Lessons Learned

Memoirs of a CPA on Getting Started in the Valuation and Forensics Fields

Edward Mendlowitz considers himself the last of the “expert generalists”. He published Memoirs of a CPA wherein he relates his story and the lessons learned. Over the years, the author has witnessed the trend towards specialization and proliferation of professional credentials. Mr. Mendlowitz started moonlighting almost immediately after graduating college in 1963 and had enough business to start his own practice in 1969. In this article, he shares tips for newly minted professionals.

I consider myself the last of the “expert generalists” and published my Memoirs of a CPA book relating my story and the lessons learned. I have been around a long time and certainly before the current craze and era of niches, industry specializations, and professional credentials. I started moonlighting almost immediately after graduating college in 1963 and had enough business to start my own practice in 1969.

Running an Accounting Practice

Running an accounting practice is running a business and I had plenty of growing pains, mistakes, and learning as I went along; and also, being lucky enough to attend management of accounting practice programs conducted by successful colleagues that I learned from.

Along the way, I made a decision to not turn down any new business, no matter what (but there were some exceptions). Many times, in taking new business or in anticipation of getting new business, I needed to acquire expertise in a new area. I always liked learning new things, so this was not a chore but a challenge and a pleasure allowing me to grow. I have acquired credentials in tax including being admitted to the United States Tax Court and trying cases there, became a team captain performing quality and peer reviews of CPA firms, being an expert witness and getting the Accredited in Business Valuations and Certified in Financial Forensics credentials from the AICPA, and also the AICPA Personal Financial Specialist credentials. In addition, I have contributed articles to NACVA on professional development and practice management. I am not just bragging but trying to provide some insight of how I became an “expert generalist.” In one particular year, I amassed over 150 CPE credits (and enjoyed every minute of it).

I also became an industry expert in a number of industries but because of the nature of my practice and considering that I was primarily working as a CPA while assisting in running the practice and its marketing and everything else you do in business, I never devoted any reasonable time to exploit a specific expertise. If I were to do this over, knowing what I know now, I would promote my expertise in specific industries and concentrate on personally developing fewer specialties. I even audited public companies (including one the first year in my own practice) and a mutual fund. I took whatever came my way. Hey, I had to make a living and I could not do it turning down business.

Getting Started in Valuations and Forensics

I had a general practice. I think everyone did around the time I started my practice. We did everything a client needed. Very few accountants specialized. Along the way, I always did some sort of business valuation and forensic investigation work. My learning experience in these areas grew out of what my clients needed, the referrals I received, and from what I realized I needed to do to get and keep clients. My practice developed where some clients needed me to testify as a witness on their behalf. Today, the rules are very different but when I started with this, it was not as necessary to be an independent expert witness as it was to be an advocate for my clients presenting their case with my work up of the facts, the projections that flowed from them, and the “obvious” conclusions benefiting my clients from what I did. As this body of work became more organized, disciplined, complicated, and competitive, I morphed into getting credentials and building on my value as being independent and helping my clients engage the best expert witnesses when I was precluded from performing those services. On the cases I worked on, the client engaged economics professors from Harvard, Yale, or Princeton to be the expert witness. From what I have seen, none really earned their money, and my testimony is what made the difference except one time when the expert got totally confused by the opposing attorney’s questions, and the case was “lost” at that moment. I was not allowed see him questioned but my client told me about it afterward and was devastated.   

Things changed and I changed with them, but my start was innocuous and evolved. I clearly remember one case where I actually fought with my client’s attorney to prep me. I then realized he did not understand the case and I felt I had to develop an entire presentation to explain it to the jury. Today, I probably would not have been permitted to testify, but at that time, I was the client’s accountant and that is what we did. My experiences grew from many inauspicious encounters.

Advising clients on the probable value of their business is something every accountant does, usually in a discussion to allay a curiosity, on a bank or student loan application, personal financial statement, or even a gift or estate tax return. When I started, putting down a number that seemed reasonable was how it was done. As time went on, providing the reasoning was added and now a full-blown report is needed in many situations. I did what I had to that seemed to work and help the client. Eventually, the body of knowledge became much more sophisticated and the IRS became much more aggressive in that area. The 1995 Mandelbaum case added a lot to this discipline and credentials became necessary as did independence.

Business Valuation as a Marketing Method

I got involved preparing business valuation reports as a marketing method to get estate planning engagements. As I aged, so did my clients and the need grew for estate planning, which I became pretty adept in. I found out that attorneys, which were a great source of my regular business client referrals, were reluctant to refer estate planning work to a CPA; believing they were fully qualified to handle that work. Many were not and I realized that when I was able to review some of their work. However, most estate plans needed some sort of valuation report and I wanted to capture those referrals, so I became credentialed in that. Attorneys have no hesitancy in referring the valuations to accountants. My add on was that I was able to present alternative estate plans to the attorney and through them to their clients. I backdoored getting the estate planning by offering the valuations. You might think that I was not fully compensated for that added work, and I was not, but I still did pretty well on this transactional work, which was extra work for me. Eventually, I had someone on my staff become credentialled, so he ended up doing the heavy lifting with the valuation work. This work was not as leverageable as the business client work was, so I did not promote it, but took what came my way and that was pretty good.

Some of the estate planning was more of succession planning and I developed an expertise in that area, and even wrote a book on it for the AICPA and still present many CPE programs on it. Some of the succession planning led to obtaining business clients, which seemed to not occur from the estate planning clients. I also developed a considerable amount of personal financial and investment planning from this, but that too, did not leverage itself well and was partner intensive. However, that led to introductions to people that were able to engage us for their businesses. From my experiences, I realized that, with few exceptions, financial planning services are not a profitable service for CPA firms that do not manage assets. However, I also found that clients expect you to be knowledgeable and able to answer their questions and discuss their concerns in financial planning and investing. This was not a profit maker, and more of a loss leader, but an important part of the client relationship. Again, as part of the bundled services pricing relationship, it was a necessary offering and like everything I did, it worked well.

My fees, overall, were sufficient to provide for my living, allow me to fully fund my retirement account, have funds to grow my infrastructure, and occasionally add in a profit. Year by year, it worked. It also worked because I rarely lost a client and was able to get fee increases that kept up with inflation and scope creep.

Assisting Clients in Selling their Business

What evolved from the BV, EP, SP, and FP services was assisting clients selling their businesses. These M&A services became pretty regular work, with some leading to six-figure engagements. All very challenging, time sensitive, stimulating, and at very high realization rates. The M&A work was also time-demanding but that was a piece of cake in that regard because the only real crunch time was for the week to 10 days before a closing when everything that was scheduled to be done routinely beforehand that was overlooked, was done at that time, by all the parties involved. That was fine since it was an expected part of the process.

The most unpleasant time-demanding work I did was the litigation support exacerbated with continuous cancellations of originally rushed deposition, arbitration, and court dates. The plethora of cancelled litigation dates were just not right. One time, after four or five cancelled court dates, I was given the new date, which was in the middle of a family foreign vacation I planned well in advance. The attorney had the nerve to tell me I had to cancel my trip since I needed to be in court then. Imagine what I told him and then add some more nastiness to it. Anyway, it was rescheduled and, after two more cancelations, they settled the morning of the day we were to have the actual trial. I was paid a hefty retainer in advance and was awaiting an additional check that morning to cover my testimony when I was told they settled. I walked away and never asked what the settlement was. I did not ever want to deal with that client (who created added sets of problems) or the attorney, again.

One thing about trying to make a living is that you take on a lot of work with a lot of people you might not otherwise want to subject yourself to.

Valuation Discussion Engagement

One of the things that developed from the M&A work was a preliminary look to see engagement where I charged a fixed fee to provide an indication of value, a discussion of what a buyer would look for and the business’ value drivers, and a negotiation strategy including a starting point (with justification) and a rock bottom walk away price. I also explained the importance of a strategic buyer and how they might value owning the business. This was a pretty thorough analysis including a preliminary quality of earnings calculation and discussion. However, my clients, for this service, received nothing in writing, only my oral discussion. They were permitted to bring their accountant and attorney to the meeting and take notes but they would be given absolutely nothing in writing from me. They were also not permitted to photograph any of the charts, graphs, and spreadsheets I used with them. The fixed fee worked and included secondary and tertiary stages of meetings if appropriate, at added fees.

About 10% of these engagements were rolled out where I assisted clients in the negotiations to sell their business. Another 10% led to being engaged to consult with them so they could end up with a buy-sell agreement, and I occasionally got some estate, succession, or financial planning engagements. In one case, I was engaged to develop the succession plan I recommended 10 years earlier. In a different situation, I did the three stages over a six-month period and did not hear from the client for four months. Then I got a call that a letter of intent was received and I needed to review it immediately since he wanted to get the deal done as quickly as possible. One time, I did one of my look-sees and after the client shopped his business for a few months, he called me and wanted coaching on how he could acquire similar businesses rather than selling his. All very interesting and it all grew from the amalgamation of the valuation, and estate, succession and financial planning skills I developed, piecemeal along the way of trying to make a living.

Conclusion

My “adventures” in business valuations and forensics added great spice to my practice and led to added business of the type I wanted, which were clients for monthly bundled services. I generated some great fees but I never acquired the critical mass and staffing to make that into a sustainable business model for me. Barring some strategic reasons for an acquisition, I believe a basic accounting practice can create greater equity than a transactional practice. Further, as a business owner, I wanted staff to handle a substantial amount of the client services and that is what I accomplished.

The needs of my clients, my desire to learn new things, and having to succeed at making a living led me to become, over time, an “expert generalist.” Technically, I felt I was as good as anyone in anything I did except perhaps the top experts in a given area, and when necessary, I recognized that and brought them in. However, I generally saw the whole picture and was able to tie in all parts of a client’s situation, goals, and playbook. As a generalist, I had a well-rounded and very broad experience in every area that the client needed guidance in. That had a great value and I felt I was well recognized for this, and compensated accordingly. I also do not think the younger accountants today are being groomed or trained in the full range of disciplines needed to fully advise the client in the big picture of what the client wants to accomplish the way I developed. Today, that is not better or worse; it is just different. Things change and being able to adapt is what will keep effective accountants and advisors successful. My way worked for me. Tomorrow’s way will work for tomorrow’s leaders.

We all do the same things but differently. I presented here what worked for me and how I evolved into providing some of these services.

The experiences told here are not included in my recently published, Memoirs of a CPA / The Growth Development and Rise of One of America’s Most Successful CPAs, but many other stories are.

---

Edward Mendlowitz, CPA, PFS, ABV, CFF, is emeritus partner with WithumSmith+Brown, PC, in East Brunswick, New Jersey. He has over 40 years of public accounting experience, is a licensed Certified Public Accountant in the states of New Jersey and New York and is one of Accounting Today’s 100 Most Influential People. The author of 30 books, Mr. Mendlowitz has written hundreds of articles for business and professional journals and newsletters and presented over 350 CPE programs. He writes a weekly blog at www.withum.com/partners-network-blog.

Mr. Mendlowitz can be contacted at (732) 743-4582 or by e-mail to emendlowitz@withum.com.