You And Your Accountant

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Few local or regional accounting firms seem to have separate small business staffs within their organizations. Most of these firms consider themselves small business specialists to begin with. Four out of five of their clients are small companies, typically ranging in size from $1.3 million for sole practitioners to $5.4 million for regional accountants.

Boding well for small business and reflecting the intensified competition for small company clients, 94% of the accountants responding to INC.'s survey plan to expand their small business services in 1982.

5. What services should you be using? For 9 out of 10 small companies, outside preparation of tax returns and financial statements is standard. Beyond that, close to half of the small businesses responding to INC.'s survey also rely on their public accountants for tax planning and auditing services.

Not surprisingly, the use of auditors is directly related to company size. Only 1 out of 3 firms with sales of less than $1 million has its statements audited, while close to half (48%) of those in the $3-million-to-$5-million category obtain audits. The number rises to 7 out of 10 companies in the $5-million-to-$25-million sales range, and for those with sales of more than that, independant audits are a standard procedure.

The rest of the services used by small business range from help in designing internal accounting systems to capital investment analysis and evaluation of compensation programs.

In weighing your needs for accounting services, consider the five basic benefits any accounting firm, regardless of size, should provide your company: 1) competent tax assistance; 2) better cost control; 3) order in your accounting system; 4) credibility in your statements; and 5) compliance with the law. Those are the basic payoffs that should govern not only your choice of services but the determination of their value.

6. What should you be paying your accountant? Among companies with sales of less than $1 million, the average annual accounting fee is about $3,000. The tab jumps to $5,300 for companies in the $1-million-to-$3-million sales category, and to $10,600 for those in the $3-million-to-$5-million group. Above that size, the annual fees average anywhere from $16,600 to $42,600.

Accountants responding to the INC. survey indicated that the average annual fee paid by their small business clients is $4,373. The figures range from $2,590 billed by sole practitioners to $13,058 among the Big-Eight accountants.

Overall, the INC. study shows that fees are not a major factor in the relationship between small companies and their accountants. While accounting charges could be lower and fee structures could be clearer, very few of the respondents indicated that fees influence the selection or retention of their public accounting firm. Almost two out of three small companies compensate their accountants on an hourly basis; the rest rely on a flat-fee arrangement.

Taking a cue from the banking industry, perhaps, 19% of the public accountants report that they offer preferential rates for small companies. Such rates take the form of reduced fees for start-ups and initial clients, special "introductory" rates, and, in some cases, small-business discounts.

In the final analysis, your accounting costs should reflect the quality of services performed. If the fee seems high, weigh it in terms of the "product" you're getting. If you're getting better financial statements and improved tax work, chances are the higher tab can easily be justified.

7. When should you change accountants? Unlike some larger corporations, small business does not make a practice of rotating accountants. Some 39% of the respondents to INC.'s survey report that their present accounting firm is the only accounting firm they have ever had. Among the 61% who have had more than one accountant, 7 out of 10 have changed firms only once or twice. On average, the survey participants have retained their present accountants for more than 8 years. Among the larger companies, where one might expect changes in accountants due to company age and growth, the average period of service is more than 10 years.

The lack of turnover is testimony to the value of retaining an accounting firm that knows your business. It also suggests that the real question is not when should you change accounting firms, but why. Many companies rotate accountants as a matter of policy, to generate new ideas and keep the professional on his toes. If all you're getting out of your accountant is tax returns and financial statements, if your accountant thinks only as an auditor and not as an adviser, then a switch probably makes sense. Change for the sake of change, however, is neither productive nor profitable.

Small companies should evaluate their accountants at least once a year to identify anything that may justify a change. The business may simply have outgrown the accountant's capabilities. Is your accountant, for example, keeping pace with your company's needs for more sophisticated advice on matters such as data processing, inflation management, new cost controls, and benefit packages? If your accountant has a thorough knowledge of your business and continues to serve as a sounding board for top management, then there is little merit in making a change.

8. How should you choose an accountant? Suppose a switch is recommended: What guidelines should you use to select a new accounting firm? Small business executives and public accountants agree that the three most important criteria are personal attention, reputation, and experience. Each of these factors, in turn, translates to several critical considerations.

Personal attention, for example, should be synonymous with commitment, compatibility, and responsiveness. Will the principal of the accounting firm be directly involved in your business? Will you and your staff be comfortable with the individuals who will actually be doing the accounting work? Responsiveness should be measured not only in terms of how long it takes the accountant to return phone calls but what it takes to get him out of his office. If you plan a special year-end tax meeting, for example, how much notice will you have to give the accountant to assure that he'll be there to sit in on the session?

Reputation -- the second most important criterion -- has little to do with prestige. It's a matter of how bankers, attorneys, and other businesses in your community regard the accounting firm. And don't forget to get a reading on how the accountant stands within his own profession.

Finally, experience counts. What does the accountant know about your industry -- specifically, small business in your industry? A current client list will help answer that question, but it is also one that should be addressed personally by those who will be working with your company. Assume that the professional is fluent in accounting and finance; the important question is whether or not he can speak your business's language.

Your accountant should be someone you can trust, someone who understands how your business operates, and someone who is willing to listen and respond with ideas. When you find a public accountant who fits that description, chances are you've found your best professional adviser.

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