Cutting CPA Costs — but not corners

Mid-size companies that aren’t keeping their books in order may not literally be hauling a shoebox full of receipts to their accountants come tax time. But according to Ken Kaufman, they might as well be. “You’d be surprised at how poorly they’re reconciling their accounts in terms of accuracy,” says Kaufman, founder and chief executive officer of CFOwise, a Pleasant Grove, Utah, consultant providing part-time chief financial officer services to small and mid-size companies.

Lax bookkeeping means an external CPA or accounting firm will likely have to spend more time and effort on a company’s tax preparation, year-end review or audit and any other financial consulting throughout the year. The obvious result: higher CPA fees.

In today’s financial environment, many banks, as well as company board members and investors, require more rigorous financial housekeeping to avoid unnecessary risk. That could mean putting a company through a full-blown audit instead of the lighter-weight financial review that would have sufficed in the past.

“Prior to the economic crisis, your lender may have only required a revised financial statement,” says Mark Koziel, director of specialized communities and firm practice management for the New York–based American Institute of CPAs, an accounting industry trade group. “Now we need a full audit, and that means turning to your CPA even more.”

Beyond good bookkeeping, companies can take steps to help keep their CPA costs in check.

But first, a little background.

Why a CPA?
Mid-size companies use CPAs a couple different ways, Koziel says. Depending on the size and complexity of a company’s business, they may need an in-house CPA, a position that’s often at the CFO or controller level.

When companies don’t use an internal CPA — and even when they do — many turn to external accountants for financial reviews and audits as well as for help with tax preparation, cost segregation and strategic planning. CPAs also help with compliance and preparation for big events such as mergers or venture capital investments. “There are plenty of things a company is going to lean on their CPA for,” Koziel says.

Just as the scope of a CPA’s work for a company varies, so do fees. Many firms bill by the hour for consulting work and on a fixed price basis for major projects such as audits. According to Kaufman, an average mid-size company with revenues of about $50 million could expect to pay about $30,000 for an annual audit.

According to the Rosenberg Survey, an annual poll of the country’s top CPA firms, growth of CPA fees leveled off in 2008 after six years of solid gains. Even so, mid-size companies can almost always benefit from wise cost-cutting measures, including in the fees they pay their CPAs.

Cutting CPA costs
The nice thing about trimming CPA costs is that it can be easy to do. A little internal adjustment here, some shopper’s savvy there and a bit of easy education on the side can make all the difference in the world. Here’s what the experts recommend:

Keep it clean - The more time a CPA has to spend getting a company’s financial affairs in order, the more it’s going to cost. Use existing staff members to keep books clean and up to date. One $250 million Portland, Oregon, grocery chain has four CPAs in its finance department. The company reconciles books to the penny every month, so when it’s time for review, their accounting firm usually only has to make one pass. “The more things you have prepared up front, the better,” Doziel says.

Stay close to home - The Big Four — Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers — may have the cache that comes with their well-known names, but they also charge more. It makes sense to go with one of the big boys when you’re pitching for venture capital, preparing for an IPO or have a similar major event in the works. But regional firms often provide equally solid work for standard audits and accounting services at a much lower cost. “The Big Four usually provide more comprehensive services,” says CFOwise’s Kaufman, “but you should be getting around the same results with a regional or more local firm.”

Go light - If you’re not a public company, aren’t planning a big acquisition and neither your bank nor your board require an annual audit, consider doing a review instead. Reviews cover less than audits and cost about half as much.

Shop around - Though it can be beneficial to stick with the same CPA year after year, it never hurts to get several estimates. Make sure the firms you’re considering have the expertise you’re looking for. Also, find out how many people will be devoted to your company and who will do the work. Often the partner selling the firm isn’t the one crunching your numbers. “They’ll have junior staff with lower rates to help save costs,” Kaufman says. “That sounds great initially, but if a young kid has no real business experience, they will drive you nuts and take three times as long.”

Bring them in house - Depending on many variables, it could make sense financially to bring a CPA in house. “Many business owners end up hiring their external CPAs to work for them exclusively,” Koziel says. “There’s no rule of thumb though. It just depends on the specific business.”

Spend to save - Consulting with your CPA throughout the tax year may cost more up front, but the long-term savings could be worth it. “Getting them involved and writing them a check early could save five times the tax money,” Kaufman says. Similarly, keep your CPA informed of any planned merger and acquisition activity, stock offerings, venture pitches or other major plans. Advanced notice can help your CPA identify ways to avoid risk exposure.

Keep current - Financial regulations and accounting standards are dynamic beasts. Stay up on the latest changes so that you’re not constantly calling your CPA for updates.

Go for value, not cost - Certainly some CPAs cost less than others, but beware of low bidders. A cheaper price up front may result in poor performance or added billable hours on the back end. “Don’t hire the cheapest rate or you’re going to get what you pay for,” Kaufman says. “It’s worth it to hire up the food chain a little bit. If you think it’s expensive to hire a professional, wait until you see how much it costs to hire an amateur.”