Knights Technology, a 35-employee software company in Sunnyvale, Calif., made an unusual decision back in 1993. "Until then, we had always used the same Big Six accounting firm to handle both our auditing and our taxes," recalls chief financial officer Mary Korn. "But we decided to bring our tax business to tax specialists instead."
Popular wisdom has it that companies can keep costs down and increase efficiency by relying on one advisory firm. But Korn disagrees.
Her audit team gave excellent service, but her tax team took months to answer some questions. The final blow came when an error was detected in a prior year's tax return, which cost the company $50,000 in back taxes, interest, and penalties.
Shortly thereafter, Korn switched Knights' tax business to a smaller, regional firm, the Eric Thomas Group, in Los Gatos, Calif. "By specializing our services, we believe we can provide companies with better service and lower costs than big, diversified accounting firms can," says Tom Brehmer, a principal. One benefit: Eric Thomas guarantees its clients a 10-day turnaround (after receipt of information) on any tax return. "If we don't make our deadline, we pay clients $50 per day," notes Brehmer -- a promise the firm has had to make good on only once.
To Korn, splitting accounting services makes sense for growth companies. "If you're thinking about raising capital or going public, then it helps to have a Big Six auditor. But for tax advice, you'll probably do better with a specialized firm that knows the entrepreneurial market."* * *