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The CPA Search

One of the greatest challenges you face in running your body shop is sustaining a workable system of financial management.

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If your finances aren’t under control, then neither
is anything else – which is why your accountant will play a major
role in establishing and maintaining an effective financial control
system. In fact, while you gain valuable input from other financial
advisors – such as other body shop owners, your attorney and your
banker – your accountant will likely have the greatest impact
on the financial direction of your shop.

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Who Needs a CPA?

Many small-business owners start out involving an accountant only
at tax time or for year-end financial-statement preparation. This
is a mistake. Sure, the business owner is saving money on the
fees that an accountant will charge for year-round involvement,
but the financial advice from an accountant is invaluable. Even
in the beginning stages of a body shop’s life cycle, some ongoing
input from an accountant should be sought. At this point, the
new budget might dictate that the input be limited to year-end
financial statements, tax-return preparation and a quarterly two-hour
meeting, but that’s a good start.

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"Without my accountant, I would have made a lot of mistakes,"
says Dick Schoonover, owner of Schoonover Body Works in St. Paul,
Minn. "I lean on him a lot."

"I would say that the choice of a CPA probably is the most
important decision a business owner makes from a financial-advisory
standpoint," says Paul Fedorkowicz, a partner with Cherry,
Beckaert & Holland, LLP in Greensboro, N.C. "Your CPA
brings an independence to your business situation and an objectivity
that’s invaluable. And he isn’t trying to sell you something."

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If your body shop has passed the start-up stage, then you’re probably
experiencing an even greater need for ongoing financial input
from an accountant. If you’re doing well and growing fast, then
you need advice to help you manage this growth, and you might
also need input on raising capital. If you’re struggling, then
you need some input on how to achieve profitability.

Many small-business owners make the mistake of simply choosing
a friend as their accountant, but choosing an accountant is a
time to put your business needs far ahead of personal concerns.

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"You need to be sure that your CPA has the skills, resources
and independence to meet your needs," says Fedorkowicz. "If
he happens to be your friend, too, then that’s fine."

If you’ve been using a longtime friend as your business accountant
since you opened your shop and you’ve come to the realization
that he just isn’t providing the financial-advisory services you
need to help your shop reach its full financial potential, then
you need to make a switch.

If you’re ready to do this, go with a Certified Public Accountant
(CPA).

Finding a Good CPA

Let’s start by contrasting a CPA with a noncertified accountant.
While a noncertified accountant is essentially just a bookkeeper,
the CPA must go through a rigorous process to obtain the designation.
First, the CPA must have a college degree; second, he must pass
a four-part test (on practice, theory, auditing, law) that even
the brightest accounting majors often take two or three times
before completely passing; third, even after passing the test,
the individual must gain at least two years of on-the-job-training
to be designated a CPA; and fourth, to maintain the CPA state
license, he must take at least 40 hours of continuing-education
training each year.

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But, as Schoonover points out, just because an accountant has
gone through the process of becoming a CPA doesn’t mean he’s qualified
to assist you as a key financial advisor. "There are a lot
of CPAs out there," he says, "but many are just like
technicians. You have to wade through them to find the superstars."

Schoonover is accurate in his contention that there are a lot
of CPAs. According to the American Institute of Certified Public
Accountants, more than 100,000 CPAs are in public practice in
the United States.

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How do you go about finding the right one for your shop? While
you can find a list of area CPAs in the Yellow Pages, this isn’t
recommended. The best way is through your own professional contacts.
If you’re involved in any community organizations, a number of
CPAs are probably active in the same group. If one or two of them
has struck you as particularly astute, contact them about an interview.

You can also seek input from others in your search for a good
CPA firm. Friendly competitors can often provide excellent referrals,
since they already have first-hand knowledge of the CPA’s industry
expertise. Other small-business owners also can prove very helpful,
particularly those involved in other service businesses or auto-related
industries.

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Schoonover says word-of-mouth helped him locate his accounting
firm. "My stepfather initially referred this firm to me,"
he says. "After that, I asked colleagues in various businesses
and did a lot of research. What I found is that they were highly
recommended."

Before you make your final decision regarding a CPA, ask your
attorney and banker for their input. They, too, might be able
to steer you in the right direction in finding the CPA best suited
for you.

What to Look for in a CPA

As you search for the right CPA, take your time and don’t simply
settle on a personal friend – unless you’re confident that he
or she has the objective knowledge, experience and expertise to
provide the financial-advisory services you need to run your business.

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"You should hope that your CPA isn’t just there to fill out
tax forms," says Fedorkowicz. "You hope your CPA is
there to make recommendations and provide new ideas to help you
run the business better. The CPA can help in financial decisions,
control decisions and tax decisions."

Schoonover says he’s relied on his CPA firm for input in numerous
areas. "Our firm helps with so many little things you just
don’t think of," he says. "They’ve helped us with management-succession
planning. When our office manager decided to leave, they helped
us find a controller. And when we were considering building a
second shop, they helped us with the numbers."

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Consider the following in your search for the right CPA:

  • Industry expertise – While it may not be necessary to find
    a CPA who works with 10 other body shops, you certainly don’t
    want to go with a firm that specializes in manufacturing. Make
    sure the firm you choose has extensive experience in working with
    service businesses and/or auto-related businesses.

  • Honest objectivity – This will be hard to detect if you haven’t
    had much contact with the CPA in the past, so you may need to
    seek the input of others on this one. It’s vitally important to
    find a CPA who will not be a "yes" man. You need someone
    willing to ask the hard questions regarding your financial decisions
    so you don’t wind up asking them after those decisions are made.
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  • Accounts-receivable management – Your CPA can help you in
    creating a system of efficient and effective accounts-receivable
    collection, which is vital to your cash flow. Make sure the firm
    you choose understands your customer relationships with insurance
    companies and the general public.

  • Tax expertise – Even if the individual who will serve as your
    contact doesn’t have tax expertise, you need to make sure that
    someone in the firm does.

  • Community contacts – Find out how well connected the CPA and
    his firm are before making a final decision. CPAs are often valuable
    resources for small businesses needing to borrow money or to raise
    capital from other sources, so a well-connected CPA might help
    you get a foot in the door with a bank or an investor.
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  • Similar business style – You may find a CPA who meets all
    of the aforementioned criteria, but if your styles differ, it
    probably won’t work out in the long run. You don’t want to be
    constantly butting heads with your CPA on even the smallest financial
    decisions. For instance, you might be an owner with aggressive
    growth plans for the future. If that’s the case, you need a CPA
    who will listen to your plans, advise you on how to fine tune
    them and then help you achieve them. You don’t need an ultraconservative
    CPA who tries to talk you out of your expansion goals at every
    opportunity.
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  • Compatible personalities – This may seem obvious, but make
    sure you’re comfortable working with the CPA you choose. As your
    body shop grows, you’ll be spending more and more time with your
    CPA, and it’ll be a much more pleasant experience if you enjoy
    his or her company.

    Take Schoonover, for example. He says that at one point with
    his existing CPA firm, he faced a crossroads. "I was working
    with the firm’s senior partner, but I felt I had outgrown him,"
    he says. "Rather than switch firms, though, I switched to
    another accountant in the firm who shares a similar vision for
    the future of our company."

    The Cost of a CPA

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    If you’ve worked with CPAs in the past, you know that their services
    aren’t free. They shouldn’t be. CPA firms make money by providing
    financial services to businesses like yours, so what you need
    to figure out is the fine line between what you can afford to
    pay for services from a CPA and what you cannot afford to do without
    in terms of services and advice from a CPA. In other words, how
    much of a CPA’s services and input are enough for your body shop?

    First off, CPA fees vary widely. An inexperienced CPA just starting
    out might charge as little as $10 to $15 per hour for basic bookkeeping
    services. On the other hand, national accounting firms charge
    $100 and up for most services. If you’re a typical shop owner
    with one or two shops using a local or regional CPA firm, you
    can expect to pay between $50 and $100 per hour for most of the
    services (i.e. statement preparation, tax work, consulting time,
    etc.).

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    What you need to remember is that a good CPA will save you
    money by:

    • helping you comply with certain laws and regulations;
    • helping you become more efficient in your operation;
    • and helping you pay less to Uncle Sam with some good tax planning.

    The level of professional expenses you pay a CPA firm will also
    vary significantly, depending upon the level of financial statements
    you require. CPAs can provide three levels of financial statements
    – compilation, review and audit.

    For a compilation, the CPA basically takes your accounting information
    and puts it in a financial statement format. No verifications
    are performed and no opinion is expressed by the CPA as to the
    accuracy of the information. A compilation is generally appropriate
    for a small body shop with limited borrowing needs.

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    The next level of financial statements is review, which will cost
    a bit more than a compilation because the CPA not only puts your
    accounting information into a financial statement format but performs
    certain analytical tests. For instance, accounts-receivable turns
    and monthly sales cycles are checked against historical and industry
    standards. In a review, the CPA may find discrepancies to be addressed
    that would not be found in a compilation. A review, however, is
    far less thorough than an audit.

    An audited financial statement is at least twice as expensive
    as a review, according to Fedorkowicz, because of the scrutiny
    applied by the CPA. The financial information is not only put
    into an acceptable format, but the information and accounting
    process must conform with generally accepted accounting principals.
    The ultimate purpose of an audit is for the CPA to express an
    opinion as to whether the statements are free from material misrepresentations.
    If the statements are found to be materially correct, then an
    unqualified opinion is issued. If misrepresentations are detected,
    then they’re disclosed in the opinion letter – usually accompanied
    by an explanation. This is called a qualified audit.

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    For most shop owners, a compilation or review will suffice. However,
    an audit may be required by:

    • a potential investor considering an injection of capital into
      your body shop;

    • a bank as a condition for extending a large amount of money
      ($500,000 to $1 million or more), particularly for working-capital-related
      needs, such as a line of credit to fund receivables;

    • or a bank or other lending institution that has already provided
      substantial lines of credit for working-capital uses.

    Audited statements are also required for publicly held companies.

    Another factor that will impact your CPA fees will be the frequency
    with which statements are prepared. Audited statements are generally
    prepared only at year end, but many small-business owners have
    compiled or reviewed statements prepared by a CPA on a semiannual,
    quarterly or even monthly basis. The frequency of your statement
    will depend on your ability to generate reliable financial information
    in-house and the requirements of third parties, such as lenders
    and investors.

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    If you don’t have the time to prepare a monthly or quarterly financial
    statement or you haven’t yet purchased a computer package capable
    of generating reliable information, then you might want to consider
    hiring your CPA to prepare compilations at least quarterly. You
    need information on sales trends, gross-profit margins, bottom-line
    fluctuations, accounts-receivable turns, etc., to manage your
    business effectively. And obtaining it once a year won’t suffice.
    You might also have this decision made for you (even if your in-house
    financial recordkeeping is timely and reliable) by an investor
    or banker if quarterly or monthly independently prepared financials
    are a condition of their financial involvement.

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    Money-Saving Tips

    Regardless of the level of financial statement provided by your
    CPA and the frequency with which the statements are prepared,
    there are a couple of key steps you can take to hold fees in line.
    On the front end, be sure and ask the CPA for a proposal letter
    breaking out proposed fees and services to be rendered. Also ask
    for a fee schedule for specialist services, such as tax planning.

    Once you’ve selected a CPA, you can save money by performing routine
    bookkeeping tasks in-house and by keeping your financial records
    well organized. If you show up at your CPA’s office every reporting
    period with a box full of checking-account statements, invoices
    and cash-register tapes in no particular order, you’ll pay much
    more in accounting fees than if you organize the information.

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    "We try to do a lot of our basic accounting work ourselves,"
    Schoonover says. "Accounting services are expensive, so we
    try to hold down the fees by doing as much as we can in-house."

    Along the same lines, make sure that the in-house financial-recordkeeping
    system you have is adequate and compatible with that of your CPA.
    You should be able to submit much of your financial information
    by computer, so you want to ensure that your

    computer will communicate with his. In fact, many CPA firms now
    offer on-line capabilities to gather some financial information
    – a process that could save you on fees.

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    You also can ensure that your CPA fees are in line by comparing
    them to industry averages for comparably sized body shops or by
    putting your business out for bid from time to time. If you do
    seek competitive bids, be sure you’re comparing apples to apples.
    Also, don’t make a change just to save a relatively insignificant
    amount of money. The time you will spend re-educating your new
    CPA will more than offset a small savings. And banks and investors
    frown on businesses that frequently change CPA firms.

    Finally, you might save money on your CPA fees by changing fiscal-year
    ends. If you currently use a calendar-year end to close out your
    year, then you’re having your statements prepared during the busiest
    time of year for an accounting firm. If that’s the case, consider
    changing your fiscal-year end to, say, June 30 or Sept. 30. If
    you do this, your CPA should be willing to give you a discount.

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    A Smart Move

    Choosing the right CPA for your body shop is one of the most important
    business decisions you’ll ever make. Whether you’re looking for
    a CPA for the first time or you’ve concluded that it’s time to
    make a switch, take your time to find the one who will provide
    the appropriate level of services and expertise to help you run
    your business more effectively.

    Check It Out

    Consider the following when choosing an accountant:

    • A noncertified accountant is essentially just a bookkeeper,
      while a CPA must go through a rigorous process to obtain the designation.

    • The best way to choose a CPA isn’t through the Yellow Pages
      but through your own professional contacts.

    • Before you make your final decision regarding a CPA, ask your
      attorney and banker for their input.

    • As you search for a CPA, take your time and don’t settle on
      a personal friend unless you’re truly confident that he or she
      has the objective knowledge, experience and expertise.
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  • Make sure the CPA firm you choose has extensive experience
    in working with service businesses and/or auto-related businesses.

  • Find a CPA who won’t be a "yes" man. You need someone
    willing to ask the hard questions regarding your financial decisions.

  • Make sure the firm you choose understands your customer relationships
    with insurance companies and the general public.

  • Make sure someone in the firm has tax expertise.
  • Find out how well connected the CPA and his firm are before
    making a final decision.

  • Make sure you’re comfortable working with the CPA you choose.

    When to Consult Your CPA

    Over the long haul, your CPA should serve as your most-trusted
    financial advisor. If you can’t rely on your existing CPA firm
    to provide input on key financial decisions, like those listed
    below, then it might be time to find a new one.

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    Your CPA should be consulted before making these 15 critical decisions:

    1. Setting up or changing your legal-entity designation.
    2. Deciding whether to lease or buy assets.
    3. Considering major asset acquisitions or sales.
    4. Opening another location or buying another body shop.
    5. Closing a shop.
    6. Purchasing computer hardware and/or software.
    7. Making changes in your financial-recordkeeping system.
    8. Hiring an internal bookkeeper.
    9. Selling all or part of your business.
    10. Establishing or changing your employee benefit plan.
    11. Borrowing money from a bank or other lending institution.
    12. Raising equity from an outside source.
    13. Establishing a buy/sell agreement between you and another
      equity partner or partners.
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  • Purchasing Key Man life insurance.
  • Preparing estate planning.

    The Big 6 and When You Need One

    The accounting business is dominated on a national basis by six
    firms – Arthur Andersen, Coopers & Lybrand, Deloitte Touche,
    Ernst & Young, KPMG Peat Marwick and Price Waterhouse. If
    you run a body shop in or near a city of 100,000 or more people,
    you’ve probably heard of at least one of these Big 6 firms.

    According to Fedorkowicz, who spent 13 years with KPMG Peat Marwick
    in Louisiana and North Carolina, the primary focus of the Big
    6 (formerly the Big 8) accounting firms is on global businesses.
    And while the Big 6 firms generally shy away from working with
    businesses with less than about $25 million in sales, a couple
    of them do have "middle-market" departments that focus
    on smaller, growing businesses.

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    The next tier down for accounting firms is national firms, such
    as McGladrey & Pullen, that are found in most states but aren’t
    quite as large as the Big 6. There are also a number of large
    regional firms, such as Cherry, Beckaert & Holland, that offer
    many of the same services as a Big 6 firm.

    Should you consider one of the Big 6 or a large national or regional
    accounting firm for your business? It depends on your needs. Larger
    accounting firms such as the Big 6 offer a vast array of financial
    resources, such as sophisticated tax planning, independent management
    consulting, long-term strategic planning and corporate turnarounds.

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    Larger firms also provide a certain level of credibility with
    third parties, such as banks and investors. On the other hand,
    Big 6 and other large accounting firms charge higher fees, and
    turnover rates are typically much higher amongst their CPAs.

    You should seriously consider hiring a Big 6 firm or other large
    national or regional CPA firm if you are:

    • planning to go public;
    • forming a multistate operation;
    • in need of raising a substantial amount of outside capital
      even if you’ll remain privately held;

    • or looking to substantially increase your borrowing levels
      to fund growth.

    If the profile of your body shop doesn’t meet one of the four
    descriptions above but you’re still in need of a broader level
    of expertise from your CPA firm, consider some of the regional
    or larger local firms in your market. Even cities of 50,000 or
    so typically have a number of regional or local CPA firms with
    levels of expertise and in-house specialists that should meet
    your accounting-services and financial-advisory needs without
    your having to pay the big fees that accompany a Big 6 audit.

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    "Firms like ours focus on small- and medium-sized businesses,"
    Fedorkowicz says. "We have different specialists who can
    provide many services and people who work mostly with certain
    types of businesses. More and more CPA firms are focusing on providing
    many advisory services to help small businesses become more profitable."

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