Do I Need a Top-Tier Accounting Firm?
Q In an April 1997 article [" How Many Accountants Does It Take to Change an Industry?" by Jill Andresky Fraser] you wrote that "if you don't plan to go public, you probably don't need a Big Six accounting firm." Does that mean that if I do plan to go public, I should choose one of the big-name accounting firms? My Internet commerce company is still in the planning stage; I have no staff other than myself. The expenses I have incurred so far have been tracked by my personal accountant, a certified public accountant who works for a real estate developer during the day and prepares tax returns in his free time. --Maurice Algazi, Washington, D.C.
A. There's no simple answer to your question--especially if you talk to accountants, who have their own particular biases, based on the size of their firms. But when we discussed your question with experts who aren't accountants, they all agreed on one thing: at your stage of development, a top-tier accounting firm sounds like overkill. (One exception we've observed: those few sizzling start-ups that are able to attract formal venture-capital funds from day one may need a top-tier accounting firm--if that's what their venture investors recommend.)
One financial adviser to entrepreneurial companies, Jesus Arguelles of Arguelles Business Capital, in Los Angeles, argues that a start-up shouldn't use a CPA at all. "It's just an unnecessary expense," he maintains. Instead, Arguelles suggests an alternative that's sometimes cheaper: retaining a public accountant to help set up initial record-keeping systems or select accounting software. What's a public accountant? He or she possesses more financial and accounting training than a bookkeeper but has not taken the state CPA test and is not bound by the CPA code of ethics and continuing-education requirements. If you choose to follow Arguelles's advice, you'll need to do extra homework to ensure that your public accountant meets your company's standards and expectations. --Jill Andresky Fraser
The Voice Of Experience
Two entrepreneurs discuss the pros and cons of big accounting firms
Fran Greene. "The most important thing I could advise you is not to do anything you can't afford. You're in the start-up stage; for most entrepreneurs, that means investing in good basic small-business software. You're going to be your own accountant until you can afford to hire someone to perform those functions. Don't think about hiring a CPA until your business generates enough revenue and cash flow to support the expenditure.
"My companies still aren't large enough for the Big Six accounting firms to want to handle my business--and I don't see any advantage to going with them, either. I've got a very good second-tier accounting firm that's committed to serving our local entrepreneurial market. That's what I need."
Fran Greene is the CEO of two companies in Winter Springs, Fla.--Cakes Across America, a cake-delivery company, and Sun State Electronics, an electronics supplier to government agencies--that have combined sales of approximately $4 million.
Tim McCorry. "During the start-up and early-growth phase, you can't afford to hire a Big Six or other large accounting firm. Even if you could, I think it would be overkill: you wouldn't need all the services and benefits that such firms offer. But as your company grows and its options expand, it's undeniable that big accounting firms give your company credibility. That's especially true if you begin achieving very fast growth, or if you reach a point at which you're starting to think about your exit strategy or plan for an initial public offering.
"Until now, our company has relied on a small local accounting firm. It's done really good work for us, and we have no complaints. But if your company is taking off, at a certain point a small accounting firm will tell you--or at least it should tell you--that you're ready to move on."
Tim McCorry is the CEO of the McCorry Group Inc., in Berwyn, Pa., a six-year-old sports-marketing company that reports 1997 sales of about $500,000.