Diversification Becoming A CPA Norm

February 1, 2005
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GRAND RAPIDS — With its office at the Amway Grand Plaza Hotel and faithful clientele of small business and individual wealth, Coda & Morgan PC CPAs is a picture-perfect example of the traditional regional accounting firm.

Its three CPAs and half-dozen total employees rank it as one of the smallest on the Business Journal’s list of public accounting firms.

For the two decades its partners have been in private practice, the firm has concentrated on the core accounting principles of tax preparation, auditing and bookkeeping, only recently extending itself into complementary services like investment management and pension administration.

Firms like Coda & Morgan are fast becoming a rarity in today’s marketplace, however, as more and more CPA firms expand services.

“We’re seeing a lot of the firms migrate in different directions and broaden their service offerings considerably,” said Don Morgan, managing partner. “They are becoming the Meijers of financial services. Back when I started in public accounting, many of these things that people are doing these days were unheard of.

“People who did this work initially were regarded as doing something not appropriate for CPAs.”

“I’ve been doing this for 30 years,” said Eric Adamy, managing partner of Adamy & Co. “And when I finished college, you had two choices: accounting or tax. Now I don’t think you could even put down on a list all of the things that accounting companies are doing.”

Morgan explained that historically when a client was in need of investment services, he’d refer them to a stockbroker. For pension administration, he’d send them to an actuary. Now, both services are done in-house, with Morgan’s firm on the conservative side of integration.

“Some of the big national firms, they’ll finish your tax returns and then take you to an estate planner,” he mused, “then walk you down the hall to handle any financing you need, wage consulting, personnel issues — up to and including cleaning your offices.”

This began, he said, with computers. When accounting records became electronic, auditors by necessity developed computer skills or hired someone with those skills to access and maintain records.

Crowe Chizek and Co. LLC has been doing technology consulting for 40 years and works with Fortune 100 companies in that capacity. In recent years it created industry-specific consulting practices for finance, auto dealers, agribusiness, etc.

The firm has a group designated to helping clients buy businesses and another devoted to selling them. Its merger and acquisition work has birthed a full-scale service for private equity groups with deal finding, negotiation, due diligence and ongoing maintenance of those portfolios.

Another “odd duck for a CPA firm,” Crowe Chizek has a 40-person group devoted to marketing and branding from client requests for market research.

“We have always been a firm that has gone way beyond the traditional auditing and tax work,” said Robert Herr, managing partner. “We’ve offered a lot of these services for as long as the firm has been around, just listening to what clients need and then trying to help them solve those problems.”

Herr said that for the last 30 years half of the firm’s revenue has come from outside audit and tax work.

“Firms migrate into it because of market and client demand,” Herr said. “Clients are requesting these opportunities and they would just as soon work with one provider when they can.”

Dennis Nickels, lead consulting partner for Deloitte Consulting, was brought to the West Michigan market last June to drive growth within Deloitte & Touche LLP’s consulting component.

A Big Four national accounting firm, Deloitte also is the world’s largest professional services firm, Nickels said. Of the Business Journal’s 10 Newsmaker of the Year nominees, Deloitte was involved in five of them, most notably the proposed relocation of the MSU medical school.

Like Crowe Chizek, Deloitte’s largest consulting area is technology. And like Crowe Chizek, it responded to the changing marketplace.

Deloitte’s consulting practice has seen growth within manufacturing, Sarbanes-Oxley compliance, health care and life sciences.

“Our focus parallels the marketplace, both as it is today and as it positions itself to evolve, both in terms of the people and the competencies that we have and are adding.” Nickles said.

Deloitte’s client base consists of the largest and most ambitious of companies: $200 million companies and beyond. Crowe Chizek’s range starts with $50 million companies, with some smaller middle-market clients, and individual tax returns.

Small and midsize businesses have just as much demand for integrated services, Adamy said, and his 14-person firm approaches that market with that philosophy.

“That has set us apart from some of the larger firms that have the sophisticated level of service but don’t focus as much on the small and midsize market,” he said. “And it sets us apart from some of the small accounting firms that focus on that market but don’t have a very sophisticated level of services.

“We’ve found that niche.”

Adamy has found that $20 million to $30 million companies are very interested in the specialized services available at the larger firms, but don’t want to deal with a large firm.

By concentrating on closely-held businesses — many of those family-owned — his firm has been able to develop specialized services like business evaluation, succession planning, fraud detection, cash-flow management and strategic planning aimed at that segment.

The best evidence of the field’s diversification, Adamy said, is that the very large firms don’t call themselves accounting firms anymore.

“If you look at their Web site or their literature, you have to dig pretty deep to find out they are a CPA firm that does a lot of other things,” he said. “They don’t want to be buttonholed and called an accounting firm because they can do so much more.”

This has even spread to the smaller firms: Adamy refers to his firm as “CPAs and consultants.”

While there are some concerns, Adamy said that diversification has been good for the industry.

“It’s forced CPAs to be broader and more knowledgeable. You can’t get away anymore with just being an accountant,” he said. “The client wants more of a one-stop shop. He doesn’t want to go to one place for accounting and another for strategic planning.”

The trend does not hold for all firms.

Larry Goodlander, of Goodlander & Co. CPAs PC, has felt no pressure to expand into other services.

“I think there is more and more a place in the market for what we do,” he said. “The larger firms are concentrating on the bigger business clients, saying that’s where their niche is, leaving many individuals — some of them with great wealth — and the whole area of small business, needing services.”

Goodlander’s six-person firm concentrates on businesses with less than 100 employees; the majority of clients have fewer than 20 employees.

“Not saying we don’t see some competition from them in that particular niche, but they are much more anxious to serve the larger businesses.”

Goodlander is an alumnus of Ernst & Young and continues a working relationship with the Big Four national firm. He sends them referrals and goes to alumni parties.

He said he doesn’t feel threatened by his former employer — especially if it continues to overlook physicians, engineers and other high-income professions for individual tax work.

And it’s not that he hasn’t considered diversifying —— he just hasn’t seen the need.

“There are other small firms doing it, and we’ve all at least thought about it. My feeling is that I can only do so many things well.”

In fact, he believes many of his clients appreciate that he isn’t diversified.

“They look at me as an independent advisor,” he said. “Because we’ve opted to stay with only traditional services, if someone asks me a question about what they should be doing from a tax or financial planning standpoint, they know that I don’t have a vested interest in turning around and selling them that product.”

Echelbarger, Himebaugh, Tamm & Co. has expanded its services past traditional accounting into areas like technology, business evaluation and litigation.

“As the marketplace turns out, that may not be an advantage any longer,” said Dennis Echelbarger, managing partner.

In the post-Enron market, new regulations and scrutiny have centered on the auditing profession’s integrated services. Even outside of the confines of Sarbanes-Oxley, the opinions of accounting firms serving clients in other capacities may come into question.

“We’ve been cognizant of that for a long time,” Echelbarger said. “Instead of attempting to be everything to everybody, we have to take a look at whether it can create the appearance of a conflict of interest.”

Echelbarger is the government affairs liaison for the Michigan Association of Certified Public Accountants. He has done similar work at the national level.

“I’ve been fortunate to have a top-end look to what is happening in the industry,” he said. “I see the profession as doing one of two things. You’re either going to be very specialized or you’re going to be offering test services only.”

Ironically, the scandals of the early 1990s are now driving the growth of the auditing field.

Herr reported that as a result of Sarbanes-Oxley, Crowe Chizek is expanding in the area of enterprise risk management and corporate governance consulting. Nickels reported Deloitte is doing the same.

In fact, USA Today reported last week that the ranks of the accounting profession have swelled 2.4 percent in the last three months alone. On-campus hiring is up 45 percent over two years ago, with an expected 20 percent increase this year.    

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