Moss Adams + Hein: A Strategy for Success in the West

Dave Follet

Dave Follet

As reported by INSIDE Public Accounting on Aug. 24, Seattle-based Moss Adams (FY16 net revenue of $527 million) intends to fill two holes – in geography and in service – with its planned Nov. 1 merger with Denver-based Hein & Associates (FY16 net revenue of $61 million).

Moss Adams president and COO Dave Follett tells INSIDE Public Accounting that Hein not only gives the firm a foothold in Denver, a critically important market in the West, but Hein’s oil and gas industry expertise adds a new practice area.

Follett says leaders from the two firms began talking at the end of last year. After exchanging information and meeting with partners, “it become more and more evident that it was a great fit.” And naturally, Follett says the two firms have similar cultures. People on both sides get along and both firms have long histories. Moss Adams is more than 100 years old and Hein was founded 40 years ago. Leadership has been handed down to new generations and Hein has maintained sustainable growth, showing the firm is being managed for the long term. “They have a stewardship mentality,” Follett says.

Follett noted that the firm has become more active in Texas, which was another reason why Hein was a good match. Hein has an office in Houston, where Moss Adams was looking to expand, and Dallas. Last year, Moss Adams acquired CF Accountants & Consultants of Dallas, adding 57 staff, including seven partners, to increase the Moss Adams staff to nearly 90 professionals in the city.

The growth is part of Moss Adams’ strategy to become the dominant middle-market firm across the West, and Follett says the firm does not want to expand farther east for now. Moss Adams plans to continue strengthening its presence in both Texas and California, where Hein has an Orange County office, in the next three to five years. “We’re very, very dedicated to the opportunities in California.”

Follett says the firm is also looking at strengthening its technological capabilities. “We are making investments in both evaluating and piloting those emerging technologies in machine learning, data analytics and AI, and trying to stay very much in tune with the opportunities we have to leverage what we do on a day-today basis.” While many observers say the biggest effects may be felt by auditors, Follett says, “I don’t see any area that won’t be impacted in the coming years, even though audit and assurance may be on the forefront.”

Moss Adams is ranked No. 14 on the 2017 IPA 100 list, and Hein is ranked No. 67. Revenues of the combined firm will near $600 million and will bring total staff to nearly 2,900. Hein will add the two new office locations, and about 300 new personnel to Moss Adams, including 35 partners. Hein MP Jim Brendel will become MP of Moss Adams’ central region, which includes locations in Colorado, Texas, Kansas City, Kan., and Albuquerque, N.M.

Law Firms Urge Clients to Prepare for New Federal Rules on Partnerships and LLCs

New federal rules relating to partnerships and limited liability companies have prompted law firms to warn their clients to prepare for a possible IRS audit by reviewing and amending governing documents and designating a partnership representative, the Daily Business Review reported.

The Daily Business Review, which covers legal and business news in South Florida, says that McDonald Hopkins, a law firm with six offices in the eastern U.S., has created an entire program to address the changes partnerships and LLCs may need to make.

These businesses must elect a “partnership representative” who will have sole decision-making power for the company and all shareholders in discussions with the IRS, which will designate one if the businesses don’t. The partnership representative decides whether the partnership or a particular partner will pay any underpayment in taxes the audit finds, Business Review reported.

“This person who serves as partnership representative has unfettered authority to act on behalf of the partnership,” says Jordan August, an associate at Carlton Fields Jorden Burt of Tampa, Fla. “It has become such an issue with partnerships because the new act gives all this authority to the partnership representative. It is imperative that the contractual terms of your partnership or LLC cover and address the manner in which the partnership representative will act on behalf of the partners in the event of an audit, including whether a push out election will be made. In the event that an additional tax is assessed, who will ultimately bear the burden of paying those additional taxes?”

The new rules also potentially shift the tax liability for LLCs and partnerships. Eligible partners need to decide annually whether to opt out of the new rule that provides that if the business is audited it will pay any underpaid taxes at the partnership level, or instead choose to be taxed at the traditional individual partner level, Business Review reported.

The changes are effective Jan. 1, are designed to raise tax revenue and make it easier for the IRS to audit partnerships and LLCs. Traditionally, the IRS audited and assessed tax on the partners or members rather than the entity itself. The new regulations centralize the assessment and collection of unpaid tax directly at the entity level from the partnership or LLC.

“It will be easier for the IRS to do an audit of just one entity, and less expensive for them as well, because they won’t need as many people out in the field,” says Raquel Rodriguez, Miami OMP at McDonald Hopkins. “If the audit is done at the partner level, the IRS currently has to seek out each member and do an assessment.”

The text of the new rules can be found here.

5 Mistakes to Avoid When Problem-Solving

By Arianna Campbell

Finding the best solutions to problems is a necessary skill for navigating the changes that are continuously affecting our profession. Firms that take a proactive and structured approach to problem-solving position themselves to overcome obstacles and take advantage of opportunities. This approach comes from making a concerted effort to avoid the following five common problem-solving mistakes.

Mistake No. 1 – Not involving the right people in the conversation

When the right people are excluded from the problem-solving process, the proposed solutions can be one-sided or limited. Different perspectives help to better understand the problem at hand. Resist the trap of allowing busy schedules and a desire for quick resolution to allow people to be excluded. However, this doesn’t mean that everyone needs to be involved. Progress may be slower when too many people participate. The most effective problem solving teams include representatives from various levels in the firm who share their perspective and insights.

Mistake No. 2 – Failing to get on the same page from the beginning

Certain people may agree that a problem exists, but that doesn’t mean that everyone has the same problem in mind. People often have different expectations, opinions on issues and goals, and potential solutions. Effective problem-solving requires getting everyone on the same page. When this doesn’t happen, there is a risk of running in different directions – this means that everyone may cross a finish line, but no one wins the race. Take the time to define and document issues and get alignment before attempting to solve a problem. The result will be better solutions.

Mistake No. 3 – Making improvements that don’t address the source of the problem

Brainstorming sessions are great for getting ideas flowing, but activity should not be mistaken for achievement. Finding solutions that don’t address the root of the problem only leads to more problems in the long run. We can avoid this by using a simple yet effective tool called the “Five Whys.” The website gives the following explanation: “By repeatedly asking the question “Why” (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the ostensible reason for a problem will lead you to another question.”

To complete the 5 Whys, identify a problem, ask why the problem happens, then discuss and determine the answer. If the answer does not uncover the source of the issue, ask why again. Repeat this process until everyone agrees on the source of the issue.

Mistake No. 4 – Not considering how technology could be part of the solution

The failure to leverage technology is a costly mistake. Some common reasons include negative experiences from a past software trial, the belief that clients will not welcome technology advances, lack of education about features and benefits, and fear of a learning curve slowing down internal processes. Firms are that are unwilling to include technology as part of their problem-solving toolkit are getting left behind. The rate of change for technology has accelerated dramatically, and solutions are customized to address the needs of the firm and the profession. Our people are smart, capable and often eager to use technology solutions that will allow them to provide a better internal and external client experience. With a few exceptions, clients have the necessary technical expertise that they already use daily while interacting with banks, mortgage companies, social media and other outlets. Discomfort with technology should not hold the firm and clients back from taking advantage of the best possible solutions.

Mistake No. 5 – Not having a framework for problem-solving

Finding the best solutions starts with having a structured approach to problem-solving. Developing the habit of having the appropriate team members ask the following five questions will help to avoid problem solving mistakes:

  • What problem are we trying to solve?
  • Why is this an issue?
  • What are we currently doing to address this problem?
  • What could we do differently/better?
  • How can we move these ideas forward? What are the next steps?

Effective problem solving doesn’t happen by accident. Firms that take a disciplined approach find lasting solutions that lead to progress and growth.

Arianna Campbell, consultant for Boomer Consulting, helps accounting firms challenge the status quo by leading process improvement initiatives that result in increased profitability and client satisfaction. She also facilitates the development and cultivation of future firm leaders in The P3 Leadership Academy™. Internally, she blends concepts from Lean Six Sigma and leadership development to drive innovation and continuous improvement within the company. Campbell also enjoys the opportunity to share knowledge through regular contributions to the Boomer Bulletin and other industry-wide publications, as well as public speaking at industry conferences.

Moving the Rocks on the Path to Growth

According to Dom Esposito, CEO of ESPOSITO CEO2CEO, a CPA firm must move many rocks that are on the path to growth. If a firm doesn’t effectively address these obstacles, it will not be able to grow at a satisfactory rate.

The following are six growth path rocks and how you can begin to move them.

Ineffective Leadership and Governance

The CEO has the broad responsibility to create a culture that drives revenue and profitability. In addition to the CEO, firms need two standing groups to drive growth and achieve success. The first is a senior management team that includes a COO and office MPs. The second group is an executive committee that oversees the execution of operating budget, addresses partner matters, makes sure that the partnership agreement is up to date and reflective of a firm’s needs, and evaluates the effectiveness of the CEO and the senior management team.

Need for a Broader and Deeper Menu of Services

A firm attracts and retains clients by adding value through industry specialization. The greatest growth and margin opportunities for a firm are in advisory and consulting, as clients outsource specialized skills to deal with business challenges that they cannot handle internally.

Lack of a Strategic Plan

A strategic plan provides direction and gets partners on the same page. It instills discipline. It is a vehicle for individual partner goal-setting, periodic monitoring, counseling and an annual evaluation that forms the basis for annual partner compensation adjustments.

Poor Strategy Execution

Many CPA firms undertake exhaustive strategic planning but don’t use the plan as a living, breathing tool that holds partners accountable through a performance management and compensation system. Some firms go through this exercise to produce a plan that eventually sits on a shelf gathering dust in partner offices. This is a missed opportunity because a sound strategic plan, if executed properly, is a great leadership and management tool that can enable a firm grow.

Inability to Align Strategy to Goal-Setting and Accountability

Actionable results need to be periodically measured against goals and modified if certain goals are deemed unrealistic. Compensation adjustments should be made according to progress made toward these goals. Partners know that a firm is serious about strategy execution if they can measure the impact their participation has in their wallets.

Price is Always Why We Lose

According to Esposito, the thought that price is main reason your firm loses clients or proposals is a myth. Price is a one-dimensional sales pitch whereas value creates motivation for clients to select your firm. Value is perceived benefits less perceived cost. Clients and prospects want a firm that will help their business grow and be more profitable – a firm that brings real value to the relationship.

New ACCA Report: Ethical Behavior Should Be at Core of Business in Digital Age

The Association of Chartered Certified Accountants (ACCA) released a global survey, “Ethics and Trust in a Digital Age.” It raises questions about how prepared businesses are to face new ethical challenges, such as ransomware attacks, crypto-currency transactions, intellectual property disputes and customer privacy.

“Professional accountants are often on the front line of facing ethical questions in business,” says Maggie McGhee, director of professional insights at ACCA. “What is clear is that the digital age creates new dilemmas where there are no easy answers. If you’re working in a business considering whether to start accepting bitcoin payments, or implementing cloud-based customer records, these are crucial questions. In the digital age, there needs to be more – not less – importance placed on the ethical and professional judgment of individuals.

“What many are calling for is guidance and leadership on how to respond. All those involved in decision-making levels in business should be aware of how new technologies can affect their reputation and consider how to support their employees in doing the right thing.”

The report features a series of short case studies exploring the ethical questions raised for accountants and auditors by digital technology. It offers guidance through assessing the scenarios alongside the five fundamental principles for professional accountants established by the International Ethics Standards Board of Accountants.

The survey explores six digital themes:

  • Cybersecurity
  • Platform-based business models
  • Big Data and analytics
  • Crypto currencies and distributed ledgers
  • Automation, artificial intelligence and machine learning
  • Procurement of technology solutions

The survey found that while 77% noted that ethics was a “very important” skill in the digital age, about one in five respondents reported that they had personally felt pressure to compromise their ethical principles in the preceding year. These responses revealed that the most commonly compromised principle was that of integrity, being straightforward and honest in all professional and business relationships.

“The professional accountants of the future will need, in addition to technical capability, a rounded skill set that demonstrates key quotients for success in areas such as experience, intelligence, creativity, digital skills, emotional intelligence and vision. And at the heart of these lies the ethical quotient,” says ACCA’s Warner Johnston.

The survey found that in the United States:

  • 90% noted that strong ethical principles and behavior will become more important in the digital age.
  • 94% found that ethical behavior helps to build trust in the digital age.
  • 89% felt professional accountants act in the public interest.
  • 92% felt that professional accountants upholding their code contributes to organizations’ abilities to uphold ethics.
  • 99% felt that International Ethics Standards Board of Accountants principles still apply and remain relevant in the digital age.

Accounting for Corporate Culture

According to a Robert Half Management Resources survey, 51% of CFOs said they play at least some role in shaping corporate culture. Executives reported taking several steps, including using their firm’s values to guide their actions and helping develop the organization’s mission and define the desired environment.

CFOs who reported being somewhat or very involved also were asked, “How are you involved in shaping your company’s corporate culture?” Their responses:

  • 83% use company principles and values to guide actions
  • 79% contribute to the development of the company’s mission
  • 78% collaborate with other executives to define the desired culture
  • 76% speak regularly with employees about the culture
  • 72% contribute to training and onboarding programs

“CFOs enjoy vast influence throughout their organizations – more than many people probably realize. Proper financial reporting and management set a model for the firm’s business, ethics and corporate culture,” says Tim Hird, executive director of Robert Half Management Resources. “Financial executives looking to advance must go beyond leading the finance function and show an ability to foster a positive corporate culture. Start by setting the right example and grow your involvement from there, including working with employees to define what is best for the firm.”

Afterburner Webinar: Debriefing, The Final Step to Agility

This video, part of the Flawless Execution Webinar Series by Afterburner, explores the importance of debriefing after a major project. The video maintains that it is a critical team building exercise that identifies the team’s successes and its breakdowns so that the information can be used in the future.

This year’s PRIME Symposium will host Finch and Afterburner Inc. team member, Jen “Steel” Wade.

The video teaches the viewer how to conduct a structured debrief that will save time and advance similar processes. This improves communication, and therefore reduces frustrations, across the board by sharing lessons learned in the process of start to the end goal so they might be repeatable.

It also explores the “Execution Gap,” which is the difference between expected results and actual achievements. Using this lens, it views success from multiple points of view to gain a fuller understanding of what was accomplished. Doing this can streamline and improve your future processes, moving toward where you want to be.

Click here to view another Afterburner Webinar: How to Connect Strategy to Execution.

Join INSIDE Public Accounting and Afterburner Inc. team members,  David “Finch” Guenthner and Jen “Steel” Wade, at the 2017 PRIME Symposium.

Deloitte Launches Dynamic Modeling and Visualization Tool for Tax Reform Advisory Services

New York-based Deloitte (FY16 net revenue of $17.5 billion) launches a new service that leverages Tax Reform Navigator, a web-based solution that uses actual and projected financial data to provide a holistic view of how potential tax reform proposals are likely to impact a company.

Terri LaRae, partner and national leader of tax reform advisory services, says “Companies that prepare now may be better positioned to act advantageously if and when tax reform is enacted. We created Tax Reform Navigator to enhance Deloitte’s tax reform advisory services and give companies the confidence to make informed decisions during uncertain times.”

The tool can account for a number of variables and be customized to explore a range of scenarios when creating an integrated plan with domestic and international tax considerations. Along with the tax advisory services, some of the scenarios upon which the tool provides insight include:

  • Impact on existing attributes
  • Acquisitive organizations
  • Supply chains
  • Debt-intensive industries
  • Multinational organizations

The Tax Reform Navigator compares company data side by side and measures the potential impact of proposals in the House GOP blueprint, President Trump’s tax plan and the Tax Reform Act of 2014 (introduced but not voted on). Deloitte works with clients to design and generate reports that communicate tax reform planning progress to C-level executives, boards and other stakeholders to help inform business decisions and other efforts.

“Effective tax reform planning requires companies to explore different approaches and evaluate likely outcomes relative to their specific businesses,” LaRae adds. “The feedback we have received from clients has been positive. We plan to expand the tool’s features in the next month to include additional tax forecasting capabilities and visualize state-level tax implications.”

White Paper: Discover the 5 Stages of Cyber Security Maturity

British Telecommunications and New York-based KPMG (FY16 gross revenue of $8.6 billion) have developed a white paper that describes cybercrime as a journey. Once you know where you and your company are on that journey, you can take the appropriate steps to get to where you need to be, the firms contend. The white paper provides practical steps to manage cyber risks.

Each chapter is dedicated to one stage in the journey and lays out step-by-step recommendations, along with questions to ask to get to the next stage.

The cyber journey stages:

  1. Denial: Thinking it won’t happen to us
  2. Worry: Obtaining as much security as possible
  3. False confidence: We are ready
  4. Hard lessons: Learning there’s no absolute security
  5. True leadership: We must work together

By focusing on innovation, you can maintain a sustainable risk position against the evolving threat landscape, the white paper says.

Zacks Investment Research Upgrades CBIZ to “Strong-Buy”

Cleveland-based CBIZ (FY16 net revenue of $661 million) was upgraded by Zacks Investment Research from a “hold” rating to a “strong-buy” rating. The firm currently has a $17 target price on the business services provider’s stock. Zacks Investment Research’s price objective points to a potential upside of 14.48% from the stock’s current price.

CBIZ last announced its quarterly earnings results on Aug. 3, reporting $0.20 earnings per share for the quarter, topping analysts’ consensus estimates of $0.18 by $0.02. The company had revenue of $211 million for the quarter, compared to analysts’ expectations of $207.42 million. CBIZ had a net margin of 5.54% and a return on equity of 9.59%. The business’s quarterly revenue was up 7.1% compared to the same quarter last year.

Institutional investors have recently made changes to their positions in the company.

  • First Manhattan Co. boosted its position in shares of CBIZ by 4.2% in the first quarter, now owning 2,884,455 shares of stock worth $32.3 million.
  • P2 Capital Partners LLC upped its position in shares of CBIZ by 67.6% in the first quarter. They now own 2,361,073 shares of stock worth $32 million.
  • Vanguard Group Inc. boosted its stake in CBIZ by 6.9% in the first quarter. They now own 2,194,818 shares stock valued at $29.74 million.
  • State Street Corp boosted its stake in CBIZ by 12.0% in the fourth quarter. Now owning 896,848 shares of the business services provider’s stock valued at $12.3 million.
  • Norges Bank bought a new stake in CBIZ during the fourth quarter valued at approximately $10 million.
  • 84.97% of the stock is currently owned by institutional investors.