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Expanding Services Reflects Well on the Bottom Line

Accountants Become Consultants in Greater Numbers

Accountants, especially those at Big Five and other large firms, are making more of their revenues through consulting rather than traditional services of auditing and tax preparation work.

The trend, which has been under way over the last two decades, is driven mostly by the accountants’ business clients which are asking the firms to do more than simply look over their books and render an opinion, say a sample of local accountants.

“If these clients had their druthers, they would rather spend their money in areas that ultimately enhances the profitability of their company (rather than auditing),” said Patrick Tabor, managing director of the San Diego office of RSM McGladrey Inc., based in Bloomington, Minn.

The auditing and tax work his firm provides naturally spills over to providing any number of services that can boost a firm’s bottom line. These services may include anything from long range strategic planning to advising a firm on how it should set up its human resources department to helping it install a new computer system, Tabor said.

The consulting work, often referred to as “value-added services,” is where many larger national firms as well as smaller boutique firms have seen most of the increase in revenues, while auditing and tax preparation revenue has lagged, Tabor said.

– Increase Predicted For

Consulting Revenues

“Our firm predicts within five years, 70 percent of our revenue will come from the services we provide in five categories (of consulting services) and 30 percent will come from the traditional auditing and tax practice,” he said.

As was true at all Big Five firms , the five largest accounting firms in the nation ,interviewed for this article, consultancy billings lead the way at Deloitte & Touche’s two San Diego offices, said partner Helen Adams.

“The clients that we only do attest (auditing and review of books) work for are among the minority,” Adams said.

More and more, companies are seeking advice from their most trusted service providers , their accountants , to solve many of the key issues they face, Adams said.

For example, in terms of operations, Deloitte & Touche offers industry-specific benchmarking programs that measure a company’s performance in a variety of categories compared to its peers.

With this tool, a retail company can see how quickly its inventory turns over for a year, compared to competitors of a similar size, and make changes if the numbers aren’t up to snuff, she said.

– Firms Assisted In

Developing Programs

As another example, Adams said her firm is working with a well-known San Diego corporation to develop an employee retention and incentive program called “Employer of Choice.” The program uses many of the same employee practices developed by Deloitte that helped it earn eighth place on Fortune magazine’s 1999 Best Places to Work list.

According to the firm, Deloitte Consulting’s revenues grew to $2.4 billion for the year ended May 31, 1999, a 35 percent increase over the prior year’s billings.

The type of client Adams generally works for is a high-tech, publicly traded firm with revenues ranging from $10 million to $100 million annually, she said.

David Down, managing partner for the San Diego office of KPMG LLP, concurs that as accounting firms become more familiar with their clients’ business, a sense of trust and expertise develops, resulting in a company’s management team relying more on the firms for advice in all sorts of areas.

“They may want information on the type of technology system to purchase, or on their E-commerce,” Down said. “It’s not so much what their competitors are doing, but what their industry is doing.”

Although the trend toward ploughing for increased revenues via consultants’ fees is more pronounced at the largest firms, it’s something that even smaller, local firms are doing as well.

– Small Firms Also

Seek Consultancy Work

Cary Mack, one of the two founders of Bruno, Mack & Barclay in San Diego, said between 80 percent and 90 percent of his firm’s revenues last year were derived from consultancy work.

Among the types of consulting the firm does are evaluation of economic loss claims on a business usually involved with commercial litigation cases, and advising clients on information technology and software solutions, Mack said.

While the firm also offers tax planning and financial reporting for entrepreneurs and wealthy individuals, the focus of the business is consulting services “that will make a meaningful difference on their profitability and problem-solving efforts,” he said.

“When a business can see a meaningful effect on its bottom line then the demand for those services is greater, and your fees are higher,” Mack said.

The strategy apparently has worked well. Since its founding in 1990, Bruno, Mack & Barclay has expanded from two partners to a staff of about 60, Mack said.

But not everyone subscribes to emphasizing consulting over the traditional audit and tax preparation.

Bob Lofgren, partner in the San Diego firm of Lavine, Lofgren, Morris & Engelberg LLP, said the role of accountants has evolved somewhat in providing more advice to clients on such issues as estate tax planning and merger and acquisition deals. However, the bulk of his firm’s work remains financial auditing and tax reporting.

The firm serves business owners and their companies, some of which have annual revenues of up to $200 million but primarily in the $2 million to $50 million range.

Lofgren says his firm is an alternative to a Big Five firm. It has all the technical expertise of the largest firms but isn’t charging the same prices, he said.

And if you’re looking for an expert on setting up a new computer system or human resources department, they can make references, but can’t provide the specific technical service.

Lofgren said companies should be aware that what passes for expert advice really isn’t.

“I can’t tell you how many people say they are experts or great consultants, and then you find out they only did it once,” he said.

As a result of changes to the state’s accounting regulations, Lofgren said his firm is considering selling insurance and managing stock portfolios, but that decision hasn’t been made yet. He noted if the firm does go that route, it would not be able to provide that client auditing services.

Yet another factor causing some accounting firms to boost their consulting business is the fact of increased computerization at many companies, said Steven Wimmers, a San Diego accountant and president of the local chapter of the California Society of Certified Public Accountants.

Many small businesses that used to depend on his record-keeping services are now using relatively new software programs, such as Intuit’s Quickbook, to do their own financial statements, Wimmers said.

Instead of spending more time compiling and reporting a company’s financials, small accountants such as Wimmers are reviewing the figures for accuracy, and helping the clients analyze what the numbers mean, and how their operations may be improved.

Even a small accountant like Wimmers gets involved in activity other than simple auditing and tax advising. Among the consultations he’s done are business evaluations involved in legal disputes or for potential acquisition, and retirement and estate planning.

Wimmers and others caution small businesses using the software reporting programs that while these may save time, the reports should always be reviewed by a CPA before final delivery.

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