Local CPA firms see steady business despite difficult times

David Friedman, a retired doctor, left, goes over his paperwork with Steve Schult, a tax partner with Gilmore, Jasion & Mahler Ltd., at the certified public accounting firm's offices in Maumee.

Despite the recession, most Toledo-area certified public accounting firms serving the business community report that billings are steady, even though cash flow is slower than usual.

And partners of those locally owned CPA firms in Toledo and its suburbs say they have picked up clients in recent years that once would have had their audits done by large national accounting firms.

“Local business-oriented accounting firms are, in general, holding their own,” said Kevin Gilmore, managing partner of Gilmore, Jasion & Mahler Ltd., the largest strictly local firm, with about 75 employees in Maumee.

“In many ways, clients need more financial analysis during difficult economic times to help them manage their businesses. … We are still seeing opportunities during these tough times.”

Still, the economic downturn has put a crimp in revenue at some CPA firms, such as William Vaughan Co., also based in Maumee and the second-largest local firm, with 51 employees.

“We're down three people from last year,” said William Horst, president of the firm that was founded in 1959. “We're being very careful about expenditures, and the first time in 50 years we have reduced hours.”

Employees average 35 to 36 hours a week, largely because many clients are hurting, he said, “and discretionary spending has been eliminated. … Every expense has to be examined.”

About two dozen CPA firms in the area have large enough staffs to perform a full range of accounting services in-house, and they are competing for a piece of the local business pie that is estimated at $80 million to $100 million annually.

A few firms, especially relatively new ones such as Davenport, Hanf & Co. LLC in Perrysburg, have grown during the recession. That firm has tripled in size, to about 20 employees, since its founding less than three years ago. Larry Davenport, a partner, freely admits that he got off to a great start because of regulatory changes that opened up the marketplace for local accountants.

Like many partners of local CPA firms, Mr. Davenport once worked for a giant in the industry: He is a retired partner of Ernst & Young LLP.

He pointed out that regulations such as the Sarbanes-Oxley Act — passed eight years ago after the collapse of Enron Corp., WorldCom Inc., and others — caused the big national firms to concentrate on large publicly traded clients “and that left room for firms wanting to focus on the middle market … A lot of our clients are former ‘Big Four' clients.”

Those big national accounting firms are Ernst & Young, PricewaterhouseCoopers LLP, KPMG International, and Deloitte Touche Tohmatsu. Ernst & Young has a downtown Toledo office, with 100 employees, and PricewaterhouseCoopers has 44 employees at its downtown office. The other two have no local offices.

The Toledo area had offices for eight of the big national accounting firms decades ago, when northwest Ohio and southeast Michigan was home to 10 Fortune 500 firms that needed big accounting work. Today, the area has just three on the Fortune list.

Two regional accounting firms have local offices — Plante & Moran PLLC, which is based in suburban Detroit, has 72 employees in Sylvania Township, and Clifton Gunderson LLP, which is based in Milwaukee, has 25 employees in downtown Toledo.

In addition to the Gilmore, Vaughan, and Davenport firms, other sizable local CPA groups include Spilman, Hills & Heidebrink Ltd., Toledo, 46 employees; Weber O'Brien Ltd., Sylvania, 34 employees; Mira + Kolena Ltd., Toledo, 27 employees; Lublin Sussman Group LLP, Sylvania Township, 23 employees, and Sobb Roberts Inc., Sylvania Township, 20 employees.

Paul Sobb of Sobb Roberts said he has gained business from companies that once used the national accounting firms.

“Bigger firms have raised their billing rates per hour, which gives us the opportunity to pick up some business,” he said. “We're getting some nice opportunities.”

While local partners don't command the $500-plus-per-hour fees of their national counterparts, they still do pretty well, typically $190 to $240 per hour billed.

However, the billing rates are considerably less for other employees, ranging from a low of perhaps $40 hourly for simple bookkeeping tasks to $60 per hour for secretarial time to $80 to $150 or more per hour for professional staff fees. On average, a large local CPA group will bill $90,000 to $120,000 per employee per year, including overhead.

In 2007, nearly 900 were employed at 97 CPA firms in the four-county metro Toledo area, according to the U.S. Census Bureau, and the total payroll was $41 million.

But that figure understates the size of the market. Total billings for a typical firm, including overhead, would be twice or even three times staff payroll.

Reports from the Ohio Society of Certified Public Accountants in Dublin, a Columbus suburb, show that total compensation for partners of the largest firms averages about $250,000, but the average for new professionals is more like $40,000 annually.

What does this sort of accounting expertise cost small and medium-sized businesses? The simple answer is: from a few thousand dollars to many thousands of dollars.

Accountants offer a wide range of services to businesses, including auditing, drafting business plans, business valuation (in case of sale, merger, or divorce), tax planning, product pricing, debt management, benefits analysis, succession planning, technology consulting, fraud detection, and internal controls.

A small or family-owned firm with good internal bookkeeping may not need an audit. Area accountants can often do a compilation of financial data — with no analysis — that will satisfy bankers and shareholders, perhaps as cheaply as $3,000 to $6,000. A review, with limited analysis, would typically cost $6,000 to $12,000.

Audits, which require independent examination and verification of financial reports, can start as low as the $10,000 to $20,000 range but will run considerably higher, depending on the size of the company and type of business. Tax work can add thousands of dollars, too.

Medium-sized and large corporations have more sophisticated accounting needs and are charged accordingly. For example, in 2008, the 10 largest publicly traded corporations in northwest Ohio and southeast Michigan reported paying a total of $41 million to their outside accounting firms, with most of that going to Ernst & Young and PricewaterhouseCoopers. Much of that work was performed in other states and even abroad, and it is unclear how much was done in the Toledo area.

Area CPAs say that billing is holding up better than actually collecting their fees.

“Business has been good, but everything is getting stretched out,” said Chuck Mira, a partner in Mira + Kolena. “Cash is backed up through the system. “We would like to see national banks open up credit lines.”

J. Clarke Price, president of the Ohio Society of CPAs, said, “I have heard around the state that 30-day [paying] clients went to 60 days or even 90.

“Collection is more of an issue, and some clients are saying, ‘You've got to work with me on the fees.'”

For the first time in years, he said, locally owned CPA firms are feeling competition from big national firms trying to pick up smaller clients.

Finding the right CPA for a business involves some homework. The state group recommends checking credentials, reputation, references, and variety of services offered.

But, Mr. Mira pointed out, “It comes down to personal chemistry.”