How Many Accountants Does It Take to Change an Industry?

Small Practitioners

While nobody knows the exact number for sure, there may be as many as 450,000 accountants practicing at small or solo firms across the United States. Some will undoubtedly be squeezed out of business because they can't keep up with the competition or meet growing capital or technological needs. But many others have responded to trends within their industry by giving new meaning to specialization or customer service. Those are the accountants who believe they have more to offer to their customers than the Big Six firms, where many gained their early experience.

Discount corporate-tax services are a natural for CPAs. But who could have imagined profitable niches in accounting for farmer-owned cooperatives, equine businesses, or child-care providers? "I think we'll see more and more small firms targeting special niches, or skill specialties, or even certain population groups," predicts Suzanne Verity, executive editor of Public Accounting Report, a biweekly newsletter. "In a world of intense competition, everybody's looking for ways to drum up and hold on to their customers."

That means it's likelier that a firm has either specialized in your industry or acquired some expertise in it. It also means you can shop around for different accounting services. When dealing with specialty firms, you can also often cut costs and enhance quality by unbundling your accounting services. Depending on your company's needs and internal capabilities, that might mean handling billing, collection, and accounts payable internally, and outsourcing your payroll, hiring a tax specialist to handle IRS and state filings, and then, as your company grows, contracting for a part-time chief financial officer. (See "A Shopper's World," below.)

Listen to Richard Colombik, a CPA and lawyer who left the Big Eight behind him to run a small firm that has 10 professionals working out of six Illinois locations. "I've concluded," says Colombik, from his office in Schaumburg, a suburb of Chicago, "that some smaller-business owners don't want to drive more than 15 minutes when they're meeting with their tax lawyer. So every time I build up a new core of business, we open a new office close to our customers. That's one of the ways that I feel we can be more flexible and more receptive to our clients' needs than a larger firm would be."

Can the smallest accounting firms survive the competitive onslaught they face from large firms and the burgeoning networks? "I believe there will always be a place for the small accounting firms, so long as they're willing to professionalize and stay on top of the explosion of information technology," comments F. David Fowler, a former KPMG Peat Marwick partner who is now dean of the School of Business and Public Management at George Washington University, in Washington, D.C.

"When someone sitting next to me on a plane asks me what I do, I usually tell him or her I'm a salesman," says Ron Silberstein of Hirsch & Silberstein, a four-CPA firm based in Farmington Hills, Mich. "Then they ask, 'What do you sell?' and I tell them, 'Accounting services." He laughs. "In the old days, you could manage just fine as an accountant, sitting at your desk, crunching all those numbers. You didn't have to worry about people skills or selling your firm. Those days are over."

But if the changes within accounting firms have been largely positive for their customers, there are some risks as well. The biggest of those risks concerns a shift within the profession's ethical guidelines, as set by the American Institute of Certified Public Accountants. Accounting firms can now sell commission-based products--including investments, insurance, and the like--so long as they disclose their cut to customers and do it through the establishment of a separate subsidiary. Given their potential profits from doing consulting work, the Big Six have less incentive to move in that direction than midsize and small firms do. For those firms--especially the ones that have yet to find a profitable specialty niche--investment fees might well look too enticing to resist.

"The dilemma for the accounting industry is, Will it taint their clients' perception of their independence and trustworthiness if they influence decisions to make purchases that will also earn them fees?" asks Jay Nisberg, a consultant to the industry who's based in Ridgefield, Conn. So far, that's a call many accounting firms don't know how to make. So most are sitting on the sidelines. Here again, American Express's involvement complicates matters, since that company will undoubtedly try to hawk products to its accountants' customers.

The outcome of many of these trends is still far from clear. But for the consumers of accounting services at this end of the market, there's simply no ambiguity: this is a buyer's market.

Jill Andresky Fraser is Inc.' s finance editor.

A Shopper's World

What does all the brouhaha within the accounting profession mean for the owners of small and fast-growing companies?

For an answer, take a peek at Sportsheets International, a Costa Mesa, Calif., manufacturer and distributor of adult novelties, with projected 1997 sales of about $700,000. The company's president, Tom Stewart, founded the business four years ago in partnership with his brother Bob, who's vice-president. Tom and Bob's sister Julie is the director of business operations. The three ran Sportsheets out of their home until just last year.

"We went to a big local accounting firm and hired a team to come out and take a look at our business," Tom says. "But all they wanted to do was crunch numbers, and the main thing they told us was, we didn't have enough numbers for them to crunch. The implication was, call them when we had some more numbers."

Then Julie followed up on a flyer from a local accountant, Donna McGovern, whose Westminster, Calif., consulting firm, Ideal Business Solutions, promised custom-designed financial services at affordable prices.