Last Tuesday American Institute of CPAs president and CEO Barry Melancon gave his annual presentation at the Accountants Club of America. It was a free virtual program and had about double its normal attendance. An
Barry spoke for over an hour and covered a wide range of topics. As when anyone hears a speaker, they relate better to some things than others. It doesn’t mean everything isn’t important; it just means that different people have different interest levels in different things. I have some “pet” interests, and when they come up, I seem to zero in on those more intently. That’s what happened last Tuesday. It concerns the very small accounting firms and their opportunities going forward.
Mr. Melancon referred to 5.9 million small businesses with five or fewer employees. He also mentioned that there are 46,000 accounting firms. Well, my extrapolations indicate that 45,000 of these firms have 20 or fewer people with many being solo practices or with two or three people at most. Also, almost all of those 5.9 million small businesses use or need an accountant. That means there is an available pool of about 125 clients for every small accounting firm. These are business clients. Tax return clients are added business and occasionally a larger or a special services client is also obtained. There seems to be plenty of work to go around.
Each of these clients needs many of the so-called nontraditional services that are not compliance oriented and do not result in a tangible deliverable. Here’s a short list of typical services every client needs from time to time, and I believe enough times to make them ordinary parts of what their accountant can provide that definitely adds extra value to the relationship.
1. Review of the monthly or quarterly financial statement with the client: If this is done once in a great while, it could take an hour or longer. When done on a regular, i.e., monthly, basis, a meaningful discussion via the phone or virtually could be done in no more than 10 to 15 minutes per client. A partner or owner with 50 business clients would be spending two days a month or 10 percent of their work time interacting at the highest level with their clients. To me, this is a formula that would have you never lose a client.
2. Discuss the previous month and year to date results and pay particular attention to differences from what is normal or expected.
3. Discuss trends by looking at a Last Twelve Months (LTM) P&L and B/S. These can easily be generated from most off-the-shelf small business software packages. Just slide your eye across each line item looking for variations and then ask for the reasons. Discuss anything that appears to be a developing trend or a deviation from normal business as usual.
4. Discuss projected taxes for the current and subsequent years, and a payment schedule for them. Determine if this presents any surprises to the client. Prepare ahead of time and have some tax-planning ideas ready to discuss.
5. Always ask what the client’s plans are for the future of the business and his or her life and lifestyle. Things happen; lives are dynamic; and changes can occur quickly and unexpectedly.
6. Ask about any plans for new products, expanded markets or business growth (or ugh, downsizing). Also about offshore and international expansion thoughts.
7. Factor in future cash flow needs and the possible need for additional financing.
8. If there are bank loans, review the covenants to make sure future plans will not cause a violation. Also make sure there are no current obstacles to complying with the covenants.
9. Evaluate current borrowing and discuss if there are opportunities to seek better arrangements, an increase in credit lines, a reduction of charges or a change in the compensating balance requirement.
10. Review aged accounts receivable schedules.
11. Ask if there are any key employee issues or any general staffing problems or concerns.
12. Discuss employee turnover, retention, recruitment and/or training as applicable based on the client’s circumstances.
13. Determine the client’s plans for capital spending and a timetable and perhaps expected ROI by the client.
14. If the client has sales people who get a base salary plus commissions and benefits, do a calculation of the total cost to the client of each of these people, or the top three or four if it is a very large company.
15. Succession, exit or estate planning can be looked at periodically or used to fill in a lull in the conversation. These are important issues and need preparation before there can be a meaningful discussion, but introductory inquiries every seven or eight months are not excessive.
16. Ask if the client wants to expand by buying another company or business segment, or introduce new products.
17. The client’s personal wealth creation, asset accumulation and future cash flow are always near and dear to their heart. This should be discussed at least annually. This can be accompanied by a review of the client’s bank CD, stock and bond portfolio including their investments in retirement accounts.
18. I always like to enlarge the playing field by discussing how others, i.e. a buyer, would value the business. This always produces animated discussions with the client. I also use this to try to indicate if the value is remaining flat, or is growing or declining.
19. I like to encourage a discussion about the excitement the client gets from the business. Is it still there or waning?
20. And a final thing that takes a little finesse is opening an opportunity for the client to share personal thoughts and even to vent about something going on in the business or their life.
The above list touches on the many things that can be discussed on a regular basis. I look at the monthly financial statement as the admission ticket to the discussion. I also feel that owners and partners in smaller practices can do this much better, more often, and in a much more emphatic manner than many partners at larger firms. I see a bright future for the smaller firm, and Barry Melancon’s presentation fully confirmed that for me.
Do not hesitate to contact me at
Edward Mendlowitz, CPA, is partner at
