Printer Friendly

Taming the wild client.

A down-to-earth approach to family businesses has been successful for one practitioner.

Stanley Person has always counseled his many family-business clients to avoid long-term financing and to shun leverage if they could build from within instead. Ten years ago, that advice made him sound out of touch in some circles. Today, it makes him sound like a hero.

"After all the abuse of leverage in the last decade, when I tell people my philosophy it sounds like the greatest thing going," says the managing partner of a 12-person New York CPA firm.

Person's practice is made up in large part of low-profile but highly successful family business with immigrant roots that have quietly built small empires from a grandparent's storefront or on the basis of a great-uncle's skill. As clients, family businesses can be volatile, difficult and unconventional, but Person has retained his through economic ups and downs and successive generations. His secret has been to stick to a few rules of his own--such as discouraging leverage--that frequently contradict popular opinion on how CPAs should approach their client's businesses and their own practices.


While still in college, Person worked as an office boy for a CPA firm whose name partner taught him an important lesson about the idiosuncracies associated with money. The partner was the first at work in the morning and the last one out at night. A meticulous man, he made it his mission to go around the office picking up dropped paper clips to save money. At the same time, he paid to keep a limousine on call all day outside the building in case he needed it, although he never left the office except to go home. The partner's strange priorities taught Person "you can't be a reformer. You can't tell people how to spend their money, because people are crazy. Don't try telling them to forget the paper clips and get rid of the limo instead because people will do what they want."

In dealing with family businesses, Person learned it's fruitless to try to impose his own philosophies and ideas on clients. Instead, it's wiser to play the role of someone who can identify the owners' own needs and ideas to run their businesses the way they feel most comfortable.

"CPAs sometimes try to fit people into boxes in terms of what they should spend and how they should spend it," he says. "It's not always possible. You have to remember the human side."

With small businesses in particular, Person believes it is the accountant's personal traits--such as perceived honesty, loyalty and even humility--in addition to his or her knowledge that clients value. A company patriarch who many years ago virtually turned over his business to Person during an illness ttold him he had done so because Person was too young and too native to do anything but the right things. Since the owner assumed that competence accompanied any CPA certificate, his next priority was finding a person he could trust.


Person worked for two CPA firms and for a future client's family business before opening his own shop in 1970. Each CPA firm had no more than 15 members and served as full-service accountants for small privately owned companies that depended on them for financial guidance. The focus for both firms was on providing service and on controlling expansion. Although the latter is considered a potentially risky practice management strategy, the stability of the clients they chose and the nature of their relationships made it a profitable one.

Person modeled his own firm after his two early employers and has had the same success. "Since 1987, each year we have remained within 2% to 5% of the goal for maximum growth that I set in 1981," he says, despite troubles in the local economy.

His clients have confirmed his belief that a conservative, narrow focus is not always a mistake. One example is the owner of a company that bought thousands of dollars' worth ofo hangers each year for use in its main business. When Person suggested the owner buy his own hanger factory to cut costs, the owner balked. "If I do that, in five years they'll invent something new and I'll be left behind because I don't know anything about hangers," he told Person. "I could open up 10 stores for every hanger factory I could buy."

Although hanger technology has changed little in the 20 years since this conversation, the owner's business continued to thrive despite the money he spent on hangers. The reassurance the owner felt in sticking with his core business was, to him, worth the extra expense.


Most of Person's business clients are traditional families that remain uncomfortable with being in debt--and Person has made the most of their discomfort.

While he will, for example, encourage a retailer to borrow $50,000 for a year to open a new storefront, he will urge the company not to take on a 30-year loan to buy 30 stores, counseling instead that it spend what it can afford in the short term. Clients don't seem to mind. In one case, the owner of a booming livery company took out a mortgage to buy a garage. Within a month, the client decided he was uncomfortable with the debt and needed help in forming a strategy to pay it off much sooner than planned.

Person's philosophy has ensured both his client's stability and his own. "We have clients in care dealerships, retail specialty shops and real estate that haven't really suffered during the recession only because they weren't heavily leveraged," he observes.


The children of successful business founders frequently approach the managemeent and financing of their companies with a perspective that's entirely different from that of their parents. A new generation often wants to make alterations that don't always seem prudent to the family accountant or may seek a new CPA firm that seems more in touch with its needs. Person has devised three ways to solve this common problem.

Show them the numbers. When a new generation wants to make radical changes in management philosophy, the first step is to fall back on an accountant's most powerful weapon--the bottom-line facts about how a large financing or a poorly planned expansion will affect the company's current prosperity. "If the younger family members have a certain standard of living because there are no mortgages and a steady cash flow, I show them that if they start financing to try to double or triple the revenues, it means that up front most of their money will go to pay the financing. They're going to eat into what they're eating with. That can be a compelling argument." Person points out to them that controlled expansion based on internally generated funds may be slower but generally is less disruptive.

Educate them. Parents or siblings involved in a family business may need help channeling the energies of young relatives who have more enthusiasm than experience. Person's advice is to set the newcomers up in businesses that are similar to but separate from their own--a local grocery store if the family owns a supermarket chain, for example. "Give them experience in what it means to make a payroll, to manage people," he suggests. "They can return to the core business later."

Develop relationships with firm members. Person has two partners who are 20 years younger than himself. He encourages them to work with their peers in client businesses to ensure that ties remain strong and that the firm's services are in step with evolving company goals. "If you have our type of clients for so long, eventually the owners get old," he says. The smooth the transition to new owners, "we convince the parents to have a training program for their children, which is handled by our 'children.'"


"If you're serving closely held, family-owned businesses, there's an element of independence that goes out the window and you have to recognize that," Person declares. "You're handholders, a decision maker, and you're not--and should not pretend to be--independent."

In practice, this has meant that when a client needed financing, the firm advised the bank it was not offering an unqualified opinion. The firm's reports carry disclaimers saying it is not independent and can't render an opinion on the financial statements.

In a sometimes embattled family, however, Person has survived by retaining a strictly neutral position. "Although there can be adversial interests in families, the accountant is in the best position to speak for both sides," he says. In these situations, he forgoes his usual emphasis on people and personalities and concentrates strictly on relating what the numbers advise.


During the firm's early years in the 1970s, engagements involving initial public offerings and real estate syndications were a lucrative practice area for many firms. Person decided to shy away from such work--and from heavy industry clients--to build a base of bread-and-butter small business clients because he believed service industries would be the last to be affected during the inevitable economic downturns.

Although his approach would not be right for some firms--and his beliefs could be anathema to a few--his success demonstrates the value of trusting one's own instincts despite contrary advice and changing fashions in business and practice management. Person's practice has thrived during hard times because he kept faith in himself and in his clients.
COPYRIGHT 1993 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:how accountants can manage family-business clients
Author:Dennis, Anita
Publication:Journal of Accountancy
Date:Nov 1, 1993
Previous Article:How much money are you really making? CPAs may be surprised at the answer.
Next Article:Is Unix in accountants' future?

Related Articles
Violence, lies and videotape: wildlife filmmaking takes a few liberties with the truth.
Don't settle for a high-priced bookkeeper: What you should expect from your accountant. (Practice Management).

Terms of use | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters