Don’t Make The Mistake Of Only Using Your Account At Tax Time
Let’s say you schedule an annual physical because you’re a
responsible adult and have learned the value of preventive
medicine. After the examination, your doctor says, “I’m somewhat
concerned because your cholesterol is a little high, and I would
urge you to exercise more regularly.”
Would you listen? Of course you would. Because your
physician has expert knowledge about the specifics of your health
and how to safeguard it.
In a similar vein, let’s hypothesize that you realize it’s
time to file annual taxes for your small business as required by
law. After going over the year’s records, your accountant
comments, “I couldn’t help noticing that you have some cash
management problems and lack a long-term plan for growth, but I
can help you with these issues.” Would you take your accountant
up on this offer? Maybe, but maybe not.
Many entrepreneurs view their accountants primarily as the
men and women in dark suits whose expertise is needed only around
tax time, according to the results of a recent, nationwide survey
of accountants who work with small business clients. But a good
accountant — like a good doctor — can provide an expansive
range of services that includes both preventive and restorative
care. Indeed, this is precisely what an accountant should be
doing for business clients, according to many of the survey’s
Business Health Professionals
Thirty-eight accountants from across the country answered a set
of questions regarding their relationships with small business
clients. The results of the survey showed that, just as some
people avoid going to the doctor unless they are ill,
entrepreneurs don’t usually take advantage of the expertise their
accountants can offer until the health of their business changes
— generally for the worse. Only then do they realize that their
accountants can help with more than tax and audit preparation.
While accountancy firms are eager to assume larger roles in
advising clients about diverse issues, small business owners are
just starting to make use of these services, respondents said.
Diane Conant of Conant, Nelson & Conant in Las Vegas, Nevada,
notes that the clients who use her firm’s services most
extensively are also those who tend to be most successful. “We
learn all the everyday things about our clients, and they learn
that we are a business partner with them,” she says. “We become a
part of their team.”
All but one survey respondent said that tax and audit are
the services most often used by their clients. About 30 percent
of respondents claimed clients used them for cash management and
forecasting advice. Small businesses also occasionally ask
accountants for help with computer consulting, personal financial
planning and development of marketing strategies.
“From operations to cash management and cash flow — when
you have a small business client you ideally become involved in
all aspects of the company,” comments Conant. “With some new
clients, for example, we might find that they have been reporting
sales tax incorrectly for many years. In this type of situation,
we’ll help them file for a refund and get back a substantial
amount of money due them.”
CPA Dennis Bersch of Bersch & Associates in Milwaukee,
Wisconsin agrees. “If we take on clients, at some point we begin
to have an interest in their survival,” he says. “But this
doesn’t mean we are less than objective when we sign off on their
Although accountants feel that a trend is evident in their
field toward becoming more involved in the whole of a client’s
activities, they say they offer their help far more frequently
than clients actively solicit that broad expertise. One
respondent whose small business clients are savvy to the
usefulness of an involved accountant notes, “Clients are
switching from traditional service and asking for assistance in
improving operations, investment options, succession planning,
negotiating deals, payroll, monthly finance and statement
“We don’t just do tax and audit anymore,” says another
accountant. “Now we assist in tax planning and tax compliance as
well as general business consulting.”
Still, accountants claim that clients often fail to listen
to the advice they are given, and wind up facing problems they
could have otherwise avoided.
Diagnosing Potential Problems
An accountant who is paying close attention will certainly notice
if your business just can’t shake that nasty cough, figuratively
speaking, and if something appears to be threatening its overall
health. And a good accountant will call your attention to the
problem even if you would rather not hear about it.
The primary signs that a company may be in trouble are poor
financial reporting and lack of a strategic plan, say
respondents. Plenty of accountants have stories about clients
whose financial recording systems consist of large cardboard
boxes stuffed with receipts and other sundry pieces of paper.
That scenario is quite enough to show that problems may lie
Being dependent on borrowed funds and doing a poor job of
financial forecasting are also clear signs of pending
difficulties. Of course, while no business can be prepared for
every eventuality, to have but a scant idea what might happen
financially from month to month is asking for trouble, CPAs
“It doesn’t matter how many years you have been in
operation,” says Craig Castanos, an accountant in San Diego who
in 1993 was named by the U.S. Small Business Administration as
“Small Business Accountant of the Year” for San Diego and the
state of California. “Planning is not just for start-ups. You
have to have a road map that projects where you’re headed for the
next 12 months.
“Yet 90 percent of small businesses don’t plan and don’t
have a 12-month budget,” Castanos adds. “You shouldn’t manage a
budget based on what is in the bank account on a given week.”
Overburdened management was cited by many CPAs as another
danger signal. Of course, as small business owners are already
overworked as a rule, perhaps the last thing on their minds is
carving out time to rectify badly kept financial records or take
a hard look down the road and do some long-term planning.
Accountants realize that businesses get in this bind, admits
Castanos. “Clients don’t always ask for our help because they
know it will entail time and work on their part,” he says.
Pay Attention to Professional Advice
What sort of advice do accountants offer to clients whose success
may be in jeopardy? CPAs surveyed most often recommend that small
businesses determine what their strengths are and how they wish
to distinguish themselves from competition, or at least how they
want to be perceived by customers. Is their product the low-cost
option? Do they provide value-added service of some kind? How are
they communicating their competitive advantage to potential and
That last question brings up the second most frequently
given piece of advice: marketing is a very important step in
guiding a small business back on the road to success.
While most accountants wouldn’t be the first choice for help
in designing a marketing campaign, they should ask the right
questions to get clients thinking about their specific marketing
“I ask a client, `What is your competitive advantage? Where
do you make your money? What are you best at?’ ” says Lou Barbich
of Barbich, Longerier, Hooper & King in Bakersfield, California.
“Many small businesses get out of focus,” he explains. “They
do too many things and lose track of where they are most
profitable. I can help these kinds of clients in the short term
by asking them questions about where they want to be in two to
five years, and the direction their industry is going.”
Barbich has found that small businesses don’t do nearly
enough of this sort of soul-searching. Once he is able to force
them to look forward, however, Barbich can put a client in touch
with experts who will help zero in on marketing goals. “With
limited financial and human resources,” he asserts, “if you’re
going to spend money on marketing, you better make sure you’re
doing it in areas where you have a definite competitive
Even if a business is experiencing some growing pains or has
made a few mistakes, a good accountant should be able to give
advice on managing finances and assets to make the operation more
productive and profitable over the long term.
“I try to instill an optimistic attitude in senior
management,” notes one survey respondent, “an attitude that is
aimed at going forward and building.”
Strategies for Avoiding Financial Crisis
Companies that are treading close to the line in terms of
financial crisis should be sure to seek assistance from their
accountants, who presumably have been advising them all along
about moving toward financial health and avoiding bankruptcy.
Suzanne Caplan, a consultant to small firms in financial trouble
and author of Saving Your Business, makes the following
recommendations. They are based on the knowledge she gained when
Pittsburgh Glove Manufacturing Co., of which she is president,
filed for Chapter 11 bankruptcy in 1986.
* Diversify your venture enough that you don’t depend on any one
customer or industry. Caplan advises that companies derive no
more than 15 percent of their business from any one client.
While it is tempting to grow quickly by becoming a large
supplier to a small number of customers, this strategy can
make your operation vulnerable to pressure from those same
* Always keep overhead low and costs in check. Many companies
set a pattern of having high expenses when times are good,
then have a difficult time cutting back when there’s a need to
do so. If necessary, your accountant could examine your past
financial statements to determine whether you have made
unwarranted increases in operating expenses. Whenever
possible, evaluate the need for every purchase your business
* Save a cushion of cash that is equivalent to several months’
overhead expenses. If you get to the point where you are
walking a tightrope every month, a problem that might have
been small a short time ago can turn into the catalyst that
puts your company into bankruptcy.
* Consider relocating your business to cut expenses. Even if you
are not in a state of financial crisis, it doesn’t make sense
to stay in a location that represents an unwarranted financial
Other oft-given pieces of advice from the accountants
surveyed are to focus on sales, reduce costs, change pricing and
develop a strategic plan. The important thing, CPAs agree, is not
to look the other way and hope things get better, but to tackle
the problems you are facing as soon as possible. If that means
spending some time on a strategic plan, do it. If that means
developing an organized marketing scheme, do it. If that means
scouring your business of unnecessary costs, then scour away.
Whatever you decide is necessary, never rely on the gods and
goddesses of small business fate to smile on you. After all, the
future is full of unplanned-for surprises, which leads to another
set of responses from CPAs.
Accountants’ Crystal Ball: Challenges for the Future
When accountants were asked to stare down the small business road
into the future and gauge what the primary challenges facing
entrepreneurs would be, their number one response was
profitability — specifically, productivity and cost, according
to 42 percent of respondents. Marketing and sales, mastering new
technology applications, and general business conditions were the
challenges mentioned most frequently thereafter.
“Allocating scarce resources is always the biggest
challenge,” asserts Lou Barbich. “Small business owners spread
themselves so thin. If they are trying to do everything
themselves, it will never work. And while it’s hard for a small
business owner to hire top people to take on some of the work
load, you just have to focus on what you’re best at. You can’t
worry about all the other things you might be doing; the key is
prioritizing what will yield the most benefit.”
One respondent elaborated on how he felt small firms were
lagging behind in adapting to current business conditions. “Too
many small operations have not recognized that they need to
change to the 1990s service culture,” he said. “They have to
become focused on making the customer happy.”
Judging CPAs’ Services
Small businesses should first judge the quality of the CPA
services they are receiving by the personal attention they get
from the accountant, according to survey respondents. Ranked
second was the CPA’s advisory ability, while independence and
integrity are also considered crucial determinants.
Accountants advise entrepreneurs who are thinking of hiring
a CPA to find out whether that CPA is interested in their
company. The prospective CPA should take an active, helpful
approach and appear genuinely committed to getting to know your
business and your industry well. If not, perhaps you could drop
some hints about key considerations with which you deal. If the
candidate still doesn’t seem responsive to what’s important to
you, you probably are talking to the wrong person.
“At some point there has to be a personal `click’,”
Look for Specialization, Objectivity and Knowledge
“People in the accounting profession should try not to work
in industries they know nothing about,” advises Bersch, who
headed the construction division of the Big 8 accounting firm
Touche Ross before it merged with Deloit Haskins & Sells. More
accountants are specializing in particular industries, and in
Bersch’s opinion, that’s the way the profession should be moving.
Barbich similarly feels that specialization is a positive
trend. “You can’t be everything to everyone,” he says. “As a CPA
you should select a specific industry or field of expertise —
it’s just too complicated otherwise.”
As an entrepreneur, choosing an accountant with expertise in
your field makes sense. For example, if you decide to sell your
business, try to buy out a competitor or raise money for
expansion, a well-connected accountant can help you in ways you
might not have previously considered.
As Barbich explains, “One of my clients owns a computer
software company here in Bakersfield and was in need of venture
capital in order to expand nationwide. I knew an investor who I
thought could help. Of course as a CPA you have to remain
independent, but at least I was able to get these two parties
together and let them work it out.”
Adds Bersch, “We run around thinking that our ability to
fill out tax forms is what we have to sell, when clients can
easily buy that elsewhere. Objectivity is our most important
asset, and unfortunately we don’t emphasize that enough.
“Every CPA should have an independent attitude,” Bersch
continues. “Whoever hires us gets the facts,” whether or not
those facts seem favorable to the client we’re representing.
As mentioned previously, sometimes companies don’t ask for
help from their accountants because they are loath to take on the
work involved in problem-solving. “Another big issue,” says Craig
Castanos, “is that clients tend to be very fee-sensitive.”
Diane Conant agrees that fees are a concern for clients, but
maintains: “If we have a client who hasn’t used a CPA before, we
demonstrate that we are well worth the fees we charge. After all,
a computer can currently prepare tax returns. A CPA is needed to
interpret data and assist in management decisions.”
Other accountants expressed their feeling that when it is
easy for a client to see a value-added benefit — such as the
accountant being familiar with a particular industry or knowing a
possible investor or buyer for the business — reluctance to pay
fees is far less. For services where accountants are harder to
differentiate from one another — such as normal tax preparation
— clients are more sensitive to price and understandably want to
Know When to Ask for Help
Accountants surveyed overwhelmingly responded that the most
crucial problem they face in their relationships with small
business clients is that clients do not ask for help soon enough.
Brink-of-disaster situations can usually be avoided if clients
will force themselves to be realistic and plan ahead, CPAs
Another frequently mentioned problem is that clients keep
poor financial records and do not act on the advice given them by
their accountants in a timely way.
But the tides are turning, according to respondents, and
more small business owners are discovering the broad range of
help they can obtain from their accountants. How fast is the
shift toward soliciting more help and expertise from this
“When a need arises, the shift is rapid,” says Barbich. But
when the need hasn’t yet been manifested, it’s still hard to
convince clients that they should be doing so.
Accountants Share Success Stories
Following are what survey respondents describe some of their best
success stories as a result of using their broader expertise to
help small business clients thrive.
* Set up a family council to improve communications among
members in a family-owned business. Established family mission
statement and policies.
* Implemented use of a new computer software and networking
package and trained personnel for a client who was working in
the “computing dinosaur age.”
* Guided a small business back from near bankruptcy to
* Took a small manufacturer from $1 million to $40 million in
sales with a pre-tax profit of $3 million through strategic
* Designed a business plan to raise equity capital for a client
and helped negotiate a merger.
Convinced? As these examples clearly demonstrate, an
accountant really can be like a good doctor — a skilled and
trusted practitioner who brings an expansive range of skills to
bear and works closely with you to keep your business in optimal
TEN SIGNS OF TROUBLE
Check with your accountant if your company has problems in any of
1. Poor Financial Reporting
2. No Strategic Plan
3. Dependence on Borrowed Funds
4. Overburdened Management
5. Poor Financial Forecasts
6. Lag between Sales Growth and Profit Growth
7. Poor to No Cash Management
8. Late with Payroll/Tax Deposits
9. Inability to Change, Adapt and Upgrade
10. Inability to Recognize Company Shortcomings
USE BUDGETS AS A MANAGEMENT TOOL
Between the strategic forecasting necessary for long-term
planning and the detailed reviews for auditing and taxes lies a
neglected yet important need for small businesses: budgeting.
Most small firms do an inadequate job of establishing annual
budgets, says Craig V. Castanos, a certified public accountant in
San Diego. Preparing a budget is not difficult, he asserts, and
is an excellent management tool for monitoring monthly income and
expenses, identifying problem areas early, and improving the
bottom line. Castanos describes the four basic steps to preparing
1. Prepare a detailed “chart of accounts.” This will help you
track budget variances to specific accounts. Typical accounts
include sales, cost of sales, payroll, telephone and
2. Identify a method for estimating each income and expense
account. An easy and accurate method is to base next year’s
estimates on actual results from this year and last year. You
could also base your estimates on information from suppliers
or on overall industry averages.
3. Prepare a budget. Assemble the estimated information into a
12-month budget. Are sales and expense estimates reasonable?
Will you fluctuate between fat months and lean months?
4. Monitor and adjust the budget. Nobody can foresee everything,
and deviations from your expectations will naturally occur.
Monitor actual performance against what you had expected and
adjust your budget accordingly.
PROFILE: CPA BREATHES LIFE INTO FADING DEAL
“They didn’t bring me in until the deal was just about dead,”
prefaces Lou Barbich of Barbich, Longerier, Hooper & King in
Bakersfield, California. Yet despite being called in at the
eleventh hour, he was able to successfully help a client
negotiate an acquisition by a larger company.
Barbich’s client, a family-owned Bakersfield firm in
operation for more than 30 years, had been working with a
business broker in an attempt to complete a sale worth millions
“When the father of this family called me, he was very
discouraged,” Barbich says. “I learned enough about the deal in
talking with him to know that the potential acquirer was in
excellent shape, and that if the deal went through, my client
would gain valuable stock in it as a result. I then phoned the
guy at the large company and talked to him directly about the
mired-down deal. After a previous six-month period of
negotiations, we managed to put together a package in about two
“I have been involved with this family’s business for years,
and was therefore able to answer questions about it that were way
over the head of the broker,” explains Barbich.
Not only did the accountant’s knowledge of financing and tax
issues prove an asset, but his familiarity with the client’s
business and industry meant he could clear up some misconceptions
that had arisen out of poor communication between the broker and
the acquiring company.
“We don’t always get the opportunity to help this way
because people just don’t think of their CPA in unusual
situations such as this,” Barbich notes. “Of course, some CPAs
are just tax preparers, but many have the expertise and breadth
of skill to do far more.”
And that help can deliver results: Barbich says that the
value of the stock his client received in the acquisition deal
has already doubled.
“Now I am helping my client with estate planning because his
problem is that he has too much value,” Barbich concludes.
PROFILE: BUSINESS ADVISERS, NOT BEAN COUNTERS
Hodgson Associates, a Boston accounting firm, specializes in
small business management issues. “We want to be seen as a group
of individuals who are more than just bean counters or narrowly-
focused tax specialists. We are business advisers,” emphasizes
Jim Pratt (shown at right), an eight-year member of the firm.
As business consultants, Hodgson accountants often examine
management practices in order to improve profitability and
decrease expenses. Recently, for example, a small plumbing
company came to Pratt with tax problems. After examining the tax
and other financial records, Pratt noticed that his client was
using a pay-as-you-go program with his supplier, and recommended
that the client obtain financing to take advantage of commonly
offered cash and bulk discounts.
Another important factor in the firm’s success is its wide
variety of business contacts. “Most people don’t realize that
accountants have a network of people they continually utilize,”
Pratt says. For this reason, an accountant can be the entree to
outside resources and help – preparing and introducing clients to
qualified professionals such as bankers, insurance brokers and
Pratt suggests that a small business looking for an
accountant seek someone who is involved in the community and
knows the area. In addition to availability and qualifications,
Pratt advises choosing someone who is responsive in addressing
client needs quickly.
PROFILE: CPA HELPS AVERT FINANCIAL CATASTROPHE
A contractor working on a co-generation incinerator faced
financial catastrophe until CPA Dennis Bersch of Bersch &
Associates in Milwaukee, Wisconsin pointed out that he was not
liable for expenses incurred when construction plans changed due
to new environmental regulations.
Bersch has spent more than 35 years as an accountant
specializing in the construction industry, and as a result is
often more familiar with the ramifications of regulatory changes
than are contractors themselves.
“The contractor was referred to us by a bank after missing a
few payments due to losing money on this specific project” which,
according to Bersch, was a multi-hundred-million-dollar waste-to-
energy conversion plant.
“Due to new environmental regulations, our client — who was
acting as a subcontractor — had to make changes in the work
being performed. We pointed out that asking for extra money on
the project was completely justified. The client had rights he
was not asserting,” recalls Bersch.
“We then put together a claim form, and along with the
client’s lawyers served this form to the prime contractor. I
subsequently bumped into the prime contractor’s president at a
trade association meeting,” Bersch adds, “and advised him to
settle or he would end up spending a lot of money and have a lot
of lawyers at each other’s throats.”
Within a month, Bersch’s client received the exact amount he
had requested from the prime contractor.
“In these situations it can be difficult for people to look
at things objectively,” notes Bersch. “But that’s our job as CPAs
— to be objective.”