Archives for July 2010

Rehmann Finalizes Acquisition of Veritas Global

Saginaw, Mich.-based Rehmann (FY09 net revenue of $72.9 million) acquired Veritas Global LLC, a firm that provides corporate investigative services and business intelligence.

Veritas was established in 2005 by former members of the FBI, the U.S. Secret Service and intelligence services along with professionals in the business reorganization, mergers and acquisition industry. Veritas provides corporate due diligence, business intelligence and analysis, and risk management services.

The acquisition is part of Rehmann’s efforts to expand its range of services in areas such as forensic accounting. Veritas will be merged into Rehmann with Kerby, Bailey and Associates, one of Rehmann’s subsidiaries. The combined entity will be renamed Rehmann Corporate Investigative Services. Current president Stephen Kerby will become the COO, and Gregory Suhajda of Veritas will become the president of the combined entity.

Doeren Mayhew and TR Moore Join Forces

Troy, Michigan-based Doeren Mayhew (FY09 net revenue of $37.4 million) acquired Houston-based TR Moore & Company (FY09 net revenue of $7.3 million). The merger combines two of INSIDE Public Accounting’s “Best of the Best” firms.

TR Moore’s four partners and 30 associates will become Doeren Mayhew employees.

“This merger allows DM to increase our national reach and continue on a pattern of sustained growth,” says Doeren’s MP Mark Crawford.

TR Moore was one of just two firms with fewer than 40 professionals to be included on the IPA Best of the Best list in 2009.

“Given our mutual vision of service and growth, along with shared recognition as best-managed firms, I look forward to what we can collectively accomplish for our clients and staff,” said Tim Moore, founder, CEO and MP for TR Moore.

“Geographic boundaries continue to become less relevant as forward-thinking CPA firms seek new ways to enhance client service. Over my 25 year career, I have watched Doeren Mayhew organically grow through hard work, focus, and steady leadership through what many would argue to be one of the toughest economic environments anywhere in the country,” says Michael Platt, Publisher of INSIDE Public Accounting (IPA).

Is Your Firm Wasting Valuable Profits on Marketing?

by: Tracy Crevar Warren

You might be thinking “In order to win new business, our firm has ramped up its marketing efforts over the last year so we should be in good shape for 2010, right?” Not so fast. Although many firms do a good job at marketing their practices, marketing alone is not enough to win new business.

“Marketing is a waste of resources if you are not going to do something with the leads you generate.” quipped Russ Molinar, director of Global Markets at Ernst & Young. “Winning new business requires firms to tie marketing to sales. Unfortunately many firms fail to connect the two and the result is less than desirable.”

In her new book The Integration Imperative — Erasing Marketing and Business Development Silos in Professional Services Firms, Suzanne Lowe explores this dilemma and offers powerful new insight along with a model for integration. Its case studies are well developed to help readers understand how to get started, including a practical one from Seattle-based Moss Adams on how they successfully bridged the gaps.

“Currently, the majority of professional firms manage their marketing and business-development functions from separate silos,” said Lowe. “All too often, in many firms, collaboration between these functions is the result of individual or small team efforts.”

If your firm is not mindful about how it approaches its marketing investment, you could be throwing away hard-earned profits without realizing it. Let’s take a closer look at some considerations to help you make the most of your marketing investment.
Confusing Effort With Results

“Professionals are often tempted to drum up a lot of marketing activities especially when they see competitors launching various campaigns,” said Scott Jensen, director of Sales at Moss Adams. “It’s important to be cautious about feeding our egos, which can result in spending enormous amounts of marketing resources that produce minimal results. For marketing to be really good, it’s got to be tied to the business.”

It’s easy to confuse efforts with results, but that is where many firms are falling short in the battle to win new business in today’s competitive environment.

Firm leaders should be asking questions such as:

  • Are we confusing marketing activity with value?
  • Does our marketing actually drive revenues?
  • Do our marketing activities help the firm to grow in ways that we want to grow?
  • Are marketing and business development initiatives tied to our core business?

Finding the Gaps

It is important to identify where the marketing and sales disconnects are taking place in your firm. If your firm is like most, these gaps are not intentional. They just happen unless processes and systems are put in place to help your professionals make the handoff.

For example, suppose your firm hosted a successful manufacturing seminar last month and over 150 industry leaders attended. As a result, a number of attendees expressed an interest in meeting with you to discuss new concepts presented at the event. Unfortunately, the daily focus of most professionals is on chargeable time. That means getting in front of these potential new clients will likely not make their priority list once the seminar is complete. Failure to follow up with top prospects in a timely manner will not be likely to generate new business opportunities and your efforts to generate leads will have been a waste of time and resources.

Consider these questions:

  • How does your firm tie its marketing initiatives to sales?
  • Is lead follow-up a prerequisite to committing resources to a specific marketing initiative?
  • Do you have defined processes to convert leads generated from your marketing activities into new clients?

For example:

  • What do you do with leads from your seminars?
  • How do you follow-up with inquiries from your website and blog?

Connecting the Dots Between Marketing and Sales

 “Help your professionals understand that there is a difference between marketing and selling,” remarked Jensen. “Professionals cannot effectively sell unless they market. Marketing is too expensive without selling. And when you market effectively and sell correctly you establish the basis for serving clients passionately.”
If your firm does not have a clear understand of marketing and sales, define it. Then help your professionals understand how to bridge the gap between the two functions. The best way to do this is to develop simple, straight-forward processes for connecting marketing activities to the sales cycle. Since most CPAs are process oriented, build business development processes similar to how your firm outlines other required tasks such as conducting an audit or preparing a tax return.

Let’s go back to the seminar example and identify what the process might look like once the seminar has concluded:

  1. Host debriefing session with key members of your team.
  2. Identify how you will follow-up with participants — i.e. calls, letters.
  3. Develop a timeline and identify which professionals will follow-up with which participants.
  4. Identify key talking points for your professionals to use when making telephone calls to schedule meetings with top prospects.  
  5. Add all participants to your firm’s distribution lists for communications such as newsletters and e-newsletters.
  6. Develop a plan to keep in touch with participants. Include a schedule for follow-up calls later in the year.
  7. Include regular updates in future business development meetings.
  8. Define game plans and processes that will help maximize your marketing investments by moving new business opportunities through the sales cycle.

Keys to Success

Consider these keys to success in connecting the dots between marketing and sales:

  • Only commit to marketing initiatives in which you will follow-up with leads.
  • Develop a process for lead follow-up.
  • Help employees understand how to bring the process to life.  
  • Help each person understand the role they play in the process.
  • Identify specific tasks to be completed and due dates.
  • Hold regular accountability sessions to help professionals keep initiatives moving forward.
  • Celebrate successes.

Don’t Waste Your Marketing Resources

“It’s clear that firms are expending tremendous effort on a host of initiatives to better themselves in marketing and business development,” added Lowe. “But collectively professional-services firms are only just beginning to recognize the serious structural and cultural disconnects that hinder themselves in marketing and business development.”

If you are not tying your firm’s marketing initiatives to sales you are wasting valuable resources. Take a close look at how your firm is connecting the dots between marketing and sales. Start today!

To learn more, read Bull’s-Eye! The Ultimate How-to Marketing & Sales Guide for CPAs, a new publication produced by the AICPA and the Association for Accounting Marketing. It is currently available for pre-order and is scheduled to be available in late June.

Adopt a Winning Firm Strategy. Adjust to the New Business Reality & Watch Your Profits Soar

by: Steve Erickson.

There has never been a more important time for CPA firms to adopt, support and implement a strategy that will navigate them through these times of unprecedented change by remaining relevant to their clients while continuing to be economically viable as businesses.  We are dealing with the “Perfect Storm”; the aging demographics of our society and the profession, a “great recession” that will have a lasting impact on consumer spending habits for the foreseeable future and a flood of new technologies that are drastically changing the way that CPA’s will perform their work in the years to come.  Let’s take a look at each of these dynamics and how they will impact strategy in CPA firms.


The Current Reality

According to the census bureau there are approximately 77 million baby boomers (those born between 1946 and 1964) which represent almost 25% of the total population in the United States.  The AICPA membership consists of a significantly higher percentage of baby boomers, 50%+, as shown by the following graph of the 2008 membership provided by the AICPA.


Implications for the Accounting Profession

Over the next 10 to 15 years a significant number of accountants will be retiring and there will be fewer experienced CPAs practicing. This will bring about tremendous opportunities for those individuals and firms that adjust to this new reality.  Simply stated, clients will be served differently and accounting firms will be structured differently in the future.  To see some examples of how professions have adjusted you only have to look at how medicine and pharmacies have changed their service delivery models by increasing leverage and pushing many tasks down to less experienced technicians.


The changes in CPA firm structure and service models will be gradual over the next 10 years.  Don’t fight it.  Look for ways to triage your work and develop your processes and procedures to enable you to use less experienced and less costly personnel wherever possible.  Technology is getting better every year and will be at the very core of these changes.  A good place to start is to ask your personnel “How much of your work could be done by someone with less experience”.  I have been asking that question for 15 years and I consistently get back that 50% of their work could be done by someone with less experience!  We have a tremendous amount of inefficiency in our firms and a significant element of your strategy must be focused on developing processes and procedures using less costly personnel while maintaining quality and client service.


Current Reality

The current recession is now being referred to as the “Great Recession” according to articles in the Wall Street Journal and Newsweek, as it is the most significant recession since the great depression and is predicted to permanently change the consumer spending habits of a large percentage of the population, especially the baby boomers.  Most people are now giving much more thought before committing to large expenditures such as housing, automobiles and leisure. This spending behavior is having a negative impact on our economy.  Prior to the recession housing alone accounted for approximately 33% of consumer spending according to the Hoover Institution at Stanford University.  The economy will eventually come back but it will be a very long time, if ever, that the baby boomers again spend as they did before the recession.  Businesses that have relied heavily on consumer spending will be somewhat flat as the baby boomer generation focuses on retirement and making up for past losses.

Implications for the Accounting Profession

Many client businesses will be growing more slowly and as a result, the growth of CPA firms will be limited unless there is a renewed emphasis on both internal and external growth.  In addition, clients will demand service offerings focused on planning for retirement, transition, succession and value extraction as well as financial security while mitigating the ever increasing risks of doing business in these times.  It will not be business as usual.


Any firm that wants to remain independent must continue to provide opportunities for their personnel regardless of the economy or the changing spending habits of their clients.  At this time I recommend that firms focus on gaining market share by actively marketing their services while at the same time seeking out acquisition or merger candidates. It is a good time to make consolidation deals as the income of many accountants is down and as a result the value of their practices is lower than it has been for many years.  With the impending flood of retirements we should see a buyer’s market for smaller CPA firms for the next 5-15 years.

Firms must also make sure they have the people with the expertise and ability to handle the flood of retirements, business succession planning and transitions that will occur during the next decade.  There will be fewer experienced accountants so firms must make sure that their professionals are performing services commensurate with their level of experience and expertise.  There has never been a more important time to push work down and provide administrative support to your skilled professionals.  In order to thrive in the future firms must address their “brain drain” issues early and often as many of their professional start to retire.


The Current Reality

We only have to look at the changes in technology during the past five years to get a feel of what will happen in the next 5 to 10 years.  Scanning is getting better, voice recognition is getting better and the equipment is getting ever more powerful and sophisticated.  Remote access is now most common and many accountants have taken advantage of their ability to work just about anywhere.

Implications for the Accounting Industry

The technology revolution will continue to have a significant impact on how accounting is practiced for the foreseeable future.  The old accounting firm model, a large bricks and mortar office facility, could become less viable economically as much of the work is performed in a virtual environment.   The cost of technology will increase as a percentage of net fees as the companies who own the technology will continue to incrementally increase the licensing fees for their software.  This trend will accelerate as the accounting industry does not own its software, and the continued consolidation of the software vendors will limit price competition.


Everyone in your firm must become more proficient in the application and use of technology.  Do not mistake this with using technology yourself, as we can no longer have experienced accountants performing data input.  Accountants must know the capabilities of the software and its practical applications so that staff with less experience can enter the data and generate products. This must be done to control costs and increase profit margins.

Firms must also invest the time to properly implement technology if they want to reap the benefits of efficiency and productivity in the future. Those firms that shortcut the processes while implementing technology (proper linking, etc.) will be at risk as their firm will be less efficient and competitive in subsequent years.  A primary goal of using technology is to limit labor costs. 

Change is difficult and expensive so it must be implemented incrementally.  I do not suggest that you tear up the house to implement change but you do need to set a strategic direction and then move incrementally and persistently to achieve your goals.  Now is the time to look forward to make sure your firm is well positioned for a very different future.  The journey starts now.


AICPA Opposes Subchapter S Tax Provision in Extenders Bill

The American Institute of Certified Public Accountants (AICPA) opposes language in the tax extenders bill now being considered by the U.S. Senate that would subject small business professionals, who have organized their businesses as S corporations, to self employment taxes on their non-salary income.  The AICPA said the provision, which would help pay for the cost of the bill, is a major change in longstanding tax policy that should be discussed in public hearings and that it would lead to increased taxes and complexity for S corporations and their shareholders.  The AICPA said the Internal Revenue Service has the enforcement tools it needs to force any taxpayers avoiding payroll taxes to re-characterize S corporation distributions as salary, which would then be subject to employment taxes under FICA, the Federal Insurance Contributions Act.

 In a June 14 letter to Senate Finance Committee Chairman Max Baucus and Senate Finance Committee Ranking Minority Member Charles Grassley, the AICPA endorsed an amendment by Senator Olympia Snowe and Senator Michael Enzi that would remove Section 413 from H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010.  The AICPA’s letter supporting the amendment and the AICPA’s June 9 letter to the Senate Finance Committee and House Ways and Means Committee outlining its opposition to the payroll tax provision is highlighted below.

June 9, 2010

The Honorable Max Baucus, Chairman
Senate Committee on Finance
511 Hart Senate Office Building
Washington, DC 20510

The Honorable Charles Grassley
Ranking Member
Senate Committee on Finance
135 Hart Senate Office Building
Washington, DC 20510

The Honorable Sander Levin, Chairman
House Committee on Ways & Means
1236 Longworth House Office Building
Washington, DC 20515

The Honorable Dave Camp
Ranking Member
House Committee on Ways & Means
341 Cannon House Office Building
Washington, DC 20515


Dear Chairmen Baucus and Levin, and Ranking Members Grassley and Camp:

The AICPA is concerned about certain aspects of Section 413 of the American Jobs and Closing Tax Loopholes Act of 2010 (the 2010 Act) and has the following comments that we hope you will consider as the Senate works towards constructing and finalizing its version of this important legislation. 

The AICPA, first and foremost, believes that the Internal Revenue Service currently has the appropriate enforcement tools it needs to re-characterize the distributions of S corporations as salary subject to employment taxes under FICA.  We also believe that the IRS can and should expand such enforcement tools by providing taxpayers with stronger guidance on determining a reasonable fair market value of compensation.  Doing so would reduce litigation, increase compliance and allow employment taxes to continue to be levied only on the performance of personal services as intended. 

The AICPA believes that the change in the law proposed by the House represents a major change in policy that should have been the subject of public hearings.  This proposal not only threatens to result in a significant increase in taxes and complexity for S corporations and their shareholders, and for certain limited partners, but it continues the definitional blurring between capital and labor begun in the general partnership arena by further expanding laws that were clearly established to tax only labor. We are also concerned that the proposal may reduce Social Security benefits for certain retirees.  This proposal taxes the returns on the invested capital of owners as described more below.  The policy to continue using the Self-Employment Contributions Act (SECA) to blur this capital-labor line should demand scrutiny from within Congress to examine whether this is really the right policy to maintain, or even expand.

Notwithstanding the foregoing serious concerns, including an unintended reduction of Social Security benefits for certain retirees, we appreciate that the proposal, as written, was limited to a subset of personal service businesses where perceived abuse may have been present.  If the current law must go forward, we respectfully suggest the following amendments and clarifications:

  • Consider the impact of expanding Section 211 of the Social Security Act on the amount of Social Security benefits to be received by an individual and also on the amount of the reduction of the Social Security benefit for an early retiree.  Other sections of the Social Security Act may need to be modified to exclude this provision from the definition of earned income for purposes of collecting Social Security benefits and also for the amount of Social Security benefit for an eligible Social Security recipient.  As written, the proposal may have the effect of a loss of Social Security benefits for an early retiree solely because they are deemed to have additional self-employment income through the proposal’s family attribution rules by virtue of sharing ownership of stock in an S corporation. 
  • Substantial services as used throughout Section 413 should be defined as 75% or more of a full time employee shareholder’s total services (at least 1560 hours out of 2,080 hours a year) are contributed to the professional service business.  See Treas. Reg. § 1.414(r)-11(b)(2) for the precedent where Treasury has defined a substantial service employ as one who provides at least 75% of his or her time to a particular line of business.
  • Substantially all as used within the definition of “Disqualified S Corporation” should be defined as at least 90% of the S corporation’s activities being performed in connection with the partnership.
  • Allow a SECA/FICA-free return on human and non-human capital which is an essential component of every business and which does not represent earnings from the labor of the owner, but of the invested capital of the owner.  As a starting point, we believe the carried interest proposal of Section 412 of the 2010 Act (proposed Internal Revenue Code section 710(g)(1) and (7)) takes a similar approach and could be easily mirrored by simply excluding a percentage of the distributable net income.

Human capital is often the largest expenditure of any business and therefore significant earnings are often generated by non-owner employees that should not subject owners to FICA or SECA.  A flat percentage return on capital (ROC) should be built-in to Section 413 of the 2010 Act such that FICA will apply to salaries and SECA (or FICA) will apply to the balance of the pro rata share of distributable net income to shareholders to which this section applies (rather than 100%).  Such ROC percentage provides a fair, bright line for S corporation shareholders and limited partners (and even for general partners and limited liability members) of professional service businesses.  Every professional service business with more than one non-shareholder employee invests in human capital that generates income for the owners and should not be subjected to employment taxes of any kind since the income was generated by the efforts of non-owner employees.  While some taxpayers would pay more and others less under such an approach, calculating a return on capital based on a percentage of net income is good policy because it provides for a simple to administer, bright-line test that stays true to the spirit of employment and self-employment taxation and to the entrepreneurial spirit of funding and operating a successful business with the expectation of a return.


Alan R. Einhorn
Chair, Tax Executive Committee


cc:        Members of the Senate Finance Committee
              Members of the House Ways & Means Committee

June 14, 2010

The Honorable Max Baucus, Chairman                                             
Senate Committee on Finance                                   
511 Hart Senate Office Building                               
Washington, DC 20510                                             

The Honorable Charles Grassley
Ranking Member
Senate Committee on Finance
135 Hart Senate Office Building
Washington, DC 20510


Dear Chairman Baucus and Ranking Member Grassley:

The American Institute of Certified Public Accountants (AICPA) opposes Section 413 of the American Jobs and Closing Tax Loopholes Act of 2010 which we believe threatens to result in a significant increase in taxes and complexity for S corporations and their shareholders, and for certain limited partners. Section 413 represents a major change in longstanding tax policy that has never been the subject of public hearings, thus, we are concerned that there may be unintended consequences that have not been fully aired and discussed. Accordingly, we strongly support the amendment being offered by Senators Snowe and Enzi, S. Amdt. 4342, which would strike Section 413. The proposed Section 413:

  • Fails to take into account a fair and reasonable return on the human and investment capital of the owners;
  • may reduce Social Security benefits for early retirees;
  • may create unintended consequences to qualified and non-qualified retirement plans of owners that would now have both wages and self-employment income; and
  • ignores the fact that the IRS currently has the appropriate enforcement tools it needs to re-characterize the distributions of S corporations as salary subject to employment taxes under FICA.

The AICPA would like to work with Congress and the IRS to address the best way to collect S corporation shareholders’ and partners’ fair share of employment/self-employment taxes.  Such a provision should not be rushed through the legislative process without due process and deliberation.


Alan R. Einhorn
Chair, Tax Executive Committee