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CEO Roundtable: Taxes

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As Congress contemplates a major tax system overhaul, local firms prepare for impending changes. Springfield Business Journal Editorial Director Eric Olson sat down with accountants Bill Dunton of Abacus CPAs LLC, Bill Ladd of Duckett Ladd LLP, Jeff Shore of BRS CPAs & Trusted Advisors LLC and John Wanamaker of BKD LLP. They talked presidential promises, technology and recruitment.

Eric Olson: In a word, how would you describe the accounting industry today?
John Wanamaker: Dynamic.
Bill Ladd: Evolving.
Jeff Shore: Changing.
Bill Dunton: It’s probably evolving the most that it has in my career.

Olson: What are some of those bigger items affecting the industry?
Shore: I think technology is going to be the biggest disrupter for us.
Ladd: Technology is changing what we do, how we do it, where we can do it. But I think most importantly, it is changing what our clients’ expectations are for what world-class service looks like.
Wanamaker: Our clients’ business models are changing because of the advances in technology, which causes us to adapt in how we audit or do the work we do.

Olson: What technology?
Ladd: Automation. You know, it’s kind of removing the manual component of a lot of what the clients do and what we can do. It’s something that could drastically change a client’s business model but also a CPA firm’s business model.
Shore: The importing and exporting data from banks is a big delivery we are seeing more of. As a small-business development firm, it has always been one spouse does the accounting – usually not the one that’s very good financially – so you’re always cleaning up messes. Well, some of the automation is fixing that.
Dunton: Cloud-based software companies are being more collaborative, where before, they were very proprietary with their software. Nobody else could touch their software. You get the best of what you need and the rest of it was not that good. Now, you can get the best of the best.
Shore: We are in a peer network of other firms and they’re spending every week this month talking about client-facing technology. Some a type of app, or a type of billing app for example, or an accounting app that is cloud-based. So they’re getting us introduced to these one-off apps so that we can kind of introduce those to our clients. 
Ladd: Everybody wants it right there on that phone. They want that real-time. That puts their finances in their pocket, and that’s pretty powerful. We have never had that level of access before.
Wanamaker: I think it will just enhance the efficiency, and that’s the other thing. The big four [national accounting firms] have the huge resources to make investments in big data analytics that can be used for audit purposes because they’re talking Fortune 500 companies. A firm like BKD, we have a lot of resources, but we don’t have that kind of resources.

Olson: What John is pointing to is the Inside Public Accounting Top 100 list. BKD held its spot at No. 12 and KPM CPAs came in at No. 217. Pretty good for Springfield to have two on the list there.
Wanamaker: The one thing I’m proud of because our firm has grown is BKD is southwest Missouri. As we’ve grown, we’ve got more offices in St. Louis, Kansas City, Wichita, Tulsa, Rogers, Fort Smith, and I mean we are surrounded geographically, but we continue in southwest Missouri to be the largest practice of the firm. We hit $52 million. [The Springfield office] would be in the top 100 by ourselves. If you look at it, I think $52 million would put you around 70th in the country.
Ladd: The big four are using disruptive technology that kind of rocks the world of your size firms. I’d love to hear, Jeff, what your thoughts are on that because you kind of threw that phrase out and I think it’s neat and meaningful.
Shore: We are collaborating with other firms within our market let alone out of our market. A year ago we had seven firms in a room in Missouri and south Kansas learning about software that we are going to have to integrate into. All local firms. All in the same room. All learning about how to use this software. So the days of competing, you know, I think are waning and the days of collaboration are coming.

Olson: Other changes to speak of?
Wanamaker: Well, regulatory is just constant. I mean it’s just constant.
Ladd: You would think in an accountant’s world, it’s just the (Internal Revenue Service), but it’s really not.
Dunton: “Obamacare” was as much a tax bill as it was a health care bill. There were more things we ended up dealing with in that than anybody realized.
Wanamaker: Each year, Congress is passing different regulations that are impacting everything. We spend a lot of time studying the regulations in those industries and try to be proactive and be a voice at the table in Washington, D.C. We get connected with the state, regional and national associations to help support them and their lobbying efforts as we see things that are coming out that would be detrimental.

Olson: What laws are on that short list of concerns?
Wanamaker: Well, obviously with the new administration, I think there is going to be big debate about tax reform here. You know, with the incentive to simplify, but at the same time it’s a dysfunctional Congress that obviously thought they would be able to make changes to the Affordable Care Act and weren’t able to get that done. I mean who knows what will happen there. I think the idea on the corporate side is probably the right thing. The 35 percent tax rate is too high and we’re having a lot of large companies going overseas to set up their corporate offices to avoid taxation in the United States.
Olson: What has been the proposed reduction there – to 15 percent? Is that feasible?
Shore: Well with everything I’ve read as to the reason why the ACA [repeal] hasn’t passed is revenue, revenue, revenue. You know, the problem with Congress and the Senate is they’re constantly worrying about revenue, but not worrying about spending. ACA [repeal] partially didn’t pass because of revenue, I think with the rate reduction they are going to try and make it revenue neutral, which really then in an overall economic sense is probably a net zero in theory. So, to reduce the [corporate tax] rate means they are going to reduce a lot of other deductions. You may only end up back to the same spot.

Olson: Where does that have you guys in your firms then?
Dunton: Unfortunately, in a holding pattern. Through the last couple of years with [President Barack] Obama, we were in a holding pattern. You have the same scenario now. We’ll see where they end up. We can’t make any changes now because no laws have passed. So, you’re stuck. You can talk about it all day long, but as we saw with the health care initiative, who knows what they’re going to get. Probably, realistically there will be some level of negotiation. If something gets passed, it probably won’t be 15 percent. It would be nice, but it probably won’t end up there. Tax simplification has never happened. [President] Ronald Regan passed two bills that were called tax simplification in the title of them. One of them brought in alternative minimum tax, which didn’t simplify anything. It actually added a whole other taxing system. So, there is no way to simplify it really without wiping out the whole thing and just starting over.
Shore: I’ve said for years the tax code is Congress’ playbook. If you are dealing with a 4-year-old and trying to take away his biggest toy, you’re never going to be able to do that. You are just going to have to distract him with a different toy for a little bit so that you can hope to make some change that is going to be beneficial for your client.

Olson: What are you hearing from clients? Are your phones ringing off the hook while you are in this holding pattern?
Dunton: Within our client base, we’re seeing a lot of activity. I think people were just kind of tired of this other stuff. The economy is doing better. We are hearing all kinds of news every night that is not very good, but it is not necessarily about the economy. It’s about Russia.
Ladd: The advice, at least from my perspective, has always been it’s economics first and then you worry about the taxation. Because for every dollar you spend, you’re only going to save 30 to 40 cents in taxes. Don’t go spend money to try to save taxes. But, by the same token, if it’s going to benefit your business, then go ahead and trigger that.

Olson: How are you guys responding in terms of hiring and training?
Dunton: It is a people business. I mean you have to deal with the numbers, but ultimately, you have to be able to look across the table at that client and they have to be able to know that they can trust you. In order to do that, you are going to have to be able to communicate and build relationships. You know, you’re talking about accountants and sometimes that can be a struggle. We’re looking, and we have several techniques that we use, to try to find that entrepreneurial accountant. We want that businessman with a specialty in accounting.

Olson: More well-rounded? Are there strategies that any of the others of you use?
Ladd: One of the things that is most fascinating to me is if you look at the international landscape, the United States is actually very far behind other developed nations in terms of what the clients’ expectations really are for a CPA. You know, in England and Canada and Australia, they are advisers and that is how they are expected to behave. And I think here we are still lagging behind in really portraying to our clients that is what our job is – to help you, advise you, become a partner to you. We have to find people who can think a little bit differently because traditionally as accountants we tend to be a little bit linear in our thinking.
Wanamaker: We’ve really got two areas: We have entry level right off of campus. You know, because of our size, we recruit 20-25 audit tax folks every year and we recruit another 10-15 interns. We have a regional recruiter full time to begin identifying students even as early as the sophomore year. It’s a hard market out there right now to find the very best of the best. For years, the big four weren’t at Missouri State University. I think Dean (Stephanie) Bryant has really done a good job there trying to raise the elevation. I’m taking a long view on that personally. When you get the big four looking at a local school like Missouri State, it raises the level of accounting students. The long view is good on that, but honestly it is challenging the competition for students. Before the Great Recession, we were making offers two years out. Now, we are back there. We already have 10 full-time hires inked up for the summer of 2019.

Olson: I want to get in to the market of mergers and acquisitions. Do any of you have an inside track on where things are heading?
Wanamaker: They’re picking up and there are multiple factors. The baby boomer generation has built up their businesses and is reaching that point that they need an exit strategy. They want to retire and their options are either to sell, perhaps form an (employee stock ownership plan), get the employees some ownership or hand it down to a son or daughter. There’s huge wealth that is going to be transitioning. That’s not going to stop anytime soon. Another thing that is driving it is regulation. The Affordable Care Act and we’ve seen it in our market. Branson Skaggs could no longer operate on their own and had to be acquired by CoxHealth.
Dunton: And then within every industry there are the consolidators. You can pick a whole bunch of different niches but if we can buy up all these small businesses across the nation you can become a huge consolidator of, pick any industry almost. That’s probably always gone on, but it’s going on again as the economy is picking back up and you can see that within CPA firms.
Ladd: It is some of the larger firms looking and seeing if maybe a smaller firm that has a niche specialty that they feel could shore up one of their departments. They’ll swoop in and grab them up.

Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net, Publisher Jennifer Jackson, jjackson@sbj.net and editorial assistant Sophia Jackson, sbj@sbj.net.

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