Pinching pennies Featured

7:00pm EDT November 25, 2010

If you are sending your senior executives out into the parking lot to look for coins to help you meet this week’s payroll, your financial woes may be beyond repair. But for everyone else, there are a lot of ways that you could be working with your accounting firm to benefit your business.

The first step is to get beyond thinking of your accountant as someone who just helps you with taxes. Most accounting firms now offer a wide range of financial advisory services that, when properly utilized, can help you do anything from manage your cash flow better to meet the challenges of health care reform. But what might really grab your attention is that your firm can help you come out of the recession in sound financial condition, ready to take advantage of any opportunities that present themselves.

“Although the recession forced many companies to explore cost-saving and efficiency opportunities, in some instances, those companies may have simply deferred maintenance and now realize there are opportunities to invest and further elevate their operational efficiency and effectiveness,” says Steve Howe, Americas area managing partner, Ernst & Young. “They’ll be seeking resources that have proven experience in identifying and executing on these opportunities. Accounting firms will offer experiences and best practices to draw upon, having met similar challenges with other clients or market sectors.”

Even something as simple as getting all of your reporting done on time can mean the difference between success or failure. Why? Because your lenders want to know what’s going on.

“I think it puts them in the best possible light they can be in with their big creditors,” says Roger Hendren, Dallas office managing partner, McGladrey. “Along with that, an accounting firm can coach its clients to make sure they have the right financing in place — in terms of length of debt agreement, the covenants that regulate the agreement — so they’re positioned as well as they can be and they can have the right access to the credit they need so that when the recession goes away, they can take advantage of what should be a big upturn.”

When was the last time you took a look at your cost structure? Two years ago when the economy fell apart? It’s time to look at it again. A good firm can also help you create a more cost-efficient supply chain and identify costs that are not critical or essential to your core mission. And then there are also the tried-and-true tax opportunities accountants are known for. Maybe now would be a good time to reorganize your debt or capital structure to take advantage of either lower interest rates or sources of capital that would make things easier for you.

But the only way to find out what areas you can get help with is to share information with your accounting firm, and it should be interested in hearing what you have to say.

“The best way to advise the business is to understand the business,” says Randy Myeroff, president and CEO of Cleveland-based Cohen & Co. “You have to know what makes it tick; you have to know what the owners are trying to accomplish. You have to have some kind of base where people are trying to get to in order to be helpful. At the moment, it’s not a lot of rocket science. To get through a tough time, you really better have strong metrics and good internal information that’s giving you good feedback so you can understand the market and where it’s moving.

“Everyone’s got very short time frames in their minds. Everyone used to think about three-year plans and five-year plans. Now, to survive, a lot of businesses are thinking about three-week plans and five-week plans to monitor where backlog is, where labor percentages are, where the costs of commodity are moving. You’ve got to make sure they have really good information systems so they have great information and can react accordingly. It can’t just be about cutting costs and playing defensive strategies. You’ve got to understand your business, still take risks and be aggressive if you have opportunities to grow the business. You have to monitor and measure, because the tolerance for errors is a lot smaller than it used to be.”

Moving forward

You might be happy sitting in the status quo, standing pat until it looks safe to come out again. But your competition is already on the move, so you better start talking to your accounting firm to find out what your options are for the future.

“Looking forward, based on the last 90 days, our business has really been ramping up, and I see it a lot more over the next 18 months and part of it is tax-related,” Hendren says. “There’s kind of a pent-up demand for acquisitions, which will require us to be more hands-on and active. At some point on the real estate side, they’ll venture back into new projects and developments that will require our assistance.”

CEOs are sensing the worst is over and are looking to make some strategic moves while prices are at historic lows.

“We’re hearing from many of our clients the desire to reposition their companies through varying merger and acquisition transactions,” Howe says. “This includes everything from carving out noncore businesses to growing through transactions. Many are looking for ways to leverage opportunities to expand their product lines and markets as well as their geographic reach. Accounting firms will play an essential role post-recession in helping clients evaluate, execute, implement and integrate these strategic alternatives, including identifying risks associated with the entrance into markets and processes to manage those risks.”

When you have a solid relationship with your accounting firm, it understands your business and you get a better idea of how it can help you with something other than your tax return. In fact, many firms have seen growth in areas that in years past, weren’t associated with accounting firms at all.

“Our experience has been that in some of our competency areas — specifically strategy and operations, technology integration and human capital consulting — our clients are using us more,” says Blaine Nelson, managing partner for North Texas, Arkansas and Oklahoma for Deloitte LLP. “In fact, those practices have been growing even during these tough economic times. In some areas of tax services — mostly in the international, multistate or transfer pricing arenas — we’re finding an increase in demand for our competencies, and many companies have been looking for more consulting around enterprise risk management, as well.”

Finding a new partner

If you ask your current accounting partner about something other than taxes and his or her eyes glaze over or if he or she doesn’t bother to return your calls in a timely manner, it may be time to start a new relationship.

“You should change any time you think there’s a mismatch,” Myeroff says. “Even though there is overlap, firms are in business to do different things. There’s a market that doesn’t need an advocate but just needs us to get stuff done for them at an affordable price. There are larger firms that talk about being advocates and advisers, but if you dig deeper, there are people in those firms who are good, but the firm’s strategy or overall model might be based on something else.

“If you have a mismatch, understand that different firms do different things and you need to find the category or firm that will really suit your needs. If you’re not feeling like there’s engagement and advocacy, there’s never a bad time to switch, particularly in a difficult market.”

Just like you might always b e looking to find a better deal on office supplies, you need to be open to the idea of upgrading your accounting firm. But be careful about how you go about it.

“Since business itself is a dynamic activity and change is constant, companies should always be open to either improving or upgrading their relationships,” Nelson says. “Whether they’re considering upgrading, changing or improving the relationships they have either with a new accounting firm that can offer a greater depth and breadth of services or a new law firm, banker or insurance provider, companies should always be examining the benefits of increasing the variety of competencies that new providers can bring them. It’s also important to point out that being served by service providers who know a company well — and know it in a nuanced way — can provide a level and quality of service that a firm that doesn’t would have more difficulty offering.”

The other thing to take into consideration is the timing of any move you make.

“The real strong advice to anybody who is thinking about switching: Do it early in your year,” Hendren says. “You don’t want to wait until November or December, because you need to make sure the firm has enough time to get up to speed, get your work scheduled, understand your needs, and you don’t want to rush into all of that between Thanksgiving and Christmas. It needs to be done well in advance so that everyone’s comfortable and you can go through it in a real orderly transition.

“But I think because of the recession, accounting firms’ pricing is more competitive now than any time I’ve ever seen it in 32 years. Pricewise, now is the time to look around. But timing is the most important thing. I can’t overemphasize that enough. We’ve seen a lot of people change, and we’ve worked with a lot of people on changes, and we’re willing to do it on a hurry-up, but it works so much better in a more orderly fashion.”

Prices are low, and there are a lot of companies out there that want your business. But take your time, find the right match and follow the same principles you do with any other major investment.

Make sure all fee arrangements are clear and understood by both parties at the beginning of the relationship, and decide how much contact you are comfortable with. Do you prefer a formal quarterly meeting or informal contact several times a week? Work out the details in advance and don’t base your decision on price alone.

“I would caution companies to look out for the ‘too good to be true’ deal of low fees that is tempting short term but is not based on an in-depth knowledge of the company and its true risks and value drivers,” Howe says.