|Anita Dennis is a Journal contributing editor.|
Can small accounting firms attract large international clients? One Houston practitioner with specialized tax expertise has seen his young practice grow by 40% annually during the last two years because he offers personalized service and competitive prices to multinational companies with employees working in the United States.
Sixty percent of John Allis' practice is devoted to foreign clients. Typically, he serves engineering, construction or oil companies from all parts of the globe that have thousands of employees worldwide and are involved in projects in this country. For example, an engineering concern might have a joint venture with a U.S. company or might build a $1 billion plant and bring in overseas employees to help plan and implement the project. When the companies need an expert in taxation of foreign nationals, they call on Allis. Most commonly, his firm will prepare the U.S. tax returns for foreign employees, a service well-suited to a small firm. "These are larger projects where we're preparing 30 or more tax returns. I deal with one person at the company, he or she collects the information and our staff prepares it. I'm able to leverage myself very well by relying on my staff. That's one reason I really like working with the foreign nationals."
THE IMPORTANCE OF PLANNING
Much of Allis' work touches on human resources issues. For example, sending an employee overseas can have an unintended effect on his or her compensation. Allis says that Japanese nationals, who face high withholding taxes at home, get a bonus in this country because that withholding drops. People from Middle Eastern countries where there is no income tax can see their salaries drop here after U.S. income tax is deducted. "Sometimes companies don't think about these issues before they come here. Often when I meet with people it's to take care of problems that should have been addressed when the company was planning to come here," Allis says. "If a company structures its assignments properly and does tax planning, it can often reduce its compensation costs considerably." Unfortunately, few companies have the foresight to attack problems in advance. "Sometimes a company that is working out compensation costs with a joint venture partner will bring me in during the planning stages, but many companies act first and then realize the problems they face. They may come in with a huge tax liability. When it's taken care of, they'll do more planning on the next project."
Most of his clients are Fortune 1000 companies or have a comparable rank in their home countries; they may be the largest or second largest engineering or construction company or the national oil company. Although the firm is attracting more midsize clients-those with 1,000 or 2,000 employees worldwide-it avoids smaller companies and individuals as clients because it's not cost-effective to prepare returns for only a few U.S. employees.
A small part of his services to foreign clients consists of helping set up a U.S. office's operations to avoid duplicating administrative and operations functions. "A company will typically send an engineer or project manager who has to oversee all of its accounting, human resources" and related issues for the U.S. office. Allis constructs a system that funnels the U.S. information back to the company overseas headquarters. "They're able to use their own home country accounting systems and internal controls, do their banking via modem or report payroll to a U.S. payroll service via fax or modem. It cuts their overhead costs considerably and frees the manager to concentrate on the project. It also reduces accounting fees, so it adds a lot of value." While oil companies usually don't use this service because they often have U.S. offices, Allis has performed it for engineering and construction companies. The firm also will perform corporate tax work for U.S. subsidiaries and offers general business consulting when clients need it.
The firm's practice is not exclusively international work, however. The other 40% of his business consists of tax and tax consulting for domestic companies ranging in size from $1 million to $10 million, which is a good counterpoint to his foreign company clientele. "The domestic work is steadier," he says. "Our foreign company work can be project oriented"-ending when a construction project or joint venture does. The domestic engagements also occur outside of the height of busy season.
Allis started his career at Big Six firms, specializing in the same kind of international taxation work. He launched his firm with no clients in 1992 and has seen it grow steadily since then, entirely by referral. "A company may be a client one year and then be a joint venture partner with another client the next year," he says. In other cases, a U.S. company will advise a foreign partner to contact Allis before its U.S. employees face tax problems.
Name: John E. Allis, CPA.
Domestic tax clients : 40%.
Types of clients : Large foreign companies with U.S. subsidiaries or significant projects or joint ventures in the states; midsize domestic companies.
Advertising and marketing programs : Exclusively referrals.
Best thing we did in the last five years : Observed strict client selection guidelines.
Worst thing we did in the last five years : Failed to launch solo practice soon enough.
How the practice will change in the near future : Possible expansion of staff to absorb continuing growth.
His clients are used to working with much larger U.S. accounting firms for many of their needs, but Allis has found no trouble competing against these firms for his target clients. He says that when a prospective client evaluates his firm against larger ones, he usually will win the engagement. "In a smaller practice, I can provide personal service," he says. Allis makes sure he is available to clients when they need him, even for advice in areas outside the engagement. "We're also more cost effective as far as fees because of our lower overhead." And he notes that technical expertise is available to firms of any size. "I have all the same reference material as a bigger firm," he says, pointing out that the firm gets daily tax updates and that he keeps in contact with other experts in the field. (Allis' expertise received recognition several years ago when he testified before a subcommittee of the House Ways and Means Committee on foreign tax credit issues.) At the same time, larger companies are used to working with consultants of all sizes and, in many cases, with specialized small law firms, so they are comfortable giving assignments to small firms.
Allis employs one CPA, one paraprofessional who worked with him at a large firm and one support person. Although the type of work the firm performs has changed little since its inception, advances in communications have forged new ways of doing business. "We're seeing a tremendous increase in the amount of tax data we're receiving electronically," Allis says. "My assistant e-mails or faxes the tax organizers to foreign nationals and they return them the same way. This has made the business much easier."
Because his practice involves U.S. tax concerns, it requires very little travel. Allis initially will have one or two meetings with a client, but may not need to see the company contact again for months or years, communicating in the meantime by fax or e-mail. Allis does travel in the United States when, for example, a client with many employees here calls on him to offer an orientation session or update for its workers.
Language barriers also usually pose no problem, Allis says, because so many clients' top executives speak English or have even been educated in the states. Support staff at foreign companies often can read English well enough to direct a fax, although he says it has been useful to have a Spanish-speaking administrative person to communicate with her counterparts at some of his many South American oil company clients. Having once lived in Taiwan, Allis speaks Chinese, although he says he never uses it in his practice, and some Spanish.
KNOW YOUR STUFF
Allis' niche is a good one for his small firm, but he doesn't recommend it to practitioners with no background in international taxation because it would not be cost effective to develop the skills in house and the work is too complicated to jump into without experience. "It's similar to an area such as compensation and benefits," he says. "You wouldn't set up a big benefits plan if you didn't know the field."
He believes that sticking to what he does best and to his ideal client market are crucial elements for his firm's continued success. When he launched his practice, he says a friend gave him some elementary but very valuable advice: Don't take bad clients. "If I don't follow my client selection procedures, I'll work twice as hard for the same money and the clients will never pay me," he says. Although client selection criteria can be extremely subjective, Allis tries to take only larger clients that have good growth potential, aren't overly fee sensitive, exhibit good business sense and that have projects with which he would like to grow. "When you start a practice, you want to take everybody who comes to you," he says. "But you can't get bogged down in something that's not in your market. It's a big distraction from the firm's real business."