LEADING ASSOCIATIONS

The following CPA firm associations are some of the most well know associations in the United States. There are many other associations that may better suit your firm size. Before you join, determine how your firm will contribute and gain from working with the other member firms. Also consider the associations' fee structure, membership requirements and the services they offer, such as a peer review program or client referral opportunities.

SMALL FIRM SURVIVAL: DIVERSIFICATION THROUGH SPECIALIZATION

Many in the profession predict that small firms have a rocky road ahead—in the next century. They say that the flat tax is history, that there will be little or no audit work and that single, full-service firms will take over the small firms' share of the market. But, while it is true that the smaller CPA firms must prepare to compete in 2000 and beyond, they must also recognize the need for change as an opportunity for new business not just as a problem that cannot be solved.

It is clear that we must diversify our practices to stay on top of the competition. To many of my peers, however, diversification means leaving the comfort zone of familiar work and plunging into vast, uncharted waters. But, there is a way to take advantage of the changes in the marketplace and be leaders in our profession without drowning. The answer is having more internal specialization while outsourcing many client services. Here's how you can do that.

Know your limits

The size of your staff determines how many specialties you can support in your firm and how much outsourcing you must do to fulfill client needs. Although you may think you are the only person who can help major clients, one CPA can not be everything to everyone. Nevertheless, you can still be your clients' "go to" person if you are willing to say "I don't know offhand, but I can get you the answer."

My firm currently has nine full-time employees, including four CPAs. What I provide to my clients is "peace of mind," something I have been doing since I began practicing in 1977. I can say this because I am willing to seek advice and assistance when I don't know an answer, which I consider a critically important part of running a successful "client-first" practice. To be successful in the next 10 to 20 years, you'll have to cease being the only person in contact with your clients and make the most of your referral sources.

Use all of your sources

There are many possibilities for obtaining outsourcing referrals. My state CPA association, for example, has a technical assistance program that lists fellow professionals and their particular expertise. CPAs and others on the TAP are all available for referral through the association via a fax system. The AICPA and the National Association of Certified Valuation Analysts have similar referral programs. Some of the best referral sources are professional associations and fellow CPAs as well as bankers, lawyers, insurance specialists and investment advisers.

Take advantage of your competitors, too. I have found, even in a small community, that fellow practitioners are willing to answer my questions and assist me with specific concerns. I have not met a "competitor" I was afraid to assist or who was threatened by me.

Start from the inside

Learn from what has happened in your own firm and how you have coped with the extra work. I "hung out my shingle" in 1977 and shortly, thereafter, I hired an assistant from the local high school. I never hesitated to hand her important work, and give her more responsibility as my firm grew. She worked for me for nearly 20 years.

Cross training is critical when you specialize internally. No matter what the size of your firm, it is imperative that each area of expertise be shared by at least two people. In my practice, I try to know a little about everything that is done, but I don't try to learn the specifics or how to do everything. While I am the direct contact with the client, I expect my staff to handle the engagement or, at least, do the research, give me a brief overview of results and meet the client with me. If a client does not want to "pay two professionals" for the same work, I explain that the employee is highly trained in a particular area and it saves the client time and money for him or her to be involved in the engagement. I often bring a staff member in during the initial interview process and give him or her direct client contact, especially for situations requiring their particular expertise.

Who are the specialists in your firm?

Tax season provides us with many opportunities to learn more about our clients and their needs. All my professional staff have tax expertise, and some are specialists in individual, corporate and partnership tax. A tax specialist heads the tax department. He assists each of us on difficult returns, conducts research and reviews the returns. In addition, he trains new staff.

The firm also has staffers who specialize in accounting and auditing, estate and retirement planning and computer consulting. We have a senior bookkeeper who oversees our write-up staff of five, and we even employ a specialist within the write-up department who has more knowledge of particular industries.

Because of the many skills within the firm and because a firm administrator handles the day-to-day operations of our business, I am free to specialize in business valuations. Even our firm administrator books chargeable time assisting clients with the tasks she performs for our firm, such as retirement plan reporting, payroll issues and Social Security issues.

Promote your specialists

At biweekly planning meetings, we review each engagement and discuss how other specialists in the firm can be a part of it. We also discuss specialties of prospective employees in detail so, as new staff, they have an opportunity to pursue them. Firms our size or smaller can actually delegate specialties to various staff members.

Putting the two together

Combine your in-house specialties and your ability to outsource services and you will have a "one-stop service center" for your clients. With outsourcing and internal specialization, you will not only become what your client is looking for, but you and your employees will have a better quality of life and the opportunity to pursue particular professional interests. Have the confidence to say "I don't know it all," and then delegate. It all adds up to more satisfied clients and staff, which in turn means greater profitability. *

PROTECT YOUR INVESTMENT WITH A SHAREHOLDERS' AGREEMENT

If your firm is organized as a professional corporation (PC), you can protect your individual interests and minimize the potential for conflict by creating a shareholders' agreement. A shareholders' agreement typically covers three major areas:

• The financial relationship among the shareholders.
• The process of decision-making within the firm.
• The mechanism for transferring and selling shares.

Firms organized as PCs must file articles of incorporation with the secretary of state that may deal with these issues; however, a separate shareholders' agreement can provide additional protection. Articles of incorporation, for the most part can be revised if shareholders who hold 51% of the shares vote to do so. But the standard shareholders' agreement can't be amended unless all the shareholders agree to it. In addition, while the articles of incorporation are a matter of public record, a shareholders' agreement is a private document.

To ensure the smooth running of your business, therefore, and to avoid possible litigation, consider drafting a shareholders' agreement to cover the various concerns of the shareholders.

Stock ownership

The initial investment. Generally, your percentage of ownership depends on your capital contributions—but not always. A shareholders' agreement should spell out just how much money each shareholder will contribute, as well as the number of shares he or she is to receive in return.

Additional investments. As a shareholder, you cannot be forced to contribute capital beyond what you agreed to initially. However, if other shareholders put additional money into the PC, they'll probably receive additional shares, which will dilute your voting interest. Conversely, if an owner, or group of owners, decides to buy additional stock in the PC and the firm's management is willing to sell it, you may not have the right to participate in the stock purchase unless it is specified in the articles of incorporation or the shareholders' agreement.

Leaving the firm

Termination of employment. If you quit or are fired, what happens to your stock? Does the PC have an option to buy it back, or have you lost your investment? These issues, as well as the price at which the stock will be repurchased, should be addressed in a shareholders' agreement. Without one, if you're terminated, you have no right to require that the PC buy you out and the PC has no right to buy you out.

Retirement. You might assume that the PC is obligated to buy you out when you retire because you're no longer practicing as part of the PC. However, as long as you maintain your license, some states permit you to be a shareholder of a PC whether or not you are actively practicing.

However, the remaining members of the PC may not want to share ongoing profits with you after you've retired. So, even without a shareholders' agreement, the PC would probably want to buy you out. Without an agreement in place, however, you could get back nothing more than your initial capital investment or even a lesser amount. Without such an agreement, there is no obligation to pay you the fair market value of your stock—assuming you and the other shareholders can agree on what that is.

A shareholders' agreement, therefore, should contain one or more procedures for determining the fair market value of your stock and, ideally, provide a method for ensuring that, when you retire, the PC has the necessary funds to buy you out.

Death or disability. The same issues that crop up at retirement arise if a shareholder of the corporation dies or is permanently disabled and can no longer practice. Often, a deceased's estate can legally hold his or her stock for a reasonable period of time while the estate is being administered. However, because only a licensed professional can be a shareholder in a PC, the stock would have to be returned to the PC. A shareholders' agreement would address the price at which the deceased's stock will be repurchased and provide a method for ensuring that the funds are available.

Decision-making and control

A corporation ordinarily is governed by a board of directors responsible for the overall conduct of the business although, in a PC, such authority may be exercised by a managing partner or other manager. The shareholders elect the board, which in turn chooses the corporation's officers. The officers run the corporation's day-to-day business at the board's direction. The board is elected by shareholders holding at least 51% of the stock. If you hold less than 51% or aren't part of a group that controls at least 51%, you'll have no say about who is elected to the board or how the PC's business is run unless you have a shareholders' agreement.

Shareholders holding a majority of the stock may elect to merge with or sell to a firm of which you're not a member. They may also amend the articles of incorporation to your detriment although the law does give a shareholder who votes against any of these transactions and who follows certain procedures some protection. As a dissenting shareholder, you have the right to be bought out of the PC at fair market value if certain conditions are met. Ultimately a court will decide the fair market value of a dissenting shareholder's stock. But the process may require a lengthy, expensive lawsuit.

A minority shareholder (one with less than a controlling interest) or group of such shareholders can sometimes negotiate with the majority shareholders a requirement for a "supermajority" vote for certain transactions. For example, the shareholders' agreement could stipulate that the PC can't be merged without the consent of shareholders holding at least 75% of the PC's stock. This doesn't give a minority shareholder an absolute right to block a merger, but it does provide some leverage.

A shareholders' agreement can protect you as a minority shareholder in another way—by giving you the right to elect one member of the board (yourself, usually). Even though you can't control board decisions, you'll be kept informed about transactions involving the PC.

Share transfers

As a shareholder, you may assume you have the right to determine with which professionals you will practice, as you would in a partnership. But this is not true in a PC. Without a shareholders' agreement, a shareholder can sell or otherwise transfer his or her stock to another licensed professional without the consent of other shareholders.

As most professionals want to avoid such situations, a shareholders' agreement can be used to restrict the ability to transfer stock. The agreement should stipulate, at a minimum, that the other shareholders and the PC have a right of first refusal: That is, a shareholder cannot sell his or her shares to a third party without giving the existing shareholders and the PC an opportunity to buy it first on the same terms. There are alternatives to the right of first refusal, but, without the shareholders' agreement, a shareholder can freely sell his or her shares to a third party whom the remaining shareholders don't like or may not even know. *

BizSites

Useful Web sites for the practicing CPA

Useful Search Engines

There are many different search engines in cyberspace, and frequent Web surfers have probably already added a few good ones to their "favorites" menu. But others aren't even aware that there are search engines out there other than yahoo.com and altavista.com. Listed below are four popular alternatives and a brief description of each.

PCPS UPDATE

Don't miss "Strategy Sunday"

On at least one Sunday in October, NFL quarterbacks won't be the only ones studying the Xs and Os of a successful game plan. Participants in a Sunday kick-off session of the PCPS Forum on Staffing Issues, to be held in Las Vegas on October 24-26, also will be going on the offensive. "Strategy Sunday: The Pre-Game Show," will be free for PCPS members and will cover a broad range of essential management issues.

One session, "Play Hard, Work Hard" by Gary Shamis of Saltz Shamis & Goldfarb in Cleveland, will examine how CPAs can add value to their services and discuss methods for developing "service champions." In "Thinking Like a Coach—Getting Staff to Think Like Business People" Bruce Malott of Meyners & Co. in Albuquerque, New Mexico, will discuss how firm owners can better communicate their vision to the staff. Also that day, Richard Brehler of Plante & Moran in Southfield, Michigan, will lead a session called "Rookies vs. Veterans," on balancing staff and firm development.

These and other sessions will be held prior to the main session of the staffing forum at Caesars Palace, which will address the challenges CPA firms face in hiring and retaining top people. We encourage you to attend both the forum and the Sunday sessions to hear from some of the most innovative CPAs in the profession.

MAP network for midsize firms

The first MAP network for midsize firms will be held Thursday through Friday, December 2-3, in Dallas. To help you share valuable knowledge with your peers, the PCPS management of an accounting practice (MAP) committee has organized MAP networks for firms with 10-24 AICPA members. The networks will include no more than 30 CPA participants who will meet twice annually.

These midsize networks are organized in a way that is similar to the AICPA's practice advisory group B committee (for firms with 50 or more AICPA members, excluding the five largest firms) and the MAP committee large firm network (for firms with 25-49 AICPA members).

The networks will provide forums for in-depth practice management discussions and an exchange of information on firm operations and professional issues. Please see the registration form in this issue of The Practicing CPA or call 800–CPA–FIRM for further information.

Study shows firms moving in right direction

To help CPAs understand some of the changes taking place in the profession, the PCPS enlisted professors Florence Sharp of Ohio University and Larry Rankin of Miami University of Ohio to survey PCPS members. Managing partners were asked to describe past and expected changes in their mix of client services over a ten-year period and to identify factors that had influenced or will influence these changes. Here are some of the survey's highlights:

• Tax preparation and planning and accounting services still comprise the largest—but a shrinking— percentage of annual gross billings.
• Consulting and assurance services are expected to grow rapidly in the next five years. In 1998, firms said consulting services comprised 13% of firm revenues. According to the survey, this number will reach 20% in 2003. And assurance services will grow from 1% in 1998 to 5% in 2003.
• The consulting services most frequently offered by PCPS member firms are, and will continue to be, personal financial planning, business valuation and computer software services. Firms also expect to add to compensation and benefits consulting and forensic accounting and litigation services.
• The assurance services most frequently offered by PCPS member firms are business performance measurement, information systems reliability and Eldercare.

A complete survey report will be available free to PCPS members this fall. *

Letter to the Editor