Every growing business will ultimately outgrow its first CPA firm. I’ve closely watched some businesses plow through as many as three firms before finding the right fit for their tax and audit needs.
So when is the right time to make the switch? Over the past 20 years, I have found three reasons why it makes sense to change firms.
1. You Are Currently the Largest Client (or One of the Largest)
Big is good, but not when you represent one of the largest clients in a small CPA practice. Personally, I prefer being in the middle of the pack. If I’m the largest, I fear that my client may not get the service he or she used to receive. Not that the smaller firm can’t handle the needs of larger businesses. I’m just concerned that when I’m the biggest, customer service can start to decline (and it will happen).
The best small firms have a client avatar, the ideal client. If you are getting too large, don’t be surprised if the CPA firm is relieved when you make the decision to move on since you are pushing the boundaries of being the ideal client.
Incidentally, I am calling you an ideal client when your CPA firm is meeting with you at least three times the year, and I’m not even counting tax season. I’m counting the planning sessions occurring throughout the year when tax season is over. You are an ideal client when the tax firm is staying many steps ahead of you when it comes to taxes and auditing issues if applicable.
2. Tax Questions Start Getting Harder to Answer
As the business grows, so do complexities. Sure, the current firm may be strong in the basics, but complex issues might be taking too long to address. And once you do get an answer, do you truly trust the guidance?
I admire smaller firms that reach out to larger firms for advice on complex matters. But if that’s an ongoing exercise, perhaps it’s time to find a firm with plenty of in-house resources to address all complicated tax needs.
3. The CPA Is No Longer Staying 2 to 3 Steps Ahead of You
This is closely related to my first point about being an ideal client. I want a firm that is constantly watching the backs of my clients. I always enjoy getting e-mails from people like Jeff Shore, Joel Kamil, and Bill Rasmussen who periodically share insightful topics that are relevant to my clients.
Is this customer service merely a bonus in the CPA relationship? No, I consider it necessary, and it also means they care and has the time to care.
Next Steps in Finding a New Firm
First and foremost, get referrals. Start with your banker. Your CFO. Other CEOs.
When I found BKD for one of my clients several years ago, Brett Daffron of Commerce Bank gave me three firms to contact. I called everyone. I liked BKD, but I followed that call with one of their clients in Moberly, MO. I hired them and have never regretted the decision.
Once you have your shortlist, it’s now time to start interviewing them. I typically meet the CPA firm for lunch along with my client. We talk shop. We talk sports. We talk about family. In short, we’re trying to find out if there’s a cultural fit. If there is, we then invite them to a tour of our office or plant.
If all goes well, it’s time to start sharing information with the partner of the firm we are interviewing.
While I’m checking out the CPA firm, I know they are checking me out (my client). Accordingly, I like to make a big deal of the way I present information to these firms.
I immediately create a simple portal of documentation that I can easily create in less than one hour. You would think I’m the only person to ever do this based on the feedback I receive (maybe that’s because I provide it before I ask what they want).
In short, provide tax returns going back three years. I provide all current financial statements throughout the year along with the final internal statements for the prior calendar year. I also provide critical documents that I know will be relevant to the CPA firm’s permanent file.
Once I provide a link to this data, I follow it up with a phone call. If I haven’t stepped the firm through our internal financial statements from a prior meeting, I do it during that call.
I then give the firm about a week to go through the information and then develop an engagement letter complete with value-based pricing.
Incidentally, this onboarding process can be completed within 30 to 45 days.
Value-Based Pricing, What’s That?
If you want to get me really frustrated, bring up The Billable Hour. How is it possible CPA firms, even big ones, are still billing by the hour? I thought that was an ’80s thing. We expect contractors to nail down their pricing for building bridges, large buildings, and other structures, but we can’t get it right on a 15-hour tax return and consulting throughout the year? I don’t buy it, and I never will.
One argument I hear against value-based billing is that “other stuff” comes up the CPA firm cannot plan for. In the contractor world, we call that a change order. Put another way, it’s a separate project that requires a price estimate.
But some things are out of our control. So if you are working with a firm with that ’80s billing mentality and insist on billing by the hour, here’s how to manage your cost. Have the firm commit to a budget for every tax project they do. And make sure they let you know when they have hit 80% of the budget. You want to know if they are going to stay within budget as you want no surprises.
Additionally, I want to make sure periodical phone calls, e-mails, and short meetings are covered in the engagement letter. Unlike attorneys, I do not want to hear that meter starting with the cha-ching noise when I call the partner. Fear of unexpected costs should not be a part of the new relationship with the CPA firm.
Don’t Forget to Communicate with Your Current Firm
This step might be hard, but it doesn’t have to be. Smaller world-class firms get it. If they truly have your best interests at heart, they will understand. Just because you are moving to a bigger firm doesn’t mean you will not be referring business to them.
Therefore, let the current CPA know as quickly as possible. Be honest. Clearly explain why you are making the change. Or, if you have a CFO, let them make the call. I’ve done it several times, and the current CPA has never given me any grief. Disappointment? Yes. But I’ve never received any negative comments from the current firm.
Once the Engagement Letter Is Signed
If I onboard the CPA firm well before tax season, I still want the CPA firm’s PBC schedule as quickly as possible (PBC is not a drug, trust me, it stands for Prepared by Client). Once I get the PBC listing, I immediately create an online checklist outlining every requirement with due dates and task-level owners. Yes, this makes my client and I look good, but it means we’ll be getting these returns filed timely and accurately.
The new firms will tell you they will have to file an extension in the first year. Don’t buy into that argument. That’s a CYA-like comment on their part. There’s no reason the returns cannot be filed timely that first year unless there is some pending tax research that will extend well beyond the original tax deadline.
During this time, I also like to set expectations. For example, how often will we have planning sessions throughout the year? As the relationship grows, this becomes more informal.
Throughout the year, I continue to provide internal financials to the new firm even if they don’t ask for them. Typically, I route these to the tax manager assigned to our account, and I’ll copy the partner. If anything unusual has occurred, I’ll follow up with a phone call.
There you have it, onboarding a new CPA firm in a few easy steps. I fully understand the process can be stressful, but it does not have to be. As I mentioned earlier, the process should only take a few weeks. Once you make the decision, I promise that you will be glad you did.
Bonus Material – A Few Words for Controllers and Other Accounting Staff Members
So you’ve just landed the big, cool, new CPA firm. Sorry, your work isn’t done yet. I still want your tax acumen to keep growing. Here are a few ideas:
Keep signing up for tax-related CPE. At a minimum, do 8 hours. I’d suggest 16 hours.
The boss may be asking why she should pay for this cost when they just hired a new firm to take care of their needs. The answer is the same reason I keep up with tax training–to ask great questions. In short, you are the best tax liaison between your employer and the tax firm. The more educated you are on tax issues, the better the client you will be. Ask any tax firm about this, and they will agree with me.
And where do you take your courses? If you prefer self-study, check out Bob Jennings over at www.taxspeaker.com. I could listen to Bob all day. He’s funny. He’s smart. He’s 10 steps ahead of you. In short, he’s a likable authority on taxes (and even technology).
Looking for live classes? Check out your state’s society of CPAs website and see what they have to offer. If you are in the same town as your CPA firm, find out the classes they recommend locally.
Closely related to the first bullet point, the corporate accountant should have ready access to some basic tax library content for simple research. My vote is for the online version of www.thetaxbook.com. Alternatively, Quickfinder publishes tax guides each year.
Regardless, I recommend you have one of these tools (preferably the online versions) at your fingertips.
Continue to maintain a template of your employer’s expected tax liability throughout the year. Yes, this is your job. The CPA firm is there for guidance, input, and validation. I do this for clients lacking accounting expertise in this area. I do it in a spreadsheet. Or, you can buy a low-cost tool over at www.taxtools.com.
Related to this, maintain a simple calendar of when tax payments are due–there is never an excuse to miss these important payments. If your employer prefers paying a late-payment penalty, he/she still needs to know the potential tax liability for the upcoming tax filing season.