In a changing accounting universe, where the biggest transformations are undoubtedly taking place among the Big Six firms, there are lessons for potential customers. If you take your business to one of those firms, be prepared for a heavy push into consulting services, which your company may or may not need. Because of the litigation explosion, be prepared to be checked out very thoroughly. Most important of all, perhaps, investigate what's available within the other tiers of the accounting industry, because not only are the Big Six expensive, but there are many niches they no longer care to fill, such as serving audit-only customers with no plans for growth.
The Middle Tier
The middle segment of the accounting industry is a loose category of about 100 firms. A few boast national practices, while the rest possess strong regional client bases. Their revenues run the gamut from a little less than $10 million up to about $270 million. The one characteristic many of those firms have in common is that they serve the world of privately held companies.
The larger firms in this tier have gone global. For smaller accounting firms without the resources or the manpower to run international operations, networking is becoming an increasingly popular solution. Consider M.R. Weiser, for example. This New York Citybased firm, with 22 accounting partners of its own, joined an international association to boost its international prowess. Known as Moores Rowland International, the association consists of 128 U.S.- and foreign-based accounting firms. With practices located in nearly 80 countries, the network now counts as one of the world's 10 largest accounting groups.
Midtier firms are experimenting with several variants on the networking theme. Boulay, Heutmaker, Zibell & Co., a 90-person firm based in Minneapolis, joined a team of local experts recently to launch a "virtual corporation group," to which clients can outsource a variety of administrative and management services. (They include business management, computer networking, software and facilities-management services, and others. Each service provider is an independent company.) Similarly, accounting networks can also help smaller midtier firms boost their expertise on the minutiae of state and local tax issues when their clients need help with matters outside their region.
Two major pressures on midtier firms--for enhanced technology and increased capital--have helped fuel the biggest networking trend that's taking place within the accounting profession: one being carried out by American Express's Tax and Business Services division. Put simply, American Express has spent the past few years quietly buying up local accounting firms, with the goal of building a national CPA network. While it may not ever grow to the point of rivaling the Big Six, it adds a fierce competitor to the profession's midtier, one with a household name. Equally important, its prices for comprehensive services are much more affordable that those of the Big Six and are right in line with its midtier competition's.
Technology is one of AmEx's big selling points when it approaches CPA firms after targeting a city for expansion. "We've invested a great deal in the technology here, and we're prepared to share our resources with the firms that join us. Within a week or so of acquiring a new firm, we send a technology team to its offices and can, right off the bat, speed up processing within its system by 30%," says Bob Basten, president and chief executive of the Minneapolis-based division.
American Express's activities are deemed revolutionary. Art Bowman explains: "It is a public company investing in an accounting firm--although it does that through a very complicated corporate structure because it has to comply with the various state rules against nonaccountants' owning accounting firms." The accounting boards of two states, Florida and Texas, have challenged AmEx's activities. (While the Texas lawsuit was still pending at press time, Florida recently lost in its effort to prevent AmEx's accountants from marketing themselves as CPAs. The state wanted to bar them from that simply because they were part of the corporation's team--even though they met all state requirements.) So far, the other 20 or so states in which AmEx's CPAs operate have given their tacit approval by simply not challenging the company.
It would be a mistake to dismiss AmEx's maneuvers as a lot of mumbo jumbo with little relevance for anyone other than CPAs. Where American Express goes, other financial-service supermarkets are sure to follow--and shopping for accounting services may never be the same again.
For entrepreneurial companies, the lessons are clear. If you don't plan to go public, you probably don't need a Big Six accounting firm. But if you're choosing a midtier firm, make certain it possesses the internal expertise or the networking capacity to handle your company's national and international needs.
You can't always assume, of course, that an accounting firm will be able to handle your fast-growing company's needs just because it belongs to a network. You'll want to know how the network adds to the firm's qualifications, the areas in which you'll be dealing with network accountants rather than your own, and the qualifications of the firms that belong to the network. (Beware of cases in which any firm that wants to join up can do so.) You'll want answers to specific questions that pertain to your business: How will the firm's network affiliation help your company with tax, strategic management, or accounting issues that crop up in the geographic areas in which you do business? How can the network help you grow in areas that are crucial to your growth plans?
Even if you go with an accounting firm that has access to top-quality technology and network support on complicated tax and international issues, that's no guarantee you won't outgrow the company when, for example, you have to raise capital from the public or private markets. You're probably better off starting with a firm that's hooked up to a network, but you do have to keep evaluating your accounting needs. Above all else, be sure to shop for the best package, considering price, accounting expertise, and other services. Thanks to pressures from AmEx, the Big Six, and others, you'll have lots of choices.
