Ronald Friedman, Co-Leader, Retail/Consumer Products Industry Group, Featured in Los Angeles Business Journal Roundtable Discussion: "The Business of Accounting"
Los Angeles Business Journal
As our economy continues its perpetual evolution and experiences its climbs and dips, the Los Angeles Business Journal turned to some of the leading accountants in the region to get their assessments regarding the current state of business accounting and the various trends that they have been observing, and in some cases, driving. Following is a series of questions we posed to thesefinancial stewards of Los Angeles and the unique responses they provided – offering a glimpse into the state of business accounting in 2013 – from the perspectives of those in the trenches delivering financial advice and leadership to the businesses of our region today.
What do clients really want from their accounting professional?
FRIEDMAN: Clients look to their accounting professionals for sound advice and as a good sounding board. I learned as a young accountant that if you always agree with your client on every issue, then one of you is not needed and that is the accountant. You must be able to challenge the clients thought process and make sure the conclusions reached make sense to both of you.
How important is it for SEC clients to hire a firm with a low deficiency rate?
FRIEDMAN: We have seen the PCAOB deficiency rate among the major accounting firms has been higher than we would all like to see in the profession. The causes can be for many reasons which may include that the firms are stretching themselves to thin. Firms with low deficiency rates have an advantage and should always be considered after a client reviews the level of staff working on the assignment and the quality control department for the firm.
What issues keep your clients up at night?
FRIEDMAN: Clients are kept up at night with concerns for new orders, cash flows and financing production. The best way to relieve that stress is proper planning which requires companies to prepare projections that model the business activity and the required financing of the business. These projections are used as a tool to manage the business on a daily basis. If the projections are done accurately and management can meet the expected goals, then the stressreduces as the goals are met.
What are the benefits of using an accounting firm that is a specialist in the industry?
FRIEDMAN: All accounting firms can prepare financial statements and tax returns, but whatseparates accountants is specialization. When the accountant knows the clients industry as well as the client knows their industry, discussions between the two takes on a new dimension. The client and accountant can talk about the industry issues and what they do as compared to others in the same industry. A specialist will know ratios for the industry that most others may not be aware of and this can make the difference between making some money or a lot of money.
What are the most common recommendations you have made to your clients to help them manage their bottom line?
FRIEDMAN: Managing the bottom line requires planning! It doesn’t happen by chance. I recommend that all clients prepare a projection for the year which includes an income statement, balance sheet, cash flows, accounts payable and accounts receivable schedules for the entire year prepared on a monthly basis. As the year progresses, the projections should be actualized and updated for all known changes. With planning comes success.
How have the changes in the economy affected your clients and what advice have you given them?
FRIEDMAN: This recession has been the slowest recovery I have seen in my entire career in public accounting. I have encouraged clients to operate as efficiently as possible which means payroll cost are kept down, we are doing more work with less employees. Inventory levels are managed by buying or producing much closer to the market needs, no more having extra inventory waiting for new business. Expansion of the business into new markets is tested much more before jumpingin with both feet. This is the world we have now and with slow recovery comes cautious optimism.
How has international commerce impacted your local client businesses?
FRIEDMAN: The best things coming from international commerce is the desire for foreigners to buy American made products. Our clients are exporting more now than ever before. This global desire to buy American is allowing our U.S. Companies to open up retail stores through out the world. Our clients will open up warehouses in foreign countries to allow for easier distribution of goods. We live in a world economy and American products are very desirable.
How have lending relationships or your client’s ability to raise capital been affected over the past 12 months?
FRIEDMAN: Raising capital over the last year has been a challenge for many clients. Borrowing from banks requires a lot more information and takes more time than ever. Clients are always complaining about the amount of detail they have to provide banks and the scrutiny they are put thru. On the other side of the coin, the banks are complaining that they have more money to lend and nobody wants to borrow. The investment banking world has money sitting on the sidelines and they are now starting to put the money back in play. This is a good time to be looking to expand business and borrowthe money that is waiting to be employed.