How to Incubate Opportunities in Your Own Practice, with Bruce VanHorn

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Presented by Bruce VanHorn of

Session Moderator: Good afternoon everyone and welcome to our workshop.

Today's guest is Bruce VanHorn. Bruce is a CPA, investment advisor, and arbitrator, and the founder of

Bruce Van Horn: Hello, my name is Bruce Van Horn. I have been a CPA for Eighteen years; some were spent in the "Big Five", but most in my own practice for the past 13 years.

I have vivid memories of my first day in Public Accounting. Armed with a Bachelor's in Accounting and an MBA, I was interested in applying my skills. I was outraged when I saw secretaries and administrative staff pasting together large spreadsheets and watching CPA's busy spending their days constructing financial statements. What a waste of human intelligence I thought, and I was concerned that I had made a mistake in choosing the Accounting Profession.

We have come a long way since the early eighties. Technology now offers us the opportunity to automate traditional accounting services such as write-ups, audits and compliance. As CPA's we need to become the "knowledge workers" and small business consultants that the market is demanding. How can we make an effective transition? What skills are necessary?

As a CPA, I have made the transition successfully incubating a number of Technology/Internet companies through my own client base., once a vision is now the leading Internet Portal in Russia with 2M registered users and a market cap of 80M. Wallstreet Italia, is now the second strongest Efinance sites in Italy.

I have recently turned my attention to my own profession and the struggles being faced by the small practitioner in coping with a labor shortage and in trying to redefine their role in an era of technological change. Countthebeans is a solution for CPA's and their small business clients, which helps CPA's become the Strategic Business Consultant that the small business community needs.

I would like to share with you some of my insights into my own transformation that can help you chart a more appropriate course for you firm as we enter the new millennium.

First, I'd like to know how most of you are spending your time?

Second, How are you using technology in your office today? Are you outsourcing payroll? Using the Internet, If so High Speed Access?

Jerry J.: We are doing some payroll in house for small clients, not that much.

Bruce Van Horn: Thanks Jerry for your input. Anybody else?

Margaret: No payroll, but we are using ISDN lines for access.

Bruce Van Horn: Ok I'll continue.

Does your Accounting Software integrate with your Tax Software, Time & Billing, and Database?

Margaret: That's been one of our biggest headaches! Nothing integrates with anything else.

Bruce Van Horn: That's typical, and what we are trying to address. What Accounting Software are you using?

Margaret: QuickBooks.

Bruce Van Horn: Have you explored On Line Accounting Packages such as NetLedger?

Margaret: No, I haven't.

Session Moderator: Please describe what an online package can offer.

Bruce Van Horn: Access from any geographical location, it doesn't matter what platform i.e. Mac/PC. Minimal hardware investment. User upgrades automatic. Improves timeliness of data.

Margaret: What about privacy issues? My partners are scared to death to put client information online.

Bruce Van Horn: Netledger is as secure as the current technology will offer and their business model is not sell information but to charge for ASP services.

Doug Johnson: We decided not to look at online packages because of the privacy issues. What does "as secure as the technology offers" mean? If there is ANY breach with our clients, we're toast!

Session Moderator: I was reading recently that the whole point of the Internet is to provide free access and that security was never to be an issue. The theory presented was that people who want to keep things secure should seek an alternative to the Internet... How do you get past this attitude?

Bruce Van Horn: I would visit the Netledger Website for specific information.

Third, Have you experienced any labor shortages? Have your clients?
Fourth, Has your workload compression problem gotten worse or better?
Fifth? Have you been providing consulting services to your clients? And if so how do you value those services?

Doug Johnson: Yes, of course we're getting squeezed in a number of areas. But the Internet isn't yet solid enough for us to entrust our business to it.

Bruce Van Horn: We all want to break away from the role of "Financial Janitor" and move toward "Financial Planner". The former involves the past the latter involves the future. Here are some tools we can use in moving our focus forward.

I. We Have The Skills: CPA's need to migrate from spending their time building financial statements and models to helping our clients use this information as a management tool. We understand Financial Tools and Modeling. We can learn to accept change and some uncertainty as part of a business model. Small businesses need and demand a Strategic Business Consultant. We are in a unique position to offer these services and many of us have been doing this for many years but we haven't been adequately compensated for the service. Later I will address some recommended compensation models, which include equity and hourly fees. Young people today want to be “Knowledge Workers” and unless we make the profession more attractive we will have an ever-decreasing pool of qualified professional staff, and technology will continue to reduce to a commodity, services such as write-up, audit and compliance.

II. Freeing Up Time: To become the “Knowledge Workers” that Bill Gates refers to in his latest book requires that we make an investment in ourselves. It means letting go of work or clients that will not serve our long-term interests. Many of us recall the eighties when inexpensive software flooded the market. Those of us with foresight knew that pushing our clients into the embrace of technology often meant the loss of some write-up services but those of us that embraced the change were able to offer technology consulting and other higher value added services. Countthebeans is one such solution; a company I incubated that will help CPA's to outsource back office accounting functions for themselves and their clients over the Internet. By using the technology w cannot
Bruce Van Horn: only free up time but also create a revenue model that will substantially improve our bottom line. I will discuss the Countthebeans solution a bit later in this presentation showing how I created the business model, which incorporates the methodology, presented herein.

III. Problems are opportunities: Effective business incubation requires a focus on problem solving and identifying solutions to client problems. This requires that we think “Outside of the Box.”

a. Often times, solutions include applying technology in a new innovative way to a process. The Internet is one such tool that can improve business functions, expand the marketplace for goods and services and improve customer service.

b. Devote attention to solving problems in your own practice and bring that understanding to your clients businesses

c. Stay focused on the solution and the process. If your clients are only focused on the outcome or an exit strategy they are not in the process, but if they remain committed and focused to the solution the desired outcome will evolve.

Jerry J. I'm a sole practitioner - how can I use the Internet effectively for serving clients??

Bruce Van Horn: Jerry apart from Netledger like products, bill settlement, payroll, and other services can be outsourced, and will be in the future.

d. Develop a broad mission statement with a number of specific goals to be accomplished. This will help the client stay focused when considering new projects or spending plans. I had the opportunity to work with a Russian technology client of mine in building the largest portal in Russia. Our mission was to use technology to allow Russians to participate in the global economy through a portal with a distinctive and genuine Russian focus. Some of our goals were to allow Russian global communication through our sophisticated email service ( allowing Russian businesses to purchase goods and services at market prices, to allow technology workers to outsource their services, and to help build an e-commerce infrastructure in Russia. Staying focused on these “big picture goals” helped us avoid pursuing activities that were motivated by an exit strategy.

e. Be prepared to change direction at any moment. Being focused on the solution does not mean being rigidly attached to the trail. Sometimes there are obstacles in our way. We can find alternative pathways as long as the summit of the mountain remains our goal. Forcing solutions on problems will always crate new problems somewhere down the road. There are a number of fatal errors that companies have made which include:

1. Wrong technology partner.
2. Trying to build the technology infrastructure when an outsource solution would do.
3. Strategic Partners that do not share your vision. Such partners can compromise your business model.
4. Focus on market share and not the bottom line. The recent technology crash has put an end to the most flagrant abuses.
5. Accounting gimmickry. Always choose the high road in reporting to investors and interested parties even when competitors are inflating their books.
6. Successful entrepreneurs are persistent and don't look on obstacles as failure. They keep trying different approaches until they are successful.

Carmen Mack: Bruce: Can you share with us what we need to do differently as we leave the traditional CPA mentality? What are the actual steps to take to get from point A to point B? It's obviously not easy to change, especially when the future is uncertain

Bruce Van Horn: Yes Carmen I am about to discuss how to develop an Entrepreneurial practice.

Developing Entrepreneurial Skills:

I found that there is a certain wisdom in uncertainty. As I stated previously, perhaps we don't need to know the exact path up the mountain but if we can envision the summit, the path will unfold. Often times we force solutions on problems, this only creates new problems. We can now begin to stand back a bit given that we have some understanding of the process. We really don't have a choice at this point because the road at lower elevations is being washed away. We can't go back. The old days are over and they weren't so good.

The dictionary defines an entrepreneur as someone who organizes, operates and assumes the risk for a business enterprise. CPA's have no problem with organizing and operating but have a general aversion to risk. We fear change.

So how then do we develop the entrepreneurial skills?

Leonardo DaVinci, one of the most amazing men to ever live. A man who not only was a great artist but who solved the problems of Aeronautical Engineering hundreds of years ago was once asked what the key to his success he gave the following response:

"I understand the art of science and the science of art." (which is balancing both left and right brain activity. Accountants are especially focused on Left Brain.) This is the area of the mind that is focused on technical and analytical thinking.

If a client of yours was running a business and not fully utilizing their assets they would probably go out of business. As a proactive advisor you would make sure they leveraged all their assets to achieve their business goals.

V. The CPA as CFO: The small business cannot afford to hire a full time CFO to build their business. You are a natural fit for the job. Now all you need is to upgrade your skills and apply the following tools to help the business to grow and prosper.

VI. Writing The Business Plan: An effective business plan is not measured on volume but on efficiency. Less is definitely more. VCs are swamped with so many business plans they barely if ever read past the Executive Summary. Here are a number of online resources that can help you in constructing your Business Plan. The following is an outline of the required elements in a standard business plan:

Jason Harmon: We're developing a business plan for a client. Where can we find those online resources?

a. Executive Summary (1-2 pages)
b. Industry Background.
c. The Business

i. Opportunity
ii. Solution
iii. Specific Strategies
iv. Product Description
v. Marketing Strategy
vi. Partnerships & Strategic Alliances

d. Company Summary
e. Resumes Management Team, Advisory Board, Financial Statements
f. Assumptions

VII. Drafting a Top Notch Team: Skills needed and remuneration, part time vs. fulltime, finding talent. Network, network, network!
a. Management
b. Advisory Board: getting opinion leaders

VIII. Raising Capital
a. First round angel financing. (6-12 months)

i. Put up or shut up
ii. Beta to prove model
iii. Consider raising additional angel money from the group your business model addresses.
iv. Don't tell your spouse about the second mortgage.
v. Keep good relations with family members
vi. Never take money from in-laws!

b. Venture Capital

i. As business model is being proven begin to make contacts with VCs
ii. Online resources for VCs which indicate specialty and requirements.
iii. Rounds of financing.

IX. Remuneration: You can bring it all together.

Jerry J.: Can you talk a little about putting together Advisory Boards? We've been talking about that for our firm for a while now. Do you pay them? What are their obligations to you? What is an expected time commitment?

Bruce Van Horn: Jerry: Good question. I usually compensate Advisory Board members with about 1/2% Equity over 18 months.

Jerry J.: What do you REALLY expect of them? How many members is the right number?

Bruce Van Horn: I usually look for experienced industry leaders who are going to commit to at least a few hours per month. I expect they will help us refine the business model and of course assist in raising capital. I usually look for up to eight Board members so be prepared to allocate about 4% equity for this purpose.

Carmen Mack: We've got 6 advisory board members - that seems to be a good number for our firm. But we're not giving them any equity.

Bruce Van Horn: Carmen. There is no exact formula or set rule of thumb. I like to get my advisory board excited about the financial potential of the undertaking.

Carmen Mack: Are they assigned specific roles, or just "advisor" to the business?

Session Moderator: Previously you mentioned that as a strategic business consultant, the accountant can demand and expect higher fees. Can you elaborate on this?

Bruce Van Horn: Yes, Thank you Session Moderator. My last sentence was addressed at the CPA that would offer CFO services.

Remuneration for the CPA should be 3-5% if you provide all the services I have been discussing.

a. Remuneration 3-5% of equity plus ½ of normal billing after first 1m has been raised. Avoid the “Thanks you have done a great job now I'm going to a ‘Big 5' by taking equity and avoiding audit work.”
b. Building Accounting Infrastructures. Develop relationships with Partners at Bid 5 to refer Audit Engagements.
c. Have your firm provide compliance and tax work when applicable but do no hesitate to get second opinions.

X. Have Fun. Pursue Opportunities in Line With Your Interests

Session Moderator: Do you recommend sharing equity with newer staff members who haven't proven themselves?

Bruce Van Horn: No, options are appropriate here. Remember equity is a valuable resource that must be used wisely.

XI. Case Study: was developed as a solution to numerous problems that the CPA and the small business clients were facing. In the case of, the Russian Internet Venture we started with a broad mission statement which was to allow Russians to participate in the Global Economy, For Wall Street Italia it was to allow Italians investors to participate in the new economy.

For we developed a list of problems:

Labor shortage
Consolidators(Amex and CBIZ)
Profit Pressure
Timely Information from Client, Accurate Information from Client, Availability of Information, Access to tools to grow practice and move toward value billing.

Small Business: One stop shopping Technologist required even for small firms.

Looking at each problem as an opportunity I began to build the business around solving as many of these problems as I could. This technique can be used with your clients for their unique industries. When you learn to become a strategic business consultant and feel comfortable with this role, you can approach your clients with confidence and good intent.

Before I began my business incubation projects I had to create the time. I learned very early to delegate any task that I had become proficient at and I had my staff do the same with junior staff. I also invested heavily in state of the art technology for the office and made the time to learn how to use timesaving software. It also helped to live on only 75% of your income. Many of us become locked into maintaining certain lifestyles and this requires that we loose the freedom to take advantage of opportunities when they arise. Be prepared to make mistakes. Our first potentially fatal blunder was teaming up and relying exclusively on one technology solutions provider. Our second was to team up with a partner that did not share our values.

Don't look on your mistakes as a failure but as a valuable lesson. Thomas Edison didn't get the light bulb the first time. I take my cues from nature, where evolution is a process by which nature constantly improves upon itself by trying alternative approaches.

Building a Team:

Qualities of Dedicated Core Group:
-Willingness to give before asking what's in it for me -Younger workers with lower lifestyle requirements -Older Retired Executives that enjoy the process-Experience and motivation

How to find Team Players
-In the most unexpected ways -Network, network, network -Getting involved on the Board of a Charitable Organization where you can not only provide service

How to compensate Team Members
-Equity –Flexibility –Encouragement -Appreciation

Choosing the right partners:
-Never enter into exclusive arrangements -Be careful to choose partners that will not compromise your vision or values -Stick with partners that have clearly delineated revenue models

Don't reinvent the wheel
-Technology solutions are abundant in the marketplace -Outsource whenever possible
-Integrate solutions

Local Business with a Global Appeal
-Use the outline given above -Conduct an online search of web sites that offer services or at least sample plans you can use. -Research online -Delegate certain parts of plan to team members -Rewrite, rewrite, rewrite as the situation changes.

The business plan is constantly evolving as it should. Never get rigidly locked into a specific course of action. Be flexible to change.

I think I have given some food for thought here does anybody have any questions?

Jason Harmon: What's a reasonable time expectation for developing a solid business plan? And who should be involved in its development?

Bruce Van Horn: Usually three to five weeks. The founder of course because he or she has a passion and understanding of the project, and the CPA. The CPA can then help the founder to bring in the right team.

Ellen - Firm Adminis: Are there any particular web sites you can point us to that would elaborate on these ideas?

Bruce Van Horn: I have written so many BP's that I really am not familiar but I know that they are out there.

Tracy: Many of my clients would be happy to pay me $100/hr to help them, but I don't know if I can convince them to cough up equity. Any suggestions?

Bruce Van Horn: Offer a reduced fee for taking equity. For example set a cap on the number of hours you may charge i.e. 50 hours at 100 or 5000, estimate that it might take 100 hours and take equity for the difference.

Tracy: Doesn't it change the relationship to be a business partner and not a business advisor?

Bruce Van Horn: If you can show them the value added, team building raising capital, etc then 3-5% would not seem like a large amount. That is the point we need to be our clients' business partner. This is the only way we can get away from the hourly fee prison.

Jason Harmon: Aren't their ethical issues with that statement Bruce?

Bruce Van Horn: Well yes if you were providing Audit services there would be.

Jason Harmon: Our whole profession is based on being independent analysts and advisors - becoming "partners" would surely change that, don't you think? That's where 75% of my income is coming from! Do you not provide any audit services?

Bruce Van Horn: I don't know if we are going to have a choice. If you look at what is going on with the SEC at the big firms you can see that this is quite a hot issue.

I have avoided audit work, so maybe I have had more freedom to engage in these other areas.

Session Moderator: Bruce, thank you so much for a great workshop! Your valuable ideas will help many of our members. Thank you to all of you who attended today. The transcript of the workshop will be available on the workshop page of the web site later this afternoon.

Jerry J.: Thanks Bruce - great session.

Bruce Van Horn: Thank you for participating.

Jason Harmon: Thank you all.

Trevor Knight: Session moderator - is this available for CPE credit?

Session Moderator: So far we are unable to offer CPE credit for our workshops - we hope to change that situation in the future!

Trevor Knight: Oh, OK, thanks.

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