Accounting firms are following the lead of their clients with price cuts and expanded services to stay competitive in a tough economy.
“It’s gotten a whole lot more competitive as far as different firms being hungry for work,” said Luis Puncel, principal at New York-based Rothstein, Kass & Co.’s Irvine office.
Most accounting firms have shifted their practices to keep up with the changing needs of companies by cutting back on tax and transactional services to focus more on advisory, audit and risk management services.
“The need to be able to offer more than just traditional assurance and tax services is huge right now and will only become more important,” said Roger Weninger, managing partner of the Costa Mesa office of Seattle-based Moss Adams LLP.
Behind the trend are clients struggling with declining profits and revenue. That’s led many to re-evaluate budgets, including their accounting fees.
Everyone is recalibrating and reassessing, said Matt Anderson, principal at Rothstein Kass who recently relocated to the Irvine office.
“Even the best companies are now taking a closer look at their infrastructure and really fine-tuning everything,” he said. “It’s not just people internally, but also the service providers.”
That’s made accounting firms more conscious of their fees, with many lowering them to attract and keep clients.
In some cases, companies that haven’t been as hard hit by the downturn are using the economy to push for savings from their accountants.
“There is not a single client that hasn’t expected a little bit of being more judicious with their fees, so there are many times where we have had to give a discount to the client just because,” said Stephen Milner, managing partner at Newport Beach-based Squar, Milner, Peterson, Miranda & Williamson LLP.
With companies that are having financial problems, some accountants have started to see late or deferred payment for services.
“There are some delays in payments, but so far it has not resulted in significant collections issues,” Weninger of Moss Adams said.
Some firms have worked out payment plans to help struggling clients.
“I have a very good client and good friend who I know feels bad even talking to me because they owe us so much money,” Milner said. “They call when they have more money to give us and I know they are doing their best to get us paid.”
Meanwhile, firms themselves are doing whatever they can to avoid being part of cost cutting by clients.
“There is a constant push in our business right now to be as efficient as we possibly can and drive as much value as we possibly can,” said Rob Lucenti, managing partner at the Costa Mesa office of New York-based Del-oitte LLP. “More so than ever companies are facing probably the most economically challenging times they have ever been in.”
For some firms, the downturn has strengthened relationships with clients.
“To some degree it has helped,” Weninger said. “We are much more connected to our clients on their ongoing operations and issues.”
Big Four
Besides the economy, perhaps the biggest trend now for the industry is the return of the Big Four to the market for midsize clients.
Smaller accounting firms say they’re seeing increased competition from Deloitte, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP.
“Firms like the Big Four that all but gave up the middle market within the past five to six years all of a sudden are back and looking to buy back that work,” Milner said.
The Big Four’s reappearance in the market for smaller clients stems from a drop in work from initial public offerings, deals and the Sarbanes-Oxley Act of 2002.
For much of this decade, Sarbanes-Oxley mandated accounting reform drove business for the industry, as the Big Four focused on large public companies that needed to get in compliance. Midsize companies,some abandoned by the Big Four,turned to smaller firms.
But now much of the work generated by Sarbanes-Oxley is done.
The decline of public offerings in the past few years also has had a big impact on accounting firms, taking away one of the most profitable parts of their businesses.
“We are so tied to the business environment and to the economy, which has certainly changed our business in that there is less IPO work,” said John Belli, office managing partner of the Irvine office of New York-based Ernst & Young.
Some firms see price wars as an unavoidable sign of the times.
“Even the work that you have is a little less profitable because of the concessions made,” Milner said. “That’s the way it is.”
