The Return of Payroll

CPAs bank on payroll services to broaden practice.


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When Ryan McCowan and Steve Greene started their own CPA firm in 1998, they had a multi-pronged strategy for growth: building expertise in a market niche serving McDonald's restaurant franchisees, offering write-up, tax, and information technology consulting services, and staying clear of audit work to let them act as overall financial advisors while avoiding the issue of independence. There was one more key ingredient: offering payroll services. And the new firm, London, Ky.-based Greene & McCowan CPAs, was determined to make payroll both a revenue producer as well as a means of acquiring new customers and expanding opportunities for cross-selling services.

"Any time you offer a niche practice, you can provide a unique advantage by sharing best practices among various clients with similar needs," McCowan says. "We knew that payroll was a very important aspect of that."

ADP Gives Accountants Choices

Partner Insights

Accountants like ADP's wholesale payroll service. They like it so much that it's the fastest growing part of the business when it comes to dealing with accounting firms.

But despite that, most accountants who deal with ADP still refer clients to it or sell it their payroll business.

"Some accountants who aren't sure if they want to get into the payroll business can let us do the heavy lifting with a turnkey service to see at no risk if their payroll business grows," says Rich Watson, vice president of product management and accounting services at ADP Small Business Services.

The multiple ways it deals with accountants give them the option of testing the payroll market without devoting many resources to it, he adds.

Well-known as a payroll service bureau, ADP broadened its offerings through accountants two years ago by launching a Web-based wholesale service that lets accountants offer ADP payroll processing at a 30 to 40 percent discount.

Although it is not offered in a private-label version, the wholesale service lets accountants maintain direct relationships with payroll clients. "We act as the accountant's back office, and accountants can charge their clients whatever they want," says Watson. "We assume any mistakes and cover any penalties, eliminating any liability risk for accountants."

Accountants using the wholesale service gather payroll data from their clients and enter it on the Web, which enables the accountant to map payroll data directly to a general ledger through interfaces with QuickBooks and Microsoft Small Business Accounting.

A Web-based client center enables accountants to access the Web to view status reports on all clients at any time and export data into Excel spreadsheets.

ADP also handles direct deposit and provides data processing for related services like time and labor management and 401(k) administration.

Almost a decade later, the multi-pronged strategy has proved to work over time, and payroll has evolved to play a larger role in acquiring clients, adding value to accounting and tax engagements, cross-selling services, and generating revenue. Last year, the firm launched its payroll practice into a separate business, Paycheck Solutions, to better capitalize on the strength it has shown.

Since its founding, Greene & McCowan has expanded its payroll business to include about 60 clients, such as banks, local government agencies, and most of the 68 McDonald's restaurants operated by its 13 McDonald's franchise owner clients.

"Payroll is like super glue for a CPA," McCowan says. "It binds you with your clients. And we feel it's a great revenue business."

Payroll is a natural extension of accounting and tax work, McCowan says, offering a way for CPAs to extend their role as business service providers and trusted advisors.

"When we pick up a client for tax, we sell them on payroll and write-up, and when we pick up a client for payroll, we sell them on tax and write-up. Once you have a payroll services client, you keep them as long as you do a good job," he says.

Payroll services can also help accountants maintain consistent engagement work outside of peak periods and develop stronger relationships with clients.

Cross-selling, however, is not a given. Bert Doerhoff, a sole practitioner who operates a payroll and accounting business in Jefferson City, Mo., says there is only a 25 percent overlap between the accounting firm clients and those using the separately owned Accubiz payroll service.

Wherever the business is originating, it is coming, and improved technology is one of the reasons that accountants are more inclined to get into the payroll business, says Teresa Mackintosh, vice president of marketing for Creative Solutions. There are more firms in the business. But another development is that, "People that dabbled in payroll are getting serious about it. It's easier to do," she says. "You can offer your clients a lot of the same advantages that the large service bureaus offer."

One technology element that has the potential for an even bigger impact than it has shown so far is Internet-based processing. The Web has drawn the historically strong service bureaus such as ADP and Paychex to offer online processing. And it has drawn companies such as PayCycle that are both focused online and have offerings to enable firms to process for clients.

Technology made a difference for Sapper & Bates, an Indianapolis-based CPA firm that began using PayCycle in 2004. Before then, the firm offered the services, but wasn't aggressive in recruiting new business. "We didn't really push it," says Mike Sapper, one of firm's two partners. The firm has signed up 21 clients, and was expecting that by summer it would add four or five more. Although Sapper believes that the firm needs to get better at pricing its services, he says that operating the business "is not particularly difficult. It's a matter of being organized and attentive to detail."

Payroll Challenges

But making payroll work as a practice that brings value to a firm is not a given. It can be time-consuming and it produces low margins.

While market research shows plenty of market opportunity for accounting firms that can provide payroll services efficiently, both accounting firms and clients have sharply divided views over how to get payroll done.

Fifty percent of accounting firms say they want to do as much payroll service business as they can, while another 43 percent say they prefer to avoid payroll services altogether, according to a separate PayCycle study conducted by Genesis Research, leaving more of the market open to accountants who can offer payroll services in an efficient way that serves both their clients and their own accounting firms, says Anu Sanghvi, PayCycle's director of marketing.

Former CBS Users Forced to Change

Bert Doerhoff was generally happy with the CBS software that he used at Accubiz, his Jefferson City, Mo.-based payroll processing business.

Unfortunately, when Intuit acquired that business a few years ago, it didn't want the software being used at other sites, so it revoked the licenses, giving people like Doerhoff a deadline for moving to another package.

"When Intuit first bought CBS, they said, 'Don't worry, we are not changing a thing,'" says Doerhoff, who also operates a traditional CPA firm as a sole practitioner.

Doerhoff went through another package, but dropped it "after we had invested the dollars because the clients told us if we kept it, they would leave."

The big problem with changing payroll packages is the difference in reports. Clients generally like what they have and want to continue to have the same reporting formats. Another problem for Accubiz is that it serves large clients who have complex reporting and accounting needs.

"Some of the larger clients may have 24 different withholding codes," says Doerhoff. That creates the issue of getting the withholding information mapped into the general ledger properly.

It was also difficult to get good feedback about different packages, since most are used by smaller businesses that are generally happy with the service. Serving big companies is a different animal.

"It's as complex as anything when you talk about withholding codes, third-party disability pay, the banking transactions, and credit cards," says Doerfhoff. "It takes a very strong person to run a payroll business."

And when it comes to doing business in-house or hiring a service bureau, whether an accounting firm or one of the national service bureaus, the choice is almost genetic, to use a phrase often repeated by Sage Software executives. Few cross from one side to the other.

But with few small businesses using services such as ADP and Paychex, and about 50 percent of small businesses doing payroll in-house, there is a big opportunity for accountants who can leverage their position as trusted advisors and build on the financial work they already do for clients.

One-Stop Shop

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