Why FMS Ownership Matters (Part Two)- Being CPA Owned

This is a big year for Palco! In 2023, we mark our 25^th anniversary – but “25” is really just the tip of the iceberg. Palco’s parent company, which is a Certified Public Accounting (CPA) firm owned by two CPAs, is in its 33^rd year of business. And, we actually piloted the nation’s first self-directed program.

We truly are a legacy – especially since only 25% of businesses make it 15 years, and just 5% make it 30 years¹. It’s all because of our foundation as a CPA firm. Here’s why.

Not all FMS companies are owned by CPAs. Over the years, I have seen a lot of FMS companies come and go. Longevity isn’t guaranteed in this industry. Venture capitalists are rampant, and mergers and acquisitions are a weekly occurrence. Check out part one of this blog series on Why FMS Ownership Matters for more information on how a venture capitalist ownership can result in the sacrifice of quality.

Being CPAs uniquely equips us to weather the daily challenges of business. Accounting isn’t a “thing” that happens at the end of the month; it’s a daily, never-ending task. Finances must be managed closely. Multi-state income taxes and payroll taxes must be managed on an ongoing basis.

Corporate structure matters. In fact, I have seen FMS companies fail over their legal structure. When you set up your business improperly, it makes filing 941s and W2s very difficult – sometimes impossible. Even a simple task, like opening bank accounts, can be difficult without the right corporate structure. It can cost companies their integrity, cause them to fall out of compliance with tax regulations, and lead to irreparable damage to its leaders’ careers.

As CPAs, we ensure everything is done correctly. We have to. Our licenses and integrity are on the line if we don’t—unlike our non-CPA competitors who don’t have such strict standards that govern their behavior.

A CPA license is incredibly hard to get and maintain. To become a CPA, you must have a bachelor’s in accounting, a master’s in business, several years of accounting/tax experience, and rigorous background and character clearances. You must also pass the hardest test imaginable – it literally fights you as you take it, generating harder questions as you perform better. In fact, less than 20% pass all four CPA exam sections on the first try², compared to the Bar exam, which has a 70% pass rate³. As someone who passed both exams, I can say for sure that the CPA exam is much harder!

After becoming a CPA, it takes a lot of work to stay a CPA. Each year, CPAs complete 40 hours of in-person and self-study courses covering a hefty mixture of general accounting, financial regulations, business law, taxes, audit, statistics, management, professional ethics, and a host of other disciplines.

Continuing education – or “nerd school,” as my co-owner and I affectionally call it – helps us stay in front of the constantly changing landscape of business, employment, and tax law. As CPAs, we often receive advance copies of materials and upcoming regulations, so we’re always one step ahead. We have access to the smartest accounting minds in the world through our network of colleague CPAs. Since CPAs are an elite group, these periodicals and peer groups aren’t available to anyone outside of our industry.

And rightfully so. CPAs face intense scrutiny from state licensing boards – something other FMS companies don’t have to face. CPAs are required by law to protect client assets and comply with the complex web of tax laws and accounting regulations. If we don’t, our clients have recourse, which isn’t available to them when hiring non-CPAs. Hiring a CPA-owned FMS is one way for our clients to receive zero-cost insurance against lack of fiduciary responsibility by an FMS. Our clients can also rest assured we aren’t going to sell their business to venture capitalists, which is happening more and more in this industry.

Details matter in FMS. We manage hundreds of millions of dollars and produce tens of thousands of tax reports annually. Lives are at stake if we mess up. Wouldn’t you rather put CPAs in charge of these responsibilities?

Accounting is arguably the most important aspect of keeping an FMS business profitable. We’re always looking over finances, which minimizes any instance of fund mismanagement. We make smart business decisions. We vet every opportunity: Palco isn’t a company that bites at every opportunity that comes our way. New business has to make logical sense, and finances are at the core of that decision. Taking on a financially draining program hurts our other clients and it hurts our best asset—our employees.

When you hire an FMS owned by a CPA, know that you’re hiring an experienced, professional organization full of people who are trained to be tax experts and business consultants. You can count on us to worry about all of the details. We know how to make the best financial decisions for you. Palco has a proven track record of success that goes beyond three decades, and we are proud to be part of the elite business club of multi-decade success. We owe it all to our CPA roots.

¹Based on data from the Bureau of Labor Statistics and 2021 survey by The Zebra, a small business insurance comparison site.

²Based on data from the American Institute of CPAs.

³Based on data from the National Conference of Bar Examiners for Arkansas in 2020.