The Lacerte family has an unquestionable entrepreneurial tradition that drives them to start successful firms in the accounting industry. But it was technology, not tradition, that brought about the founding of PayCycle in 1999.

Specifically, it was the realization that accounting firms were losing revenue and client service opportunities because they believed that payroll and related human resources services were not worth their time.

"We did the research, surveying accounting firms and their clients," said PayCycle founder and chief executive Rene Lacerte. "We found that, among accountants, the majority felt payroll services were not a good investment. Twenty-nine percent thought it took too long to perform, and 31 percent said it could not be done profitably."

"We realized that by using technology, we could alter that perception," Lacerte explained. "We could define the technology in a way that makes it easier - and more profitable - for accountants to perform payroll and personnel tasks. Accounting and automation are natural partners in client services."

The Lacerte tradition in the accounting industry dates back four generations to Arthur Lacerte, who founded a general store in Manitoba, Canada, at the turn of the 20th century. His son, Arcel, later founded a series of companies, including the Data Corp. of America in 1959. Data Corp. was an accounting and payroll service firm that Arcel later sold to ADP. Another son, Rael, founded the Data Processing Bureau of California in 1961 to offer similar services.

Arthur Lacerte's four grandchildren continued the tradition. Brothers Larry and Phillip founded the family's most lucrative company to date, the tax and accounting software company called Lacerte Software. The company was formed in 1978 and sold to Intuit for more than $400 million. Grant Lacerte founded two companies - Financial Research Associates, which compiles small-business data for accountants, and Certa Data Corp., a payroll services firm. Cousin Art founded Advantage Software, an accounting software company.

Heir to the traditions of this accounting services dynasty is Arthur's great-grandson Rene. "I learned about technology and the accounting industry at our family's dining room table," he said.

Savings and services

PayCycle is a Web-based payroll service that is wholesaled to the accountant. The accountant pays only $14.99 per client per month for the first five clients, and $9.99 per month for each client thereafter. Direct deposit is available for no extra charge. Paychecks and pay stubs are printed locally from the Web site either by the accountant or the client, using pre-printed computer checks or MICR-printing on blank check stock. Blank check printing eliminates the hassle of maintaining a separate inventory for each client, and can lead to more than 50 percent in savings over pre-printed checks.

Federal tax payments and tax filings (940s, 941s and W-2s) can be made electronically for no extra charge, with a simple click of a mouse. State tax payment and filing forms are signature-ready, and can be submitted electronically, or printed and mailed. For states that require original forms, PayCycle provides a worksheet that shows payroll tax numbers and tells accountants exactly where to put them on the form. The service automatically generates dynamic to-do lists and e-mail reminders, ensuring that payday, filing and payment deadlines are not missed.

The service integrates with QuickBooks, QuickBooks Online Edition, CCH's ProSystem fx Write-Up, and Microsoft Money, so users never have to enter data twice. PayCycle was selected by CCH, Microsoft and QuickBooks Online Edition to provide payroll to their customers. PayCycle is also the first company to partner with the Internal Revenue Service and several state governments on the new XML federal/state employment tax standards.

"Getting all 50 states electronic and paperless was a goal since the day the company was founded," Lacerte said. "We now have the forms for all 50 states and the District of Columbia. In addition, we offer electronic tax payments in 19 states, which represent 75 percent of the target population."

Accountants in the loop

PayCycle broke from tradition by focusing on building the role of the accountant as a payroll solution provider, rather than turning the client away to traditional payroll service bureaus. Built on the application service provider model, it offers a wholesale discount to accountants, so that PayCycle enables small businesses to use an accountant for their payroll without paying a financial penalty, while also allowing the accounting firm to profit.

"There is an impression that firms should focus on traditional tax and audit services, with perhaps a small practice in financial management, if they want to be successful," Lacerte noted. "The reality is that there simply were no good business solutions that accounting firms could use until PayCycle. In the five years since we launched, we've built a solid core of 14,000 customers, with many coming from customer referrals."

In the area of customer satisfaction, PayCycle has taken strong measures to both maintain its service levels and keep track of trends.

Its customer base of accountants has grown by 442 percent in the last 12 months, and in a recent IRS-initiated "94X Customer Satisfaction Survey," in which nearly half the respondents were PayCycle customers, 96 percent of the respondents were either satisfied or very satisfied with electronically filing their IRS forms, and 92 percent of respondents rated electronic filing as "better" than any other method.

To maintain that service edge, the company puts every member of the firm on the support lines on a regular basis. Rene Lacerte himself mans the phone lines for at least one shift each week, answering questions and taking direct feedback from customers. Other executives likewise work their own shifts. The result is that the company routinely scores a nine or 10 on surveys of customer satisfaction, and that 95 percent of calls get answered in less than 30 seconds.

"Suggestions are things we listen to and act upon," said Lacerte. "We learned customers want blank check printing, multi-state capabilities and 1099 payments. So we built and implemented them less than 6 months later - at no additional charge to our customers."

Headquartered in Palo Alto, Calif., the company is backed by several investment capital firms, including August Capital, Conning Capital Partners, Draper Richards, Irwin Ventures and Total Technology Ventures.

"This is a company we are proud of," said Lacerte. "It's a company that is proving to accountants that they can do services easily and profitably, and is proving that better service to accountants can translate to better service to businesses."

PayCycle Inc.

210 Portage Avenue

Palo Alto, Calif.

Year founded: 1999

Number of employees: 60

Senior executives: Rene Lacerte, CEO and founder; Martin Gates, co-founder, president and chief technology officer.

Dave McClure is the president of Kent Associates, in Alexandria, Va., an independent testing laboratory and evaluation service.

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