Accounting firms no longer recession-proof
| Posted: Monday, March 9, 2009 |
The recent downturn in the economy has shattered that myth.
Some of Nashville’s largest CPA firms are adopting strategies to cope with the challenges, and even the opportunities, of doing business in the worst economic climate in decades. Clients who lose money, enter bankruptcy or go out of businesses either may not need accounting services or, worse, may not be able to pay for the services they have already received. Others may forego the discretionary services that are a profit center for CPA firms or even shop down-market for a cheaper accountant.
David Morgan, co-managing partner at Lattimore Black Morgan & Cain, which has 400 employees across the state, summarized the industry’s new challenges this way: “Clients still have to file their taxes if they lost or made money. Much of what we have to sell, people still have to buy. But selling it and getting paid for it are two different things.”
That challenge became clearer when the firm received a bankruptcy notice for a client it worked with last year.
“We are an unsecured creditor just like everybody else,” Morgan said.
Firms like LMBC that provide diversified services are well positioned to weather the storm, but the recession is likely to “shake loose” weaker competitors, Morgan said.
The challenge for CPA firms is that the current economic crisis has spread so quickly and deeply throughout the economy, said Bob Whisenant, partner at Horne LLP, which has 550 employees working in five states. The last deep recession had its roots in the late 1980s, when Congress changed tax laws affecting commercial real estate. The savings and loan sector was devastated, but the rest of the economy was largely unaffected.
“This one is different,” Whisenant said of today’s downturn. “It’s not just S&Ls. It’s automotive and building and housing and everything that builds off of that. It’s consumer confidence. It’s not business as usual when clients who historically pay you on the 10th of the month aren’t being paid themselves. It’s a domino effect.”
Still, CPA firms are finding that the economic downturn can create new business opportunities, said Larry Morton, an executive at Crowe Horwath LLP, which has about 2,500 employees nationwide. Some clients under pressure to cut staffing costs are turning to their CPA firms for additional services.
“A majority of our clients have been proactive in taking cost-cutting measures, including the reduction of accounting and financial staff,” Morton said. “Some companies have decided that outsourcing of services is an option to keep their full-time staffing down. This is an opportunity for qualified accounting firms to provide assistance.”
In some cases, a recession can also be good for specific accounting firm divisions that specialize in assisting troubled clients. Take the Turnaround & Restructuring Group at Kraft CPAs, for example.
“Those guys are going strong,” said Vic Alexander, Kraft’s chief manager.
But what’s good for the turnaround division can cause headaches for the rest of the firm, whose clients are feeling a “ripple effect” from the recession, Alexander said. As a result, Kraft, which has 160 employees, “budgeted down” when forecasting its 2009 financial goals. The firm, which has enjoyed double-digit growth over the past five years, originally planned for 8 percent revenue growth in 2009. Since the beginning of its fiscal year in November, Kraft has ratcheted that down a bit further, but still expects positive results for the year.
This recession may be the worst in decades, but it isn’t the first that Alexander has seen.
“Our firm has the benefit of 50 years,” he said. “This isn’t our first rodeo.”
While Alexander said he certainly isn’t excited about such difficult economic times, he, too, sees opportunity.
“Everyone needs accounting services,” he said. “Especially in difficult times, their accountant can be a great resource. A lot of times the issue is, does the client see this.”
Whisenant said clients are inclined to try to save money by spending less with their CPA at the very moment they need accounting services the most.
“A good CPA will work with his client to find ways to improve cash flow, take advantage of tax credits and incentives and help them weather the crisis. It is times like these that a CPA can be of most value to their client,” he said.
And though today’s economic crisis proves that accounting firms are not recession-proof, managers of Nashville firms are optimistic about the future. Staff reductions that have occurred at some large national firms have not reached the city. In fact, a number of local firms are keeping the hiring pipeline open.
But professional salaries, driven rapidly upward by a severe shortage of trained accountants in recent years, are expected to grow at a slower pace, if at all. The bottom line, said Kraft’s Alexander, is that the recession has accounting firms watching their bottom line, just like every other business.
That’s why clients can expect to be politely reminded that their relationship with their accountant is business, not personal. Contracts are likely to spell out the requirements for prompt payment of billings. Clients may be asked for installments. If payment is not received, clients shouldn’t be surprised when work on their account ceases.
“At the end of the day,” Morgan said, “we all have to pay our bills.”
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