What About Those Small Accounting Practices?

Posted on July 31, 2012 by Rob Nance

While speaking with Hugh Duffy, Co-Founder of Build Your Firm, the conversation steered toward the opportunities and challenges that very small firms are facing these days. With so much talk in the profession of mergers and acquisitions this year, few are discussing what is occurring with the 1-5 person accounting practices. Apparently, the practice sales environment remains strong and fairly easy for those owning successful small accounting shops. “For the small practice owner,” commented Duffy, “you can sell your practice so easily and quickly if you’ve set it up to run efficiently and you have high profit margins…as many small operations do.”

Part of what is driving the high profit margins of these 1-5 person practices is their acceptance that perhaps outbound marketing is not working for them as well as it did in the past. Understanding how to leverage inbound marketing is clearly essential for firms of all sizes these days. On that subject, Duffy remarked, “Those who use it correctly have great opportunities to grow, despite the economy.”

Firms throughout the country are finding that permission-based marketing is delivering higher quality leads. Leveraging the Internet and its capabilities can offset sluggishness in organic growth; we hear that time and time again, whether it’s from a speaker at an accounting conference, or across the table at Caribou Coffee with an owner of a three-person accounting practice. As Hugh Duffy stated, “Not doing the same old-fashioned techniques is key.”

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Are Lateral Mergers on the Rise?

Posted on July 30, 2012 by Rob Nance

The Curator offers this insight from Joseph Tarasco, President of Accountants Advisory Group, LLC:

As the accounting profession progresses thru its early stages of consolidation, we are experiencing different phases of merger transactions such as the creation of new national and mega-regional firms.

One phase has yet to take hold, but is picking up steam—small firm lateral mergers.
Small firm (two to 20 partners) lateral mergers will be more common with firms choosing not to merge-up into larger firms and/or practices who are not a good match for much larger firms.

Why haven’t we seen more lateral mergers in the past? Here are some of the reasons:

• Management and control—In lateral mergers, partner egos, leadership
and management control are more sensitive. These issues don’t come into play when a small firm merges into a much larger firm. In such mergers, it’s a given that the smaller firm gives up control and management responsibilities. Many firms have found it difficult to resolve these issues even when the merger of equals is very advantageous from an economic and strategic point of view.

• Firm Name—This can be a problem when both firms use numerous names and they can’t decide which names to eliminate or include.

• Office location and leases—Which office location will the combined firms reside at and how this will affect clients and staff can be a significant problem with laterals. Another deal-breaker type issue occurs when a lease can’t be terminated economically to make the merger work financially for both parties.

Although there are many obstacles to lateral mergers, they can also derive many benefits such as:

• The cost benefits of economies of scale can be used to make investments in marketing, career development programs for staff, technology and recruiting high-end professional staff.

• Normally there is much more compatibility of cultures, billing rates, and partner compensation of firms of similar size and in the same geographic area.

• The merger can be the foundation that builds a larger firm of the future which will be more attractive for other lateral mergers or tuck-in candidates.

• Staff feels less threatened which normally results in good post-merger retention rates.

• It eliminates some of the competition for clients and staff in the local area.

There are a host of other reasons to consider lateral mergers. Consider targeting lateral merger candidates to develop relationships with and then assess if there is enough synergy to move forward to more formal merger discussions.

Olympic Eggs in the Accounting Basket

Posted on July 27, 2012 by Rob Nance

As the Olympics buzz builds, I offer the following on this Friday to help you through the remainder of your accounting work day. Well, maybe it won’t help, but it won’t hurt, either. Enjoy.

•Unemployment in Spain has hit a new high. Almost one in four workers is now seeking a job, according to official figures. The country’s unemployment rate rose to 24.6% during Q2, up from 24.4% during the previous quarter. Geez, maybe things here in the U.S. aren’t so bad after all, huh?

•Last night in the grocery store, I grabbed a cartoon of eggs. Having had more than a couple of mishaps with eggs over the years, thereby gaining the nickname of “Omelette Boy,” I have learned to treat these cartoons as if plutonium was nestled inside. I then realized that to accounting firm clients–both personal and business clients–the handling of their matters from their perspective is along the same lines. To clients, they want their needs–compliance services, consulting, whatever–handled with care, attention and kid gloves. In fact, each egg could be labeled TAX, AUDIT, 10-K, etc. End up cracking or dropping an egg or two and you know where that gets you! (Prison eggs are powdered eggs, from what I hear…and that can’t be good).

•Wrapping up with the other half of the Olympics bookend in this post, iShade wishes Ernst & Young’s Olympian, Gwen Jorgensen*, much success in London. Everyone in accounting is rooting for you, Gwen! Grab the gold!

*several stories about Gwen are on iShade’s BulletIN

Raising the Bar

Posted on July 26, 2012 by Rob Nance

“The point of the solution is to work toward a better quality of life,” said Ira S. Rosenbloom, CEO of Optimum Strategies, LLC. Primarily working with small public accounting firms in a quest to be more profitable, Ira helps to steer them to that point with a multi-faceted approach–which includes refining the business so that the engine is firing its cylinders more effectively, creating a happier overall vehicle.

What critical lines of thinking are resonating with today’s small firms? Says Ira, “There’s more interest in value-pricing and also ‘minimum’ fees. As part of that, the conversations need to be had with clients, telling them in a polite way, what is to be expected of them.”

Naturally, accountants often work with clients on keeping a budget–whether it’s a 1040 client who might require a bit of help; a small business with bookkeeping needs; or a billion dollar privately-held business obtaining budgeting and forecasting consulting. But what about the firms themselves? “Firms need to live by a budget on engagements,” remarked Ira. “Pay attention to the warning signals…as they are happening, not after-the-fact.”

On the subject of M&A, Ira offered, “There are so many conversations going on–it’s all more and more active. With competition being so severe these days, there’s plenty of merger and acquisition interest–and dialog–in the profession.”

Tangled Up in Blue: The Adoption Tax Credit

Posted on July 25, 2012 by Rob Nance

I know someone who adopted a pair of girls from China more than a decade ago. It was a hassle, for sure–but well worth the effort, expense and the heartache accompanying the process. So the IRS has now gone and made a bit of a mess of the Adoption Tax Credit. “Surely you jest!,” you say (and don’t call me “Shirley”). Bottom line, this needs to improve quickly. Missing and incomplete documentation for the Adoption Tax Credit prompted the Internal Revenue Service to delay processing 43,295 claims for the credit and approve more than $11 million in erroneous claims.

Intended to offset qualified adoption expenses, making adoption possible for families who could not otherwise afford it, many families count on the Adoption Tax Credit to be one less headache in the post-adoption process. As my grandfather said many times, “This too shall pass.”

The Curator welcomes your comments on this matter!

For more on this issue, read the TIGTA report.

A Field That Has Rested Gives a Bountiful Crop

Posted on July 20, 2012 by Rob Nance

When I worked for a public accounting firm, the culture was such that work/life balance was a given. Naturally, during busy season there were some evening hours and Saturdays, but it was never the “killer hours” that you hear about (or you have experienced) at Big Four firms. Granted, there are a lot of differences between an Ernst & Young and the 40-person firm where I resided.

Frankly, I find it hard to believe that anyone—accountants, attorneys or any other profession—who regularly grinds out 70+ hour work weeks is as productive as the time indicates…and is healthy, both physically and mentally. While bicycling last night (I do my best thinking while bicycling and shoveling snow), I got to reflecting on the demands of the work day, specifically in conjunction with technology. This line then popped into my head:

You need time away from phones, computers and other devices…
in order to be productive with phones, computers and other devices.

Translation: everyone needs disconnected time away to recharge the batteries.

The Curator will be, as they say, “off grid” Saturday through Monday. I shall return at the crack of dawn on Tuesday morning, bringing iShade’s BulletIN to life and more…all for you, today’s accounting professional. Carry on.

What Will Be the Economic Consequences of Tax Increases?

Posted on July 19, 2012 by Rob Nance

Earlier this week on iShade’s BulletIN–the news section of our accounting community site–I spotlighted the fantastic Ernst & Young report titled “Long-Run Macroeconomic Impact of Increasing Tax Rates on High-Income Taxpayers in 2013.” Regardless of your political beliefs on tax increases, I think you’ll find this a fascinating read. I did, devouring it slowly in the basement a couple of evenings ago. Shockingly, the kids wanted no part of reading it or hearing any findings of the report.

The results of this study indicate long-run economic repercussions should the top two ordinary tax rates and investment tax rates rise as planned in 2013. Quoting the E&Y report: “this policy path can be expected to reduce long-run output, investment and net worth.” Note the word “reduce” in that sentence. This isn’t simply an overt opinion piece from E&Y intellectuals; there’s raw data to back this up. Of course, you can choose not to believe it.

Spout these data lines from the report around your company or public accounting firm if you want to spark some discussion on the matter:

*Changes would translate into a decline in GDP of $200 billion (yes, billion)
*Employment would fall by roughly 710,000 jobs or 0.5% (yes, unemployment would rise)

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The rest of this year is going to sizzle with these tax issues, the election and everything related. Stay tuned to iShade’s BulletIN — THE accounting news source…keep it open on your computer every day.
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On the Way to the Theater, I Explained to a College Student What an Abacus Was

Posted on July 18, 2012 by Rob Nance

To note the blending of old technology and new technology, I offer this cartoon.

Enjoy it, spread it around your firm or company if you so desire, and check out the Accounting Fun channel on iShade’s BulletIN news section of ishade.com.

Zuckerberg’s Mortgage. Why?

Posted on July 17, 2012 by Rob Nance

Mark Zuckerberg has a current net worth of about $15.7 billion. Why does he have a mortgage on his Palo Alto home? Apparently he recently refinanced the $5.95 million mortgage into a 30-year adjustable-rate note at 1.05 percent (not a typo). Sure, this is like borrowing for free, but any financial advantages on having this mortgage are peanuts to him–so why not just pay cash for the house and be done with it? This is like me purchasing a cup of coffee. I look forward to the day when I no longer have a mortgage. I don’t get it. But, then again, I don’t understand his 12 year-old boy hoodie look, either.

Bright financial minds out there…this is your opportunity to voice your opinion and shine! Why the mortgage? If you were Zuckerberg would you have the mortgage?

Make It Count!

Posted on July 16, 2012 by Rob Nance

This is post #200 in iShade’s Curator Comments. Drop in for a hefty slice of virtual celebration cake!

What prompted today’s offering was a conversation I had with a sole practitioner who was telling me about “getting in the CPE this summer.” He commented, “Like most summers, I went into it with the attitude of knocking it out and being done with it. However, the sessions were so good that I realized it really pays off well beyond the few hundred bucks I’m spending. I knew this all along, but looked at it the wrong way.”

What value do you put on measuring your progress? Think about this: the values of the 2012 Olympic medals–based solely on the weight of the elements–are the most expensive ever produced. The gold medal clocks in at $660; the silver award registers $325; and the bronze baby weighs in at a surprising low value of $3. Reading this information over the weekend, it made me think about the value of CPE. So you or your firm pays for a CPE session–let’s say, $99. Isn’t the value of that session–and its time and effort–paying off well beyond $99? Probably so. Just like the value of each medal to the Olympian who wins the honor, it’s paying off in dividends well beyond the value assigned to the majestic trinket.

Would you shell out $660 for an Olympic gold medal? You might, because you know it’s worth a lot more than the basic cost of the gold. Of course, for that same amount of money, I suppose you could purchase 220 of the bronze medals…..

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Monthly Archives: July 2012