How do accounting firms survive tax season? To find out, Springfield Business Journal Editorial Director Eric Olson sat down with managing partners Bob Helm of Elliott, Robinson & Co. LLP; Jim Lewis of KPM CPAs PC; Joe Page of The Whitlock Co.; and Ken Schultz of Schultz, Wood & Rapp CPAs.
Eric Olson: In one word, how would you characterize the accounting industry?
Joe Page: Mature.
Jim Lewis: Challenging.
Ken Schultz: Iceberg.
Bob Helm: Awesome.
Olson: I think we will come back to all those, but iceberg, we need to stop and examine that for a second.
Schultz: A lot of people don’t understand what our industry is all about or what a CPA is – especially the younger generations. They have no idea how to start a business, become an entrepreneur and how to tap into the talent we have in our profession. An iceberg only has one-third of the ice showing on the surface, but it’s fairly deep.
Olson: How would you guys describe the work then? Where do you come into play in a business?
Lewis: I think a lot of times we supplement what they are doing. They have a decent knowledgeable bookkeeper, and we can supplement that. In some cases, we’ve all seen it, they have nobody that is capable and they look to us to do virtually all of it.
Page: Also, because we have contact with a variety of different types of businesses, we can connect people as they are getting started.
Helm: I think when most people come into business, they have in idea for a widget or service. That’s what they really know. They don’t realize all the things that go with it and the responsibilities that go with it. Paying your taxes, making paychecks and some of the things in the back office they just don’t understand.
Olson: Building on that, it all comes down to the numbers. What is the true health of a business when you look at the balance sheet?
Lewis: Debt, how much capital, looking at the balance sheet and income earnings. Financial institutions are going to have a balance sheet that looks a whole lot different than a car dealership.
Page: If they’re a growing business, you’ll look for access to cash. When you look at income, it may look nice, but it might all be going right back into inventory. I think debt, access to capital and loans are the most important things to look at.
Lewis: Just because they have cash in the bank doesn’t mean they don’t have unpaid bills sitting there. After those, you’re making money.
Helm: I think that iceberg, like Ken was saying, is after you look at more than just the numbers. They may look nice, but you have to look at the industry, too. Our experience is that you can give pretty good business advice that doesn’t have anything to do with the numbers. It may be that you need to meet a new vendor, that you need to meet a new banker, a new insurer to get insurance through, but there’s a lot of things that you need to look at first before you look at the numbers. It gets to the numbers in the end, but there is a lot more to it. I don’t think most people know how much a CPA offers.
Lewis: We are known as bean counters, but that ended a long time ago. We used to have the visor and the pocket protector, but now that’s a lot different.
Schultz: I think, of course on the balance sheet, you are reflecting your tangible assets, but there are a lot of intangible assets that have to be tabbed to really clue in a client into how they are going to succeed.
Olson: What is the most misunderstood or questioned tax law?
Helm: It’s probably (the Affordable Care Act), health care. It’s so ambivalent in terms of where you’re going to be six months from now. Everybody is just doing things in nine-month, 10-month increments of what’s going to be. Is it going to be here to stay forever? I know you guys are looking at health care rates as much as I am, and they don’t go down – always up. The trick is to keep a wastepaper basket ready and go into a marketplace for all of your employees. Most people don’t want to do that because they’re scared they’ll alienate their employees.
Lewis: I think the hardest thing to explain to a client is an alternative minimum tax. Try to tell them why they have to calculate their tax again. They’ll see a number that says a $7,000 alternative minimum tax, and you’ll have to tell them that you have to refigure their taxes.
Olson: If you could change one accounting rule, what would it be?
Lewis: Everything is so compressed now. You have to have everything all done by March 15 or April 15. You can do extensions, but clients don’t want extensions. If they could change those compressions, it would make things a lot easier.
Helm: The single biggest change in our careers, we’re all about the same ages, and back when I started there were so many C corporations. I remember, I think I want to say the Reform Act of 1986, changed all the rules for investment corporations and changed the whole look of it. Instead of having those tax returns due in June, they really cut that down. And now it’s made tax season really difficult.
Page: What made it really challenging for our profession was when states went to the 150-hour requirement for college graduates. I understand why they did it, but I don’t know if it’s made a huge difference on the quality or education on how we treat them. Locally, we’re fortunate we have colleges with good accounting departments, but I think nationally that’s hurt us in terms of students wanting to do accounting.
Olson: How did they change that?
Page: Now, they have to have a little more than a normal bachelor’s degree.
Schultz: What happened was the wannabe accountants said, “I can get into computers and make $10,000 to $20,000 more and be out,” instead of sitting in school another year and becoming a CPA. They took that path and we had a brain drain of talent. Our profession is still suffering because we have a big age gap.
Helm: I think 2001 is when it changed. Y2K was a big change on our industry because it was a big change in our starting salaries. In Missouri, our colleges are top notch. Our colleges have been in the top five nationally for CPAs, and been No. 1 several times.
Olson: No. 1 in volume?
Helm: No, in the pass rate. Your bigger states will have more people, but the pass rate in Missouri has been in the top five all five years, and the number of accounting degrees is up, but the damage has been definite.
Schultz: I saw there was increasing number of accounting graduates, but more of them have been going to private businesses.
Helm: It’s hard to get them to go public. It’s an ugly picture painted.
Olson: Where do you see the negative perceptions stemming from?
Helm: Well, you say the word taxes and people go, “Oh my gosh! That’s going to be the worst time of year.” I love tax season. It is three and a half months. Is it hard? Yeah, it offers lots of challenges. It is very challenging how you orchestrate all that work, but when you finish and walk through the door on April 15 to your post tax season party, everybody goes, “Wow, we did some good stuff.” And in the end that’s how it works. We still lose people because you’re working 55-65 hours and it puts a strain on you, especially young families. That’s why we lose the most people at the three- to four-year mark. If they wait too long they have to stay, but if they leave they can go the private route while they’re still young. It’s an ugly picture. Most of our staff end up with six weeks off per year. If you go off to work private side, you’ll get two weeks a year and that’s it. It’s a perception problem.
Page: A lot of the problem of stigma is our fault.
Schultz: I think it’s a case of planning to work and working to plan. We, as the senior members, have to work ahead so they can work on it as quick as possible so there isn’t this 70 hour work week looking at them down the line. If we can work 55 hours a few weeks early on as a routine, they don’t feel the pressure.
Olson: Is that the biggest difficulty – keeping staff?
Lewis: Oh yeah, it’s like what Bob said, you staff up for tax season, pay them, and then there’s this downtime. How do you keep those busy people busy the rest of the year? That’s one of the reasons we did our merger with Davis, Lynn & Moots; they have a large not-for profit government practice that is busy in the summer and fall.
Helm: You also use internships to help balance things. They can do a whole lot of tax returns, simpler versions at least, and they work all the way through tax season and you cut them loose in the end. Looks really good on a resume and you’re dating them in a way, seeing if they would be a good fit.
Olson: What are some areas businesses can save money on when filing this tax season?
Helm: The empty box of junk that people bring in. For us, the more organized you are, the less it’s going to cost. You don’t look at a tax return and go, “That’s going to be $500.” You look at the pile of paperwork that comes with it. How organized they put it together and how much thought was put into it. That’s going to save them accounting fees.
Schultz: The most easy and most challenging thing is the invention of QuickBooks. Now, everyone thinks they can do their own accounting. They bring it in, and we have to clean it up. They think they’ve already got it done except for these 25 adjustments we’ve got to make.
Olson: So, it’s a double-edged sword. What other technology has affected the industry in good or bad ways?
Lewis: We just changed this summer and switched our tax software. The biggest reason we did it was the ability to use the cloud and have people work from home. In the winter, we have people who know there’s a lot of work to get done so they try getting into the office. It’s nice to offer that option, and it’s going to be a huge thing. People appreciate it, but it costs money.
Helm: Sick days, too. Statistics show in our profession they all go really fast. By the time we exit the profession, they claim that 70 percent of accountants will be women. When kids get sick, how do we keep them in the profession? How do we manage those days? That’s why that flex schedule really has become a big part of our profession. And it’s not that you can just work 40 hours a week during tax season, it’s that you can work from 6 a.m. and leave at 3 p.m. or you come in a 10 a.m. and leave at 6 p.m.
Olson: Corporate fraud has been in the news of late. How would you advise clients to protect themselves from fraud?
Schultz: Trust but verify. That means basically you have people you must trust to run your business, but at the same time you must have the controls in place to monitor the work he’s doing and then actually monitor and supervise it.
Olson: Is the key just oversight?
Lewis: Simple things, like look into the bank statements, see what the checks were for. Take 15 minutes a month, but because they trust the bookkeeper they don’t do that.
Schultz: It doesn’t have to be the owner. Just having two people doing it, it’s harder to commit a fraud.
Olson: What’s fueling the merger and acquisition trend in accounting, and will there be more?
Lewis: Part of it, from what I’ve heard or read, is that the average agency age is 53. In Springfield, you have a lot of small firms, sole proprietors or firms with two or three partners, and they wake up one morning and they’re 55 or 56 years old thinking, “I’ve got no one left to take this over.” They look for a bigger firm to be somebody’s succession plan. We won’t merge to be somebody’s succession plan. There’s got to be a strategic reason for doing that. I think there will be more of that. In just the past three months, there’s been three big, regional firms call to see if we’re looking for a merger.
Helm: We’ve done two this year. I agree with exactly what Jim said. They had to have a strategic reason for us to do it. One was a firm in Republic and it was her succession plan. We did due diligence to see what she had to offer us and not just make her retirement nice. The other one we brought in talent. Neither one wanted to be partners, I was OK with that, but they brought CPAs. Both firms brought those 40-year-old CPAs with 15 to 20 years experience with them. So it brought us some talent and filled a void.
Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net, and editorial assistant Barrett Young, sbj@sbj.net.
