How to open new doors by closing your office

Virtually no one who has leased office space has enjoyed writing that rent check every month. It might have been satisfying at first, when the firm or company was young and having an office was a sign of progress, but watching money go into a landlord’s pocket inevitably gets old.

Still, the reality was that for most multiemployee businesses, the brick-and-mortar office was foundational to the organization’s existence. Physical presence announced reliability and permanence to current and prospective clients. A physical office also was deemed necessary for employee collaboration and client meetings. Consequently, the monthly lease or loan payment was considered an unavoidable part of doing business.

That mindset is beginning to change. Cloud-computing and paperless technologies are rewriting the rules for many businesses, and not just in the areas of client service and product delivery. The same forces that are opening new markets and geographies for accounting firms (see the JofA article “From ‘Write-Up’ to Right Profitable,” April 2013, page 24) are making it increasingly possible for practices to close their brick-and-mortar offices and go 100% virtual, with all processes based in the cloud and all employees based out of their homes.

In the public accounting space, many new practices start completely virtual, and many sole practitioners have operated out of their homes for years. Erik Asgeirsson, president and CEO of AICPA technology subsidiary CPA2Biz, estimates that 5% to 10% of all accounting firms are operating without a brick-and-mortar office, and he expects those percentages to continue to rise.

Business Management Resource Group (BMRG) and Blumer & Associates are a pair of firms that closed brick-and-mortar offices last year and moved to fully virtual setups. The firms have encountered challenges with shuttering their physical office operations and building camaraderie among employees working remotely, but they also have enjoyed substantial financial, staffing, and operational benefits.

Is going virtual a realistic option for your firm or business? What is required to make such a leap? How long does the process take? What are the benefits and drawbacks? This article addresses those questions and more, drawing upon the experience of CPAs already operating in their own virtual realities.

A TALE OF THREE FIRMS

Carolyn Sechler, CPA (at left), is a pioneer in virtual offices. She formed her firm, Arizona-based Carolyn Sechler CPA PC (a B Corporation), as a two-employee operation when she de-merged from another firm. More than 17 years later, she heads a 20-person virtual operation with team members in three states and Canada. The firm works exclusively with nonprofits, providing tax and other services.

“We did more than 400 Form 990s last year,” said Sechler, who is also a JofA editorial adviser. “Most of my clients, and some of the people I work with, I’ve never met.”

For Jennifer Katrulya, CPA/CITP, CGMA, and Jason Blumer, CPA/CITP, the decision to take their firms completely virtual was a natural extension of their business plans. Katrulya, founder and CEO of Connecticut-based BMRG, and Blumer, owner and chief innovation officer of Blumer & Associates in Greenville, S.C., had converted their firms to cloud-based models that allowed them to pursue niche offerings with clients far beyond their home areas and even internationally. Katrulya grew her business by providing outsourced controllership and other accounting services to clients referred by venture capital firms. Blumer focused his firm on serving exclusively “creative” clients, including advertising agencies.

During the evolutionary process, both firms expanded their staffs and in a quest for talent hired some employees in locations far from their brick-and-mortar offices. Even many local employees began to frequently, and often exclusively, work from home.

Katrulya noticed an increasing number of unused work spaces in her office and began to envision life without having to write those pesky rent checks. Blumer looked around his office, saw virtually no one else there, and decided that it was time his office situation reflected reality. In 2011, both firm owners decided to begin the journey to a fully virtual environment.

IS VIRTUAL THE RIGHT FIT?

The first step on the path to a virtual reality is determining whether your firm is suited for the journey. “The wrong team cannot go virtual,” Blumer (at left) said. “Going virtual is not a strategy. Rather, you should consider it as a preferred means of service to the right kind of customer. It’s a special setup not suitable for many firms, but for the right firm, it is a gift to your team to manage themselves and become more productive.”

Virtual firms operate best with employees who are self-starters and can work alone without getting lonely, Sechler said. The officeless environment lends itself naturally to flexible schedules and production-based, or results-only, models. “We have people on my team who are raising small children,” Sechler said. “We have one that’s taking care of a senior member of the family. They work whatever hours they need because their performance is evaluated on a performance-oriented basis. That works really well for us.”

How can a firm tell if it’s a good fit for the virtual world? An organization with no office has no place to store paper or house its own computer servers. Cloud-based servers and applications, accessible by clients and firm personnel, are essential for a virtual firm, which must work largely paperless. If, in addition, employees rarely work in the office and clients seldomly pay visits, the firm could be primed for going virtual.

Once a decision to go virtual has been made, firms must begin a preparation and transition phase that can last from one to three years, with 12 to 18 months being a good target. Firms must address a plethora of cloud, process, and administrative issues before they can close their physical address.

TAKE YOUR TIME, DO IT RIGHT

Firms looking to shed their rent payment might be tempted to rush the process. That would be a mistake, according to Katrulya and Blumer. A steady, measured move to a virtual environment makes the process much more manageable.

BMRG and Blumer & Associates had already converted to cloud-based business models, giving them a head start on the transition process. Even so, Katrulya spread the transition out over the course of a year, reducing BMRG’s office space by 50%, from 2,400 square feet, before finally exiting the space. During that period, her employees worked more frequently from home, keeping in place the safety net of the office when employees ran into problems.

Blumer tweaked his firm’s structure and parted ways with his tax specialist when he decided during his yearlong transition period to outsource tax services. He has six employees and contractors, up from five when he closed the firm’s office last year.

THE VIRTUAL ADVANTAGES

Firms that go fully virtual can save some real money on rent and office expenses. Blumer & Associates has shaved “a few thousand dollars” a month in rent payments, but Blumer has not pocketed that cash, he said. Instead, he has opted to fund new profit-sharing payments for employees and to purchase better cloud technology, as well as Apple laptops and iPhones for the staff.

For BMRG, vacating its office and going fully paperless has translated into savings of more than $95,000 a year, said Katrulya. That figure is in line with the average annual rent of about $100,000 reported by the 2,362 firms polled in the 2012 AICPA Private Companies Practice Section/Texas Society of CPAs Management of an Accounting Practice (MAP) survey. For small and midsize firms, rent and other occupancy costs represented between 6% and 7% of net client fees.

Jennifer Katrulya says going virtual with her firm has saved money and helped her hire top talent.

“The two greatest advantages to me are, by far, the financial savings and the ability to hire top talent wherever they are located,” said Katrulya, who doubled the size of her firm with an acquisition that closed in May. She now has 24 employees, with a dozen in California, six in New York, four in Connecticut, and one apiece in New Hampshire and Ohio. Blumer’s six-person workforce is based in South Carolina and Colorado.

Among the other advantages of going virtual are:

• The ability to provide flexible work schedules, especially when clients and employees are located in different time zones. Telecommuting arrangements also make it easier for employees to take “working vacations.” Katrulya, for example, was able to extend a business trip to California and visit family for several days before returning home to Connecticut. The trip would have been impossible without the ability to telecommute.
• Access to a more diverse range of client opportunities, because the cloud eliminates geographic barriers by allowing CPAs to collaborate in real time with clients anywhere in the world. The broadening of the client-prospect pool can help the firm attract better talent to the employee ranks.
• Greater potential compensation for staff due in large part to the savings in rent and other office occupancy costs. “We can take the funds we would be investing in overhead and instead allocate that to salaries, professional development, and other employee offerings,” Katrulya said.
• Improved understanding of the firm’s services, niche, and value. “When you operate in a more ‘traditional’ model, the value of your services, your processes, and your team are less explicit,” Blumer said. “Becoming virtual has taken away all of the superfluous things that kept us from focusing on our real results that we sell to our customers. It has allowed us to price our services more profitably and more effectively.”
• Tax benefits for the employees. CPAs working from home also can claim a home office tax deduction, provided they meet IRS requirements for doing so (see the article “IRS offers a new method for home office deductions” on page 30).

The virtual experience also can provide CPAs with knowledge that clients could find valuable. “We have a number of clients who travel a lot for their own business development,” Katrulya said. “So testing out the process of not only working virtually but also ‘taking it on the road’ that way gives me a great way to live the way they live and explore new technology solutions, work flow procedures, staff management practices, that I can then use to be a more knowledgeable and effective business adviser to them.”

CHALLENGES OF THE VIRTUAL OFFICE

The biggest challenge with the virtual office is establishing and maintaining a sense of camaraderie among employees who rarely are in the same building, much less the same room. Firms must develop strategies for ensuring that team members stay connected to one another and also to the firm’s mission, goals, and values.

“I believe we miss being together on a daily basis,” said Blumer, who augments his firm’s weekly online staff meetings with staff retreats. “We have had to be very specific about spending time together a couple of times a year just to enhance our team’s culture. Our times together during our live firm retreats are welcome times to relax with each other and get to know each other better.”

Both Blumer and Katrulya try to get their teams together at least twice a year. Katrulya also tries to get her team to conferences so they can learn and develop camaraderie.

Still, challenges remain in trying to develop a work culture. “You can’t just pick random days to take everyone to lunch, there is no ‘water cooler’ time (which has some advantages), and staff may otherwise work together for months and never really meet face to face,” Katrulya said. “In addition, if performance issues arise, as a manager it is much more difficult to have those discussions via phone/video call, etc., versus meeting in person.”

Firms also must plan ways for staff members to share knowledge with one another. “Knowledge is shared in an office by walking down the hall, buzzing someone’s phone, or saying something at the coffee pot in the morning,” Blumer said. “These are interactions that do not, and cannot, happen in a virtual setting. So, what do you do? You become strategic.”

Blumer & Associates is experimenting with chat clients, including HipChat, Hall.com, Flowdock, and Campfire, that are scalable, private, secure, and searchable, and allow team members to talk over video.

Other challenges include:

• Dealing with the privacy, insurance, human resources, zoning, and other issues detailed in the sidebar, “What Firms Must Do Before Going Virtual.” Failure to do so can lead to myriad problems. Detailed diligence is required in these areas.
• Ensuring the firm’s CPAs are licensed to work with their clients. Even with mobility legislation passed in almost every state, differences in the wording of the legislation in individual states can make it more difficult to determine if a state license is required for a CPA to work with a client based in a certain state.
• Having the IT skills needed to thrive in the virtual space. Because technology is so essential to a successful virtual practice, firms cannot survive without a strong source of IT aptitude among the staff or, possibly, a consulting relationship.
• Maintaining work/life balance. Because virtual office setups provide employees with the opportunity to work anytime, anywhere, it’s easy to fall into a pattern of working virtually all the time from everywhere, especially when clients and staff are spread across multiple time zones. If a firm has clients overseas, it can become possible to work with clients 24 hours a day. Firm leadership needs to help owners and staff employ strategies to avoid continual work distractions, such as email, while also emphasizing the importance of time away from the office. “It takes a while for staff to feel like they can really unplug as well, go on a true vacation, etc., because they care about our clients and the company and want to be sure that they are involved,” Katrulya said. “We have actually needed to really work on giving each other that true offline time.”
• Dealing with distractions at home. While telecommuting can tether a professional to work, life in a home office can divert one’s attention from the task at hand, especially if children are at home during work hours or there is other activity at the home. Katrulya, for instance, found her home work schedule turned upside down when her family brought home two kittens. She allowed the pets into her office, where she even allowed them to sleep. As they grew, they took up more of her time and attention. “I needed to truly make my home office the office and then save the fun time in the rest of our home for later,” she said. “Otherwise I was working all night to try to make up for the fun hours of playing with the little fur-balls!”

What Firms Must Do Before Going Virtual 

Accounting firms must do the following before closing their brick-and-mortal office and going virtual:

Adjust or take out new insurance policies to cover the new virtual realities. For instance, if CPAs in a firm will meet clients at their home office, they should add riders to their home insurance policy protecting them in case of injury, such as a client slipping and falling, said Carolyn Sechler, CPA, of the Arizona-based firm Carolyn Sechler CPA PC. Changes also should be made to cover liability for lost papers and other privacy issues. Firms should ensure employees make clear in their insurance riders that they work for the firm. It’s also a good idea for employees to cover their cars under the firm if they use them for business, she said. 

Implement laser-focused, linear processes that can survive the strain of an officeless environment. “When you are in an office and you have the ability to lean over your cube and ask a question, or catch a client as they come in to pick up their tax return, or walk down the hall to ask someone to clarify something, you realize that these all have to be straightened out when going virtual,” said Jason Blumer, CPA/CITP, of Blumer & Associates in Greenville, S.C. As an example, Blumer discussed what happens when a tax client comes by the office. 

“You are really doing [at least] three things when that customer comes by,” he said. “One, sharing with them the details of their return and why things turned out the way they did; two, getting them to sign some documents before you efile [often both spouses have to come]; and three, getting paid.” 

While the CPA firm can adjust on the fly to make sure those goals are met during a client visit, that isn’t possible in the virtual space. As a result, firms must ensure that their process addresses all of the essential steps and does so in the correct order. “That is, one comes before the other and cannot come after the other,” said Blumer. “If they are not linear and well-designed, then the customer gets confused and a little miffed.”

Write and employ an office policy document that outlines the protocols employees must follow while working for the firm. The document should cover policies designed to mitigate the firm’s risk from encountering problems with privacy, risk management, and human resources issues. 

Ensure the firm complies with all laws and regulations overseen by the state labor departments in the areas where the firm has employees. Sechler recommends having a human resources professional look over all written policies to ensure they are in good order.  

Notify clients about the office closure and why it’s happening. Clients who balk at going virtual probably aren’t right for the move. “You cannot take the wrong clients virtual,” Blumer said. “They will laugh in your face.” Some clients just prefer to have a CPA in a larger practice or with a brick-and-mortar office, Sechler said. 

Find out whether local regulations and/or homeowner association (HOA) rules allow employees to operate home offices. Some zoning ordinances and HOA charters don’t allow home-based businesses to accept client or customer visits. Similarly, some vendors won’t deliver to home addresses, Sechler said. 

Have the right technologies in place to support the virtual office structure. At the staff level, the firm must ensure that each employee has adequate and redundant internet connections and proper levels of technology at home. Other technology issues that must be addressed include the following:

• At a minimum, each employee needs two internet connections, such as cable and DSL or a mobile hotspot (e.g., a MiFi device), with one acting as the lead connection and the other as a backup. Connecticut-based Business Management Resource Group (BMRG) pays for the second source for its employees. “Usually they have cable, and we are paying for either DSL or MiFi,” said Jennifer Katrulya, CPA/CITP, CGMA, of BMRG. 
• The firm should know whether each staff member has a generator in the event of a power outage. In addition, employees must have extra laptop batteries available, and the firm must have a procedure in place to remind staff to keep spare batteries charged. On the plus side, having employees in different parts of the country, or world, can lessen the chance of a weather event knocking everyone in the firm offline.
• In addition to laptops, all employees should have smartphones and, preferably, tablets. Firms can provide the equipment or provide a stipend in a bring-your-own-device structure. 
• The firm needs to have a plan for handling incoming phone calls, whether it’s a phone service or something else. 
• Cloud-based applications are essential for a virtual office. Cloud-based accounting systems include QuickBooks, Xero, and Intacct. There are a number of work flow, billing, tax preparation, accounting engagement, and file-sharing options as well. 
• Customer-relationship management systems play a crucial role in making a virtual office successful. 
• The firm must have communication tools in place to facilitate staff interactions with clients and one another. Important considerations include whether the communication—email, instant messaging, video conferencing, or something else—is recordable and meets documentation-retention standards. 

EXECUTIVE SUMMARY

Cloud-computing and other technologies are making it increasingly possible for accounting firms to close their brick-and-mortar offices and go virtual.

CPA firm owners who have taken their firms virtual recommend allowing one to three years for the transition, with 12 to 18 months as a good goal. The transition period is essential to ensuring that employees and clients are prepared for the new virtual realities.

Firms must complete a long list of critical tasks before vacating their office (see the sidebar, “What Firms Must Do Before Going Virtual”). Chief among those tasks are writing and implementing a document detailing protocols employees must follow and outlining policies regarding privacy, risk management, human resources, and other issues.

The firms best suited for the virtual world are those with employees who are self-starters and don’t get lonely easily. Employees who work better around other people aren’t well-suited for a virtual setup.

Going virtual can save accounting firms tens or even hundreds of thousands of dollars a year in rent.

Other benefits to the virtual firm include the ability to hire employees no matter where they are located and greater potential compensation for staff due to the savings on rent.

Jeff Drew is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at jdrew@aicpa.org or 919-402-4056.

AICPA RESOURCES

JofA article

“From ‘Write-Up’ to Right Profitable,” April 2013, page 24

Publications

• 10 Steps to a Digital Practice in the Cloud: New Levels of CPA Firm Workflow Efficiency (#PTX1204P, paperback; and #PTX1204E, ebook)
• Quantum of Paperless Guide—digital best practices (online-only, free to PCPS members, tinyurl.com/opgcjt3)

CPE self-study

The Changing World of Internal Control: Managing Risk in the New IT World (#733521)

Conference

Digital CPA: 2013 CPA2Biz Cloud User Conference, Nov. 20–22, Washington

For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.

Private Companies Practice Section and Succession Planning Resource Center

The Private Companies Practice Section (PCPS) is a voluntary firm membership section for CPAs that provides member firms with targeted practice management tools and resources, including the Succession Planning Resource Center, as well as a strong, collective voice within the CPA profession. Visit the PCPS Firm Practice Center at aicpa.org/PCPS.

Information Management and Technology Assurance (IMTA) Section and CITP credential

In an effort to better recognize and support the breadth of its members’ professional duties and responsibilities, the AICPA has changed the name of the Information Technology Section to the Information Management and Technology Assurance (IMTA) Section. The IMTA division serves members of the IMTA Membership Section, CPAs who hold the Certified Information Technology Professional (CITP) credential, other AICPA members, and accounting professionals who want to maximize information technology to provide information management and/or technology assurance services to meet their clients’ or organization’s operational, compliance, and assurance needs. To learn about the IMTA division, visit aicpa.org/IMTA.