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SMART ANSWERS
By Karen E. Klein
APRIL 4, 2000


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Q:  My friends and I are starting our own business. We have heard good and bad stories about accounting firms. Can you offer any insight on how to choose one?
-- S.G., Irvine, Calif.

A:  First the basics: Make sure your accountant is licensed, communicates well, and comes with good references from other small-business owners. But startups have some special needs: You must choose an accountant that can guide you through such fundamentals as what business structure to adopt, what partnership or stockholders' agreements you will need to govern the company, how to structure a stock-option or other compensation package for your employees, and how to raise capital.

Seek a firm that specializes not only in startups but also the industry you're entering. A startup can't wait for its certified public accountant to learn the ropes. "You're going to need someone who will work with you one-on-one, [who has] plenty of experience in your field, who's capable of doing some hand-holding," says Tom Bargsley, a partner at the Austin accounting firm of Bargsley & Associates.

When you go to firms, don't just interview the managing partners, he suggests. Ask to meet the staffers who will work directly with your company. Make sure a firm is on the same wave length regarding technology. If you prefer to communicate via e-mail and your accountant is still in the fax era, you may have an annoying culture clash.

BEYOND BOOKKEEPING. A startup's accountant should do more than just keep the books in line. A well-connected firm can introduce you to investors, lenders, and suppliers. Kevin Pianko, a partner at Richard A. Eisner & Co., a New York City-based accounting/consulting firm, recommends you seek accountants that do benefits consulting and have international contacts as well as the traditional auditing and tax services. "It may be tempting to go with a smaller, more limited firm initially to save money and then switch. But that can be difficult to do, and [you] may find that previously reported information turns out to be inadequate in the long run," Pianko says.

If you plan on taking your company public, you'll need a large accounting firm. The auditing and registration requirements for an initial public offering are stringent, and the liability risks are considerable. As a result, only the Big Five and a few other large, national CPA firms handle the process.

You might want to go with a big firm from the start if you're IPO-bound. Alternatively, you could work with a smaller outfit that has a relationship with one of the big players. You'll generally get more personal attention for a lower price at the beginning, and you can expect a relatively smooth hand-off at IPO time.

Says Don Lucove, a partner in the Calabasas (Calif.) firm of Lucove, Say & Co.: "Some smaller firms act as in-house controllers for startups, preparing everything for the CPA firms that have the expertise to take them public, and staying with the company until they hire an in-house vice-president of finance or CFO a couple of months before the IPO takes place."



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