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When L.R. Hubbard Construction Co. Inc., needs an audited financial statement for one of its many public works projects, it turns to a small San Diego public accounting firm, not one of the national giants. Hubbard President Joe Byrom has nothing but praise for the two decades of personalized service given by Max L. Perlatti & Associates, CPA.
Two factors, personal service and continuity, are at the top of the list of advantages that San Diego’s small- and mid-size firms of certified public accountants bring to the table. Perlatti himself, who started his career at one of the largest national firms, adds that business executives who want personal handling from someone at the partner level in an accounting firm can get it with a smaller firm, but not at the giants. At the huge national firms, Perlatti says, "you may think you have a relationship with a partner, but nine-tenths of the work gets shifted to a bullpen down the hall."
The accountants doing the actual work for the giants are likely to be relatively inexperienced, with perhaps two or three years under their belts. That's because young accountants go to the biggest firm they can find to gain experience before striking off on their own. "That's where you make your bones," Perlatti says. "Few stay — you’re working hard to line someone else's pocket."
Mark McMahon, of Turnquist, Schmitt, Kitrosser & McMahon, Accountants & Consultants Inc., says small businesses choosing a CPA should consider staff and management experience, expertise in the industry, longevity and even the fee structure. Another important factor is how the business owners get along with the accountants. "Most people don’t like doing business with strangers," he says.
When it comes to long-range business planning, an experienced, knowledgeable CPA who has been regularly involved in company meetings is particularly valuable. Says McMahon: "The more you know, the more you can provide good strategic planning."
George Cossolias is another industry veteran. In his more than three decades of experience, he has learned that business executives who bring smaller jobs to George Cossolias & Co are pleased to work directly with an experienced CPA, instead of having the job delegated to someone with little experience. He, too, lists the advantages of small accounting firms as personalized service, continuity, and the opportunity to deal with a principal of the firm.
As part of Cossolias' effort to provide personalized service, he determines the comfort level of a client when working with an accountant and how the client operates on a personal level. He deals with clients in a "humanistic way, not the cold, clinical way sometimes associated with accountants."
In addition, at a smaller accounting firm, the person doing the work is by necessity a generalist and often doesn’t have to refer the questions that inevitably arise to a specialist. At the giant accounting firms, an individual's work is ordinarily confined to a narrow area, Cossolias says, recalling workers who came from the biggest firms to smaller ones with little general knowledge.
Perlatti, McMahon and Cossolias say if the job is too big or if they lack required specialized knowledge, they refer the client to someone properly prepared to do the work. "You need big firms to do big audits," Perlatti says, and by big, he means General Motors or Ford. But smaller "big" customers also depend on services only the Big 5 can provide.
To make up for what they lack in staff size, many small- and mid-size accounting firms have affiliations in the U.S. and abroad that allow them to handle large, complex issues. McMahon's firm, for example, is affiliated with The American Group International, which allows it to take on multinational clients.
Up the scale in size is Nation Smith Hermes Diamond, Accountants & Consultants. Larry McCulla, marketing coordinator, says that as a local firm, his company is familiar with the area's industries. In addition to the usual services of a CPA firm, Nation Smith offers consulting in areas as diverse as information technology and human resources. It even provides free monthly educational seminars. But some needs, especially those of rapidly expanding high-tech companies, can’t be met by the San Diego staff. So the firm is one of 79 nationally that are affiliated with BDO Seidman Alliance, worldwide the sixth largest accounting firm. That means a marriage of comprehensive knowledge of the local environment and the skills to work internationally.
One San Diego company helped "at every step of the way" by Nation Smith Hermes Diamond is Universal Circulation Services Inc., a rapidly growing international periodical distributor. Barnes & Noble Booksellers is a leading customer. McCulla described UCS as on the leading edge of technology. Rich Shinn, vice president and chief financial officer of UCS, says the company’s computer system, in additional to providing unique proprietary advantages, forecasts the total number of periodicals to be ordered and the number to be distributed to each store by title.
UCS has experienced "hyper-growth," Shinn says. Between 1991 and 1995, UCS, which manages the operating companies that distribute the periodicals, grew 30 percent annually. From 1996 to 1998, growth was 10 percent per year.
Besides handling such usual accounting duties as taxes and year-end reviews, Shinn says, Nation Smith brought in third-party experts to help with the computer system and referred certain issues to BDO Seidman. Paul Nation, a principal of the accounting firm, also sits in on monthly UCS executive meetings.
Shinn, with 28 years experience as a controller and CFO, says that in his career he has employed the nation's largest accounting firms and an array of smaller ones. Yet, he says, because of the personal interest shown by Nation Smith Hermes Diamond and its accounting resources, "this is the best accounting firm relationship I’ve experienced."
Byrom, the Hubbard Construction president, similarly praises Perlatti's firm. He says that by having such a reliable outsider look at his company with unbiased eyes, he can count on accurate numbers.
Cossolias thinks there always will be a place for small accounting firms like his that can offer personalized services. For example, taxes are one specialty he offers clients. He deals with the top 10 percent of the population, in terms of revenue, but he also specializes in services for manufacturing and distribution companies.
McMahon notes that small businesses that dominate San Diego are the bread and butter for small- and mid-size accounting firms, which consequently go out of their way to serve those businesses.
With all the advantages offered by small- to mid-size firms, it’s no wonder the largest national firms haven't been successful in gobbling up their customers. But Perlatti warns that the smaller accounting firms can expect more pressure in the future, even to the extent of lucrative buy-out offers
That's because with the wave of corporate mergers, the client base for the largest accounting firms is shrinking. But those firms, like most of corporate America, are determined to keep growing, whether it’s by becoming warm and fuzzy to attract small businesses or by purchasing smaller accounting firms.
"So far, in San Diego we haven't seen the big firms swoop down and try to get our clients," McMahon says.
Perlatti vows that if the giants ever make a grab, they won’t get his firm or his loyal clients. He’ll continue to offer the personal attentive service to ensure that doesn’t happen.
Businesses that want to make more money and save on taxes should think of budgeting as an ongoing process, not something that’s done once a year and then forgotten until the next year. That's the point most often emphasized by experienced Certified Public Accountants who help steer San Diego businesses away from red ink.
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"It’s a dynamic thing," says George Cossolias of George Cossolias & Co. He suggests quarterly or even monthly meetings to "keep tabs on clients, do some fine-tuning when necessary." Toward the end of the third quarter, he says, businesses should have a good idea of how profits will look by year’s end. Last-minute adjustments can be made that save taxes by, for example, adjusting pension plans, bonuses and other employee benefits.
Either income or expenses, whichever is necessary, can be deferred. Capital expenditures can be scheduled for the most advantageous write-off, Cossolias says, and he reminds businesses not to wait until the end of the year.
Max L. Perlatti of Max L. Perlatti & Associates says too many businesses see their CPA "after the fact rather than before the fact." The CPA should be involved in planning throughout the year, he says. Perlatti has clients for whom he started working 20 years ago and most are accustomed to that kind of involvement by him. Even so, in the press of business, some forget.
Midsummer is the time to be planning for tax savings and increased profits, he stresses.
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Larry McCulla, marketing coordinator at Nation
Smith Hermes Diamond, Accountants and
Consultants, says the last quarter is the time
for final budgeting.
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It’s too late when taxes are due. "Anybody can file a tax return," Perlatti says. "If you don’t make the accountant part of the planning process, you’re not putting the accountant's tools to work."
Ongoing planning also is part of the working method at Turnquist, Schmitt, Kitrosser & McMahon, Accountants & Consultants Inc. But Mark McMahon says accountants must discern how much contact a client wants. "We have to be flexible," he says. "We don’t want to force ourselves on clients."
McMahon says the best solution is to give the client so much valuable advice that regular meetings grow welcome. And such meetings are the best medicine for prevention of April 15 apoplexy. "If I have a surprise for a client in March or April, I won’t get a second chance," McMahon says.
In the third quarter, the client needs to know what the end-of-the-year income will be and what that means for the client's insurance companies and banks, as well as for taxes. McMahon says that requires timely, accurate information. The question to be asked when reviewing the information is, "Does this give the owner the ability to make decisions that benefit the company?"
Larry McCulla, marketing coordinator at Nation Smith Hermes Diamond, Accountants & Consultants, says his company believes the last quarter is the time to write the final budget for the coming year because so much of the new budget depends on how close the current budget came to expectations.
But throughout the year, through quarterly meetings, the current budget should be adjusted in response to current and expected conditions, he says.
The fourth quarter is also the time for last-minute tax adjustments.
"Our belief is, if budgeting is done correctly, the budget should be fine-tuned for the last quarter, predominantly from the tax standpoint," McCulla says.
However, the bulk of tax planning should take place years in advance, he says, when plans for growth and expansion into markets in other states or countries are considered, along with differences in tax laws and probable future currency values. Then plans can be progressively fine-tuned. "Tax planning is not an event, it’s a process," McCulla emphasizes.
High-tech clients especially need long-range, ongoing planning, McCulla says. Typically such firms have high research and development costs. To take advantage of special research and development tax credits, expert advice is needed well in advance.
Other reasons exist for frequent meetings between the CPAs and management. For example, because high-tech firms tend to be backed by venture capital, frequent management reports are needed for the backers and for internal use.
And high-tech firms tend to have bursts of growth. They must make quick responses to rapidly growing infrastructure needs and the accountants can help plan the best ways to meet those expenses, McCulla says.
Overhead. That's often how they're viewed. But staff accountants and a year of their anonymous toil are typically behind those dazzling year-end profit statements.
Deborah Ragione knows how it feels. She was a staff accountant when she started in 1979 at Rick Engineering Co. Today she's chief financial officer. She has advice for accountants doing the internal grunt work while the technical staff and visiting certified public accountants get all the credit — and most of the cash.
Deborah Ragione advanced from staff accountant to
chief financial officer in her accounting career with
Rick Engineering Co.
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Her counsel: communicate. Let your light shine and the company may discover unsuspected executive talent.
Ragione uses personal qualities to make that advice work. She can change her mind, and she takes chances. She took a two-week jaunt to Europe before starting college, decided two weeks wasn’t enough, found a job, and ended up staying 15 months.
Originally a political science major with an accounting minor at the University of California Santa Barbara, Ragione fell harder for her minor than her major, even though she was headed toward a government career after working on a legislative project during a Sacramento internship. She also had been working for a national public accounting firm and enjoyed the experience. After transferring to San Diego State University, Ragione was planning to graduate and then enter an MBA program. Instead, she went to work for Rick, a San Diego company founded in 1955 and dominated by male engineers.
"I’ve known her since the first day she started," says Cynthia Landau, now Rick's human resources director, but then a staff accountant. "She advanced through determination and ability."
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Ragione's skills were evident to her bosses and she quickly advanced in the company. After two years she was promoted to controller, an accomplishment she celebrated by hanging two Ansel Adams prints in one of Rick's traditionally spartan offices.
"She grew and took on responsibility," Landau says. "If she sees something to be done, she jumps in and does it."
Rick is a family-like company where employees spend their entire careers, and one where despite the difference in attitudes, engineers and accountants interact smoothly. Over the years, Ragione began to see things more like the engineers and they, in turn, more like she did.
Now 45, Ragione looks back and knows that those changes were a vital element of her growth. "And having fun with it, too — it shouldn't be a struggle," she adds.
She gives much of the credit for her advancement to Lyle Gabrielson, who began working with her after she became controller. Gabrielson, then CFO and an owner, was her mentor. He became president in 1984.
Ragione has never forgotten. Today she mentors others, Landau says. But mentoring wasn’t the whole story. "Anything she needed, she developed," Landau recalls. Ragione had gained communications experience as a political science major, but when she felt that she needed to improve her already considerable speaking ability, she joined Toastmasters.
Ragione stresses that accountants should develop writing and communication skills. "Join a group or whatever to get over the fear of speaking," she says. "The biggest impediment to getting ahead is fear of speaking out."
At Rick, the largest civil engineering firm in San Diego, communication skills are needed for more than the job. The 150 San Diego employees serve on dozens of public and private boards and commissions. The same is true for the other 115 employees in the Riverside, Tucson and Phoenix offices.
"Rick Engineering makes a serious commitment to the community," Ragione says, and the company supports its volunteers "in terms of time and money; whatever it takes."
Ragione serves as a local board member and national director of the Construction Financial Management Association, board member and finance chair of the YWCA and board member of the San Diego County Taxpayers Association.
She advanced to CFO in 1992, after not only proving that she could do the job, but also that she had innovative ideas and would work patiently to make them succeed. "Now I want them implemented immediately," she says, displaying another trait Landau pointed out: an unfailing sense of humor.
"Clearly, CFO was the title and the position I wanted," she says, because it would give her more freedom to institute new ideas, such as the quality enhancement program she began with Landau.
So what’s ahead for Ragione? Not one of Rick Engineering's 10 owners comes from an accounting background. Perhaps she’ll be the first.
At Rick, the view of accountants as "overhead" was long ago discarded. "Today, accounting is considered an integral part of the organization," she says. If she becomes an owner, "that would be showing a commitment to the profession."
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