The lingering recession has encouraged people to...
The lingering recession has encouraged people to look for security. Banks and other lenders are being more careful, too, requiring more applicants to produce an independent, certified audit of their finances before granting loans. That is keeping accountants very busy, said Stephen P. Milner of Squar & Clarke in Irvine. His mid-size firm specializes in real estate, manufacturing and escrow business. Milner recently spoke with free-lance writer Anne Michaud about what businesses should look for when choosing an accountant.
You have said that during this tax season you’ve had more calls than ever before from businesses seeking accountants. Why is that?
One reason is that everybody’s in a quest for financing. That includes maintaining current financing options--operating lines of credit, which are the mainstay of any business.
It’s really the lending institutions that have generated the demand for independent (financial reviews). They are saying that they want an independent accountant to give them that one more piece of comfort. To say, yes, someone’s looked at it and the numbers may not be good, but at least we know the numbers are reasonably accurate.
This (request for reviews) has happened in a number of businesses, certainly anything to do with real estate. Contractors who were never bonded are uniformly being asked to be bonded.
What does bonding guarantee?
Completion of the project, that the subcontractor has the financing capabilities to complete the job. If he doesn’t, the surety company steps in and makes good.
What were business doing before these new requirements?
Working with the bank. They would work directly with the bank and say, “You know me, I’m Joe. You know where I’m going.”
Now the bank is saying, “That’s not good enough. I know you, but my lending committee doesn’t.” Bankers have tremendous pressures from bank examiners and from Washington to make sure that every ‘i’ is dotted. And if it has the two words real estate in it, you better make sure that everything is dotted because real estate is under such scrutiny. Even great projects are under scrutiny.
What should a business expect from an accountant?
You should be getting three things from your accountant. Superior service. The service industry is like any other; it’s as competitive as all get-out. They have to deliver the service, which means they have to develop a relationship with you.
Your accountant--and your lawyer, for that matter--should be helping you by putting you in contact with their other clients. Obviously, if you’re a general contractor, you want to meet the developers. If you’re a subcontractor, you want to meet the general contractors. If you’re a manufacturer, you want to meet a distributor. I have found through the years that it’s best to set up small lunches.
The last thing is a superior work product. That includes the tax return, the financial statements and everything else.
How do you know when your accountant is producing superior work?
To tell you the truth, if you’re not an expert, you won’t know immediately. But other consultants know these people. If you’re dealing with an accountant, the (local) lawyers are going to have an opinion about that accounting firm. You look to see if your accountant is current with businesses like yours. How many manufacturers, for example, does he have as clients?
What else should someone look for before hiring an accountant?
Does your accountant publish articles? Does your accountant talk before your industry group? Does he participate in round-table discussions?
It’s hard. There’s a perception that all accountants are the same. But accountants have different expertise, different types of people they get along with.
What about matching the size of the business to the size of the accounting firm?
There’s a tendency to go too low or too high. Sometimes the bank or lending institution will want to see one of the Big Six (accounting firms). Often it’s best to ask the bank why they’re requesting that. Is it because the Big Six do good work, or is it because that’s all the banker has on his list? If you’ve worked with an accountant (who is not with a Big Six firm) and you want to stay with that person, the bank often will talk to them and check out their credentials. But find out why, because obviously the fees are going to be a lot less (with smaller accounting firms).
If your lending (source) is a Japanese company that will only accept a Big Six, that’s who you should stay with.
The other tendency is to go too low. Someone will say, all I want to do is pay the minimum fee for accounting and tax services. That’s the worst of all possible worlds, because there are a number of accountants who will take your information and just translate it into a tax format or a financial statement format, without giving you any tax savings help. So, if you pay $500 for that kind of return instead of $1,000 (with some other accounting firm), you may pay thousands more in taxes. So, don’t pinch the penny too hard.
Do people call you only during tax season?
No. That’s kind of a myth. We’re obviously busiest between the periods of January and April, but the work is there in the summer as well. In fact, you do not have the right relationship with your accountants if you only see them at tax time, especially if you’re a business.
For example, after an accountant finishes your tax planning, he should be talking to you about all the tax planning to close out the next year. That can include restructuring corporate entities to creating deferred benefit plans for employees.
