited financial statement and: Staffing your audit team with knowledgeable, industry-specific professionals; Communicating with you throughout the year; Keeping your audit team consistent so you don’t have to get new people up to speed; Giving you access to our most senior-level practitioners around the firm; Responding to and anticipating your needs; Meeting with you frequently to discuss audit issues before they become problems; Training your internal staff on technical issues to help you reduce future costs; Keeping you aware of pertinent regulatory and accounting updates as they’re issued.

All of this is about forging a long-term business relationship and becoming one of your most trusted advisors.

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will the merger and acquisition activity within the accounting profession impact client service?

OW

KRAJANOWSKI: It depends! Some clients could benefit and see positive changes that are needed. Others will see disruption in service as merged firms have to blend systems, processes, procedures, authority guidelines, etc. Some firm personnel will leave those firms ending key relationships. This will create an opportunity for those clients to interview alternative service providers.

Clients can evaluate if the merger is as good for them as it is for the merged firms.

FRIEDMAN: When done correctly, the merger and acquisition activity within the accounting profession should impact client service in a strongly positive way. We merged with an East Coast based accounting firm, Marcum LLP (our California and Hong Kong offices were previously Stonefield Josephson), which enabled us to offer a broader depth of expertise and national reach, without compromising the high-quality, personal service that our clients know and expect.

LEAPER: Simply put, M & A activity will have a negative impact on a firm’s ability to provide quality client service. M & A experts expect to see a high volume of M & A activity for at least the next five years. Who can we blame this activity on? The baby boomers. Many small to mid-size firms are not adequately prepared for internal succession and therefore, are looking to other firms as their exit strategy. How does this have a negative impact on client service? If you have ever been involved in a business combination, then you already know. People get distracted and their focus shifts from serving their clients to serving the litany of administrative and integration responsibilities that need to be handled, such as: learning and/or training on new software, utilizing and optimizing personnel, moving offices, and other matters that will hopefully gain some economies of scale or market share. Even with the best intentions and best laid transition plans, there will be increased instances of failing not only to meet client needs but also not adding value, which then results in missed revenue opportunities.

DUBAN: This activity will continue to be a two edged sword within the profession. On the one hand, a merger can provide an accounting firm with additional expertise; additional industry specialists, additional dedicated staff and team members. These will benefit the clients and the firm.

However as firms grow, they must be able to maintain their levels of service and standards, and each client must be made to continue to feel important even as the client roster grows due to the mergers. As a boutique firm, where clients receive additional levels of hands on service and caring, those concerns become even more important as additional clients and expanded areas of expertise are added.

MILNER: The intent of most mergers within the accounting business is to deliver more service lines to clients and maintain, or improve, delivery of services. We have done three mergers within the last six years. With all of them, there was no disruption of the accountantclient relationship. We attempted to keep, as much as possible, the same accountants serving the clients. But, the larger firm gave the accountant greater growth opportunities within the firm so that he or she would be motivated to continue serving his or her clients without feeling the need to change firms.

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is the best formula for creating a successful and valuable relationship between you and your clients?

HAT

KRAJANOWSKI: Listen, understand the spoken and unspoken needs, provide guidance both when asked and not asked, be a resource and be available when needed.

Under promise and over deliver and treat all clients like you want to be treated. Be fair in all of your dealings and be willing to invest in the relationship.

DUBAN: Our formula has been and continues to be service. The better the service, the quality and frequency of the interaction and communication between the client and the accountant, the better the success and value of the relationship. Our formula includes not only matching the accountant with the right expertise, but also the accountant with the

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Value is not an abstract concept.

In any business relationship, you want to know you’re getting a good return on your investment.

We take this very seriously.

TODD VAN DER WEL

Continued from page 56 correct personality, chemistry and understanding of what drives the client. Service not only includes timely responses to client questions and completion of assignments, but also must include proactive communication with the client. Those times when unsolicited contact with the client is from the CPA side of the equation allows the clients to know that they are valued and that their CPA is looking out for their best interests.

VAN DER WEL: We’re committed to one thing – providing noticeably superior service and value-added services that make a difference to your business. That means giving you more than what’s expected and working closely with you to help monitor your financial condition, manage growth effectively, control costs, and reach your business objectives. It’s about building a strong, long-term relationship with you and becoming a trusted advisor. To do this we’ve built a service model on many years of client-focused best practices. It starts with a high level of partner involvement with each engagement and a small staff-topartner ratio. We make sure to approach each engagement from your point of view and focus on your needs, schedules, people, and success. As a result, each engagement is as unique as each company we serve.

FRIEDMAN: The key is an open, honest, and trusting relationship. It is essential that the accounting firm and their clients are able to communicate with each other. A good accountant is able to add valuable consulting advice to enable their client to improve on what they are already doing. Accountants that provide only accounting and tax services are offering their clients just half of what it takes to be successful; the other half is providing the advice and guidance that enables your client to continue to do well.

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are the benefits of using an accounting firm that is a specialist in my industry?

HAT

FRIEDMAN: An accounting professional who specializes in your industry under-

stands your business, from the sales, cost of sales, level of operating expenses, etc., and knows your competition. Working with an expert in your business allows you to talk with someone who has likely “been there and done that.” In other words, you don’t have to reinvent the wheel every time a new issue arises – chances are, your accountant has been in a similar situation and has hands-on experience solving these issues.

MILNER: Undoubtedly, the biggest benefit is that they talk your language. If your whole company only speaks Spanish or Chinese, do you want an accountant who only speaks a few words of your language? Of course not. Years ago, accounting firms were only set up along audit, tax and consulting lines.

Now, many are set along industry lines as well such as real estate, financial services, technology, retail or restaurants.

Now, accountants are expected to participate in various trade groups and stay up to date on their designated industries – regardless of whether they are auditors or tax professionals.

LEAPER: Specialization is essential, and frankly speaking, a real competitive advantage for the firm and its clients. The business world, whether for profit or nonprofit, has become more complex over the last 20 years. The accounting of business transactions has had to adjust to this complexity – and it is more complex than ever.

Additional complexity brings with it the accompanying business processes and controls, regulatory matters, sales and marketing functions, and other matters specific to a particular segment of business that can mean the difference between success and failure. A specialized firm can help a client navigate these issues. The benefits of specialization are obvious. Client’s benefit by virtue of specialized client service and added value. The primary value of being represented by a specialist is that you reduce the risk of making errors. There could be (and usually are) nuances in business, accounting and tax that are unique to that specialty. By not working with a specialist, one runs the risk of unintentional errors while potentially harming the business. You may also miss out on poten-

tial opportunities that a non-specialist may not know about. This is especially true because specialists have a tendency to network with other professionals in their industry, thus providing additional outreach to a specialized network with much broader and deeper access to your specific needs. Let me put it this way: you would only go to a cardiologist to take care of your heart, right? Then it stands to reason that hiring an accounting firm that specializes in the industry that your business lives and breaths in would make the most sense. Why entrust your livelihood with anyone else?

H

OW

have lending

relationships or your

clients’ ability to raise capital been affected over the past 12 months?

KRAJANOWSKI: Improving and continuing to improve. Money is available to existing customers of banks, who have a need and can tell the story supporting the request.

Money is available to new customers based on a proven need, the ability to repay, and a story as to why funds are needed. Private equity markets are teeming with cash … for the right deal at the right price. There is no free lunch but the climate is the best it has been in quite a while.

FRIEDMAN: Over the past 12 months it has remained very difficult for young companies/start-ups to raise capital. I always recommend that these groups reach-out to friends and family for capital first. For mature companies, the banks do have plenty of money to lend; however, the process of getting a loan from the bank can be especially cumbersome due to increased scrutiny and precautions throughout the process. Many banks have money to lend and no one to give it to because businesses have been reluctant to borrow from banks and expand their business during this difficult economic environment.

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For mature companies, the banks do have plenty of money to lend; however, the process of getting a loan from the bank can be especially cumbersome.

RON FRIEDMAN

It appears that more than ever before, the regulatory environment in which we live is affecting all our clients across the board.

DENNIS DUBAN

Continued from page 58

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are the most common recommendations you have made to your clients to help them manage their bottom line?

HAT

DUBAN: We have really stressed, more than ever before, that our clients review their business model. The world is changing, economies are changing and the needs and wants of the customers and clients of all businesses are also changing. Is your business model still relevant? Is the demand for your product or service growing or shrinking? Is the method of getting your product or service to the consumer changing and if so are you following that trend or trying to play by old rules?

Companies must understand that business models are more fluid and evolving than ever before. Is the company’s method of distribution still relevant? Are they taking advantage of distribution methods like the internet?

Have they embraced social media? Is the environment for their product or service growing?

Are there new ways to do their business that they are investigating? Is management willing and able to continue to reinvent itself so that it can be listening for change and adapting quickly? This will all be necessary for businesses to survive and prosper going forward.

KRAJANOWSKI: Continue to monitor expenses, staying as lean as possible. Spend your time concentrating on not simply revenue growth, but quality, long term revenue growth in the right product lines with the right customers. Consider investing now to improve products, processes, people and machinery to meet your customers’ needs, after finding out what keeps them up at night. Your success depends on their success.

LEAPER: Find the [right] numbers! It may sound obvious, but it is really important to understand the numbers, processes and

related transactions that flow into them to create a bottom line. In other words, you must measure and manage the right things above the bottom line. In my experience, I have found that many small business owners focus on the things they are most comfortable with – usually their particular technical skill or selling ability on which their business has been built. They may not be as comfortable with, or place enough value on, the financial numbers and other key metrics that really drive the bottom line. A quick example of this: one of my clients, whom I will call Carl, wanted to hit a certain net income target. We both agreed that it would not just happen by doing the same things he always did. We went through a process where we worked bottom-up to get to the requisite top line revenue, but that was not enough so we did not stop there. For Carl, who owned several auto repair shops, one of his key drivers was shop repair hours sold. When we were able to convert that top-line revenue target into shop hours per week, Carl finally had a number he could measure and manage. That “ah-hah” moment changed his business life.

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are common difficulties that your clients ran into during 2011 and what did you do to help your clients resolve them?

HAT

O’CONNELL: In addition to the more obvious challenges with cash flow, tightening credit, and ability to raise capital, from an income tax point of view, one of the more visible decisions made in 2010 — converting retirement funds to Roth IRAs, thus subjecting the value of those accounts to income tax in 2011 and 2012 – became even more

difficult as many of those accounts decreased in value during the first nine months of 2011, as they looked toward undoing those transactions (re-characterizations) and then reconverting those same funds in 2011 at a lower income tax cost.

The volatility that occurred during October 2011 that led many of them to re-characterize those accounts by mid-October 2011 became their disadvantage as they tried to decide whether or not to reconvert the accounts in what became one of the most profitable months on record. Since market timing is never advisable, we worked to guide the affected clients in their decisionmaking processes both for undoing only the appropriate 2010 transactions and then redoing those transactions in 2011.

DUBAN: It appears that more than ever before, the regulatory environment in which we live is affecting all our clients across the board. Construction and design regulation, ADA, zoning, setback, architectural and energy regulations are becoming more numerous and costly. Employment and local taxation, registration, verification and compliance issues for new business continue to prove more difficult if not impossible to comply with and more often we are seeing regulations that conflict with one another and clients that do not know which rules to abide by. Consider the case of the homeowner who must clear brush to avoid fire department penalties and fire insurance cancellation and who then determines that the brush he needs to clear is a protected species and cannot be cleared without severe fines.

We are constantly assisting our clients in navigating these continuously changing and often conflicting areas with the utmost care and concern for their businesses and their goodwill. But it is not easy. Overlapping government regulation and agencies, although well meaning, in many instances, are proving difficult if not impossible to comprehend and adhere to.

Thanks to all the participants!

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