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How local firms can succeed in the 1990s.

Local CPA firms are facing increased competition and a severe retrenchment in many industries and areas of the country. What will it take to ensure their survival, let alone prosperity, in the coming decade? Basic services, a commitment to quality and a willingness to try new approaches, according to Jerrell A. Atkinson. Atkinson has demonstrated his strong interest in smaller firms through, among other things, his chairmanship of the American Institute of CPAs private companies practice executive committee. He applies his ideas about successful firm management as managing partner of Atkinson & Co., a 60-person firm in Albuquerque, New Mexico. In a Journal interview, he discussed the challenges he sees facing the profession and how he believes CPAs can rise to them.


Atkinson believes five things are necessary to ensure a local firm's health in the 1990s.

* Specialization. Atkinson recommends choosing an area--whether it's a particular industry, a sector of the economy, such as small business, or a certain service--and gaining recognition for expertise in serving it. "We've made a market in construction," he says. "We've made a name for ourselves in it. We do that in part by speaking a lot on the subject."

He cautions, though, that CPAs shouldn't try to take on all aspects of even the narrowest sector. "You can't be all things to all people. We work with general contractors and subcontractors, but we don't work with a lot of highway contractors. If we had one come to us, we'd take the time to ensure we had the right expertise or could find it outside the firm. While expanding one's base is a good thing, we in public practice must be very careful not to take on work in which we don't have sufficient expertise because the potential liability is worse than any profit it will bring."

* Timely service. Atkinson stresses that CPAs should put clients' interests first when it comes to deadlines. "Over the years a lot of us have taken extensions on tax returns, but with financial statements you have to be prompt or else you're dealing with history," he notes. "Most of our attest clients like to have the information as soon as possible, and we've made a real effort to speed up our delivery process. If it once took us three months to produce financial information, cutting that down by one month gives clients another 30 days in their decision cycle."

Atkinson believes the time a task takes is directly related to the time allocated to it. He says that speeding work doesn't require more staff and rarely means longer hours if firm members reorganize their priorities and make a commitment to earlier deadlines.

* Involvement with clients. Local firms give themselves an edge when they demonstrate a sincere interest in serving clients, Atkins asserts. As competition heats up across the economy, "our clients will want to know that we're behind them. That means when they have a need, we must be able to respond to it."

Atkinson thinks a commitment to service starts at the top. "Even though I manage the firm, there are still clients who have my home phone number. They know if it's important they can call me and I'll respond. If it means reorganizing my schedule, meeting with them at night or on the weekend, I'm willing to do it. That tells them I'm involved with them and want to help."

Atkinson trains his staff to make the same kinds of effort with clients. Clients know the difference between firm members' billing rates and thus don't bring all their problems to the managing partner.

Responsive service also ivolves innovative approaches to what CPA firms offer--and how they present their work. "We need to consider how we can help clients by presenting them with more than the traditional information," Atkinson says. "What about preparing graphs of client data over the last few years? Or we could give them ratios and compare them with national statistics, such as those from the Construction Finance Management Association for our construction clients. We can't just say, 'Here's your financial statement 90 days after the fact.' We've got to say, 'Here's information that will help you run by your business better.'"

* Creativity and anticipation of client needs. "We need to be raising questions--not just answering them," Atkinson insists. "That means being farsighted enough to warn a client that it could have a problem in 10 or 15 years when three of its five top officers are ready to retire, for example. We should have ideas ready on how to fund their retirement before the client asks for them. For individual clients, if we help them work to maximize their ultimate Social Security payouts, we're giving them something extra they'll appreciate. If we advise them to update their wills after a change in estate tax laws or to begin planning for children's education, we show our interest in their financial security."

* Quality. Atkinson emphasizes the importance of quality work must be stressed in all areas of a practice. "Although clients notice the special, extra touches, CPAs must ensure they give full attention to the basics," he says.

A commitment to accuracy must be an integral part of the design on each engagement, according to Atkinson. He has identified seven components of quality service that apply in every job:

1. Understanding--Do we know what we're doing?

2. Knowledge--Do we have the technical expertise?

3. Skill--Do we have the necessary confidence and experience?

4. Tools--Do we have the proper technology and research materials?

5. Support--Have we given staff the freedom and authority to do the job right?

6. Desire--Have we motivated firm members to obtain quality?

7. Feedback--Do we inform staff how they can do better?

"Owners can't take shortcuts if they expect quality from their staffs," he says. "Quality begins at the top." And a commitment to quality can't simply be imposed on people, Atkinson believes. "I try to get people to make decisions with me; I don't make the decisions for them."


Local practitioners frequently see larger firms as competitors, but Atkinson believes small firms can benefit a great deal by working with national and regional practices. He and other members of his firm maintain contacts with the local offices of larger firms. Atkinson makes a point of going to lunch with the managing partners at large firm local offices twice a year to stay in touch. When a new managing partner arrives, he calls to introduce himself and set up an informal meeting.

His efforts have profited the firm. "We got one client because a large national firm had a conflict of interest on an engagement and referred it to us," he explains. "The other firm kept the audit and we did some consulting work for the client and got about $25,000 to $30,000 in fees--about twice the fee the large firm received on the engagement it kept. That came about only because we've maintained a relationship with this firm's local office."

In another case, the firm attempted to fill the sluggish summer season in a joint venture--a consulting engagement for a government agency--with a national firm. The larger firm approached Atkinson about the job because of its belief in the cost-effectiveness of local talent. "Neither our firm nor the other firm's local office was big enough to handle the job alone," Atkinson explains. "But the national firm believed working with us would be cheaper for them than bringing in staff from their other offices and paying them per diem rates."

The international economy. Many local firms have not been affected by the globalization of the world economy, but Atkinson says as clients become more involved in international business, larger firms could be a crucial resource for local practices. "We had one client that wanted to move into the European market and asked our advice on which country it should incorporate in," Atkinson explains. The firm didn't have international taxation expertise on staff, so it turned to a larger firm for advice. Atkinson says many larger national firms have services that offer subscribers all their audit and tax manuals and updates as well as software programs for about $3,000 to $4,000 a year. As subscribers to such a service, Atkinson firm members can call the larger firm's staff experts for consultations at the other firm's usual client fee.

"We called one of their international taxation experts and had a presentation ready for our client the next day," Atkinson reports. "The client had no idea where we got the information. We were able to deliver what we otherwise couldn't have afforded to offer. In one instance, our reliance on this service helped us get and maintain an internationally owned client and resulted in a $40,000-to-$50,000 fee."


Convincing the brightest accounting graduates to choose a career at a local firm is an important challenge for smaller practiioners. Atkinson believes a change in attitude can make an enormous difference.

"If you believe you're not as good as another firm, be it large, local, regional or national, you're going to have a problem recruiting," he insists. "I believe small firms can offer as much opportunity as--if not more than--national firms. It's different, but the opportunity and satisfaction are there."

Atkinson and his firm have been active in making a case for local firms among accounting students. "We've gotten involved with the accounting school at the local university. For example, I give the address at the accounting student association's opening meeting every year. I use this talk to sell them on a career in public accounting, the challenges and the fun as well as the hard work. Then I sell them on local firms. We're a larger firm to many people, but with 60 people we're a lot closer knit than would be possible in an office with 150 or 200 people. We also offer early and frequent exposure to clients."

Atkinson focuses, too, on the varied training available at local firms. "The international firms offer excellent training, but a lot of them have very narrow concentrations--healthcare audits, for example. At our firm, the recruit will get individual and corporate tax, compilations, reviews, audits and maybe some personal financial planning when the person is more experienced. There's a broader range of experience and the jobs don't last more than a month at a time."

The firm credits competitive salaries and benefits and an attractive retirement plan with helping in its efforts to attract and retain good employees.

Atkinson acknowledges new accountants often are advised to start out at larger firms, but he believes this isn't always bad news for firms like his own in the long run. His experience has taught him never to burn a bridge in recruiting.

"We have three people on staff who turned us down the first time," he says. "A few years ago, our firm was turned down by the number one accounting graduate at the local university. We had been recruiting very hard and were very disappointed when she went to a large national firm." Atkinson reassured her, though, that there were no hard feelings and that she could contact him at any time. Not satisfied with the opportunities she found at the large firm, she decided to come to work for his firm about a year and a half later. "We kid her now about the terrible mistake she made," he says. "But it's important to leave people with good feelings about your firm, no matter what their decisions." Some firm clients are former recruiting prospects who chose to go into private industry but wanted to work with Atkinson's firm if they weren't going to work for it.


CPA firms of all sizes are struggling to limit burgeoning costs. At Atkinson's firm, "our expenses in all areas are rising faster than our fees. Labor and rent make up half the overhead."

The firm has made some special arrangements to help lower salary costs. For example, it works with a computer consultant who previously had been a tax expert at a large firm. The consultant's slow season lasts from January to April, so Atkinson employs him during that time. "He works very had for us during those months on tax work, then spends the rest of the year doing computer consulting for his own clients." In addition, to even out work flow, employees must take their first 60 hours of overtime as compensatory time during the slow summer months.

Many firms worry about employee demands for flexible work arrangements, but Atkinson has been able to use them to his advantage. "We have people who work full time or more during tax season and then cut back during the rest of the year, particularly during our summer season." The arrangement pleases employees and saves Atkinson money. When employees ask for extended leaves, they're required to use comp and vacation time and encouraged to take them during the summer. "It can actually help us when people take time off during the summer and we have fewer hours to fill," Atkinson notes.

Even when employees' personal lives have required some adjustments, Atkinson has found a local firm has the flexibility needed to solve most problems. "We've had crucial tax supervisors give birth during the busy season and the firm has been able to work around their absence. We also have a couple of young men who have asked for extended time off to go to Europe. We might have lost them if we weren't flexible."

Some of these arrangements seem unorthodox to a profession built on tradition, but Atkinson thinks local firms needn't fear change. "I would not have felt comfortable as a young accountant going to the managing partner and asking for six weeks off," he admits, "but I think today both women and men are seeking more flexibility and small firms are able to give it to them. I think we're going to see a lot more of such arrangements. If you work at these arrangements and are honest about your expectations, I think they can be beneficial to both parties."

Prudent choices. New technology can be an expensive item for CPA firms. In Atkinson's case, the firm spent about $150,000 to install a network in its office. Although such steps seem crucial to complete, Atkinson worries firms will spend a great deal of money on new technology only to find its greater efficiencies result in lower hourly fees. He has fewer qualms about his decision to hire a marketing director. "It was a big step for an old-line, conservative firm, but it was definitely a case of spending money to make money."

There are some expenditures about which Atkinson has no doubts. He is adamant, for example, about the importance of investing in sufficient insurance coverage. "We've been very careful in determining the exposure level we want," he says. "I believe strongly that firms shouldn't go bare--you've got to have insurance no matter what the cost." He's also cautious about the value of shopping around for insurance. Many seemingly attractive policies simply lack important protection, he warns, such as coverage for damages that occurred before a new policy goes into effect.


Atkinson's greatest fear as a managing partner is he will fail to keep in touch with the changes that have a potential impact for his practice. "Running a firm is a lot more work today than it was in the past," he says. "The changes aren't all bad, but the work is more challenging. My job is to understand what's going on in the profession and the business world and to ensure the people I work with are knowledgeable about their areas and excited about their work."

He thinks the key to success for local firms is in recognizing the difference between what must be changed and what cannot be. "I think we have to be willing to try different things," he says. "But we can't forget how we got where we are--through basic services and quality."

ANITA DENNIS is a senior editor at the Journal.

Ms. Dennis is an employee of the American Institute of CPAs and her views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.
COPYRIGHT 1991 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Dennis, Anita
Publication:Journal of Accountancy
Date:Nov 1, 1991
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