Your Business Lawyer’s Best Friend . . . Your CPA

I majored in accounting in college, passed the CPA exam and received a masters of law degree in tax early in my career. But I practice law, representing growth and lower-middle-market companies in business succession planning, capital raising and mergers and acquisitions, and I know my limits. Because of my background and given the dynamic nature of my client practice, I know what I don’t know and what I cannot do effectively or efficiently. And, every day, I see the value of a good CPA firm, and, frankly, require that my clients have a good one as a condition to my representing them. It’s good for me and my client.

What Lawyers and CPAs Do

Lawyers help clients plan everything from their legal entity structure, to employee equity incentive plans and their equity and debt capitalization, all of which can change dramatically over time if a company brings on new owners, raises outside capital, enters into joint ventures or strategic partnerships, or merges with or sells to another company or private equity firm. So much of this work has significant financial and tax implications that a good CPA is imperative to ensuring that the legal work and planning achieves the best financial and after-tax results for the client. Lawyers tend to be brought in for “big events” and company changes on a project basis. In contrast, a CPA often has more regular contact with a company, handling tax planning and return filings, compilation, review or audit of financial statements, and a variety of other consulting functions. Every business needs a good business lawyer and a good CPA who work well together and can divide and conquer client needs in a collaborative and cost-effective manner. And a good CPA can enhance the quality and cost-effectiveness of the lawyer’s work.

Finding the Right CPA Firm

Like law firms, CPA firms range from more “local” sole practitioners and small firms to larger and more “full-service” statewide, regional, national and global firms. Choosing the right CPA firm is more art than science in that it depends on a company’s state in its life cycle, its industry, its in-house (e.g., bookkeeper, controller or CFO) capabilities and bandwidth, and its specific accounting (e.g., audit and industry regulatory) and tax planning and compliance needs. Of course, as a company evolves and grows, the “best” CPA firm for it may change. In our experience, companies who have had good relationships with a small CPA firm may get to a point where their operations require more expertise in accounting and tax issues that impact their business. Some classic examples of this are companies operating in special industries such as government contracting, high-tech companies with evolving revenue recognition and other accounting issues, and companies operating in multiple states where there may be multistate sales and income tax planning issues and filing requirements. Some companies may be well-advised to farm out their accounting and tax compliance needs to more than one firm rather than engage a one-stop shop. The efficiency and value of this approach will depend on the company.

There are many good small CPA firms out there, and often smaller may be better from the perspective of client service and cost. Selecting the best CPA firm or firms for a company should be about the best “fit” with the company, as all CPA firms and companies are unique. And to avoid having to switch CPA firms (and losing the valuable institutional knowledge that a long-term CPA brings to the business), the decision should be made with future years and plans in mind.

What CFOs and Your Law Firm Want from Your CPA

Your internal (or part-time or fractional) bookkeeper, controller or CFO will want an outside accounting firm that understands the business, is responsive, that solves problems rather than merely identifying them, can work effectively and efficiently with the company’s internal accounting and IT systems (or suggest improvements), and that charges reasonable fees. As the business attorney to company clients, I look for a CPA who is well-versed and up to date in all aspects of state and federal (and, when necessary, international) taxation, who plays a proactive role in understanding our legal planning, recommendations and documents, and who can help us solve client problems and present a united front of good and practical recommendations to clients. We have encountered many situations where a company’s accounting firm even admits that the client company has outgrown their expertise and capabilities, which means that a new CPA firm may need to be engaged to provide some or all of the services previously provided by the company’s legacy CPA firm. We have also confronted situations where a CPA raises tax and other issues well after we have implemented legal planning which we thought was deemed advisable by the CPA firm. Real-time, proactive communication and cooperation are critical components of good CPA firm service.

Having a CPA firm with adequate resources and experience becomes particularly important when a company has industry-unique regulatory, accounting and tax issues. And if a company’s capital structure is changing as a result of tax planning, capital raising or a merger or acquisition, it is even more important to have a CPA with cutting-edge experience in tax and, if investors, lenders, buyers or other third parties require it, the preparation of “GAAP”-proof financial statements. Many companies can meet their needs by using different CPA firms for more routine payroll and tax compliance services, on the one hand, and financial statement preparation and compilation, review or audit, on the other hand. And CPA firms now provide a wide array of non-traditional services such as consulting, company valuations and IT (including data privacy and security) planning and support. Regardless of what profile of CPA firm a company selects, a company is best served by lawyers and accountants who are business advisers, first, and legal and accounting advisers, second.

At the end of the day, as we have often said in other posts and articles, the personal chemistry, bedside manner and client-service style of the lead CPA will be as important as his or her firm’s size and profile. Companies and their people are different and unique, so “fit” is critical to a good, value-add relationship.

The CPA as Part of Your Advisory Team

Private companies will, over time, use a variety of outside advisers. Lawyers and CPAs are the most common and arguably constitute the core of a company’s outside advisory team. But a company will also engage with banking, insurance, investment, IT, HR, administrative outsourcing and other specialists, and for special projects, perhaps valuation firms and investment bankers. A good outside advisory team will include individuals who know what they don’t know and who welcome the input and expertise of other team members. Team members should also be proactive rather than merely responsive to short-term needs or “today’s problem”, always considering the company’s future plans, opportunities and challenges when giving advise and making recommendations. A company’s business and strategic plans should always come first, with the legal, accounting, tax and other planning, products and solutions being designed to expedite company growth and keep its options open. Good professional advice is not cheap, but it can add immediate value to a company and position a company to both manage risk and unanticipated challenges and capitalize on opportunities and achieve growth. A company that is committed to growth and success will not select its CPA solely on the basis of cost, but will consider the immediate and future value to the business of getting its accounting, tax and other compliance rooms of its house in order toward the end of impressing its customers, suppliers, lenders, investors and future buyers with its attention to compliance, best practices and the bottom line.