QA Nick Magone has some big insights about working with small startups

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Things are different for CPAs in the high-stakes startup world.While established businesses have teams of executives focused on the strategy and execution of every function — from product development to marketing to human resources — startups have a garage, a credit card and one visionary entrepreneur. The CPA is often the person who fills in the gaps, serving in the role of business adviser.

In his more than 25-year career, Nick Magone has advised hundreds of entrepreneurs. Like many other CPAs, he spent his early career at a Big Four firm, but he left to found Magone & Co. P.C. in 1992.

Today, the Florham Park-based, full-service CPA firm has more than 20 employees and Magone continues to work with closely held companies, startups and family held businesses.

Magone spoke with NJBIZ about his practice and working with startups:

NJBIZ: Why did you decide to leave the big firm career trajectory and open your own practice?

Nick Magone: Between working at a big firm and starting my own, I took an intermediate step working for a medium-size accounting firm. While at that firm, the recommendations I was making to people made a real difference in their companies. The knowledge I shared about business processes and advisement I was giving on how these companies could grow was much more meaningful to the business owners than it could ever be when your clients are Fortune 500 companies.

I enjoy working with people who are passionate and who live and breathe what they do. The first time I worked with an entrepreneur who challenged me to help his business grow, I was hooked.

NJBIZ: How is your role with entrepreneurs different from a CPA’s role working with midsized and large companies?

NM: The startup environment is usually one person with a vision of what the future could be. The challenge as a CPA for that type of business is figuring out how to enable the owner to go from Point A to Point Z, helping them grow and satisfy their goals.

The biggest challenge for a CPA is to keep business owners focused on all areas of the business, not just on product development and sales. Well-established corporate clients usually have a team of executives responsible for various strategic initiatives. But for entrepreneurs, financing, capital and processes to assist with growth often are outside of their ecosystem.

One startup I advised started with $5,000 and a dream to be a major player in the financial field. In my time working with them, they grew throughout the U.S. as well as internationally.

Ultimately, the owner sold the company for more than $30 million. While I don’t get any of the $30 million, what I did get was tremendous satisfaction knowing a lot of the recommendations that I made improved their business processes and made the company attractive to sell.

NJBIZ: What are the unique challenges you face when advising startups?

NM: Every day brings a different challenge. One day, a company overseas may need to figure out cash flow; another day, a client might need to figure out what the growth looks like for the year. I could help advise a business owner on bringing in a partner or buying out a partner. These are all interesting challenges and part of the dynamic you find at startups or closely held companies.

I’ve seen a lot of entrepreneurial companies with great sales and a product that is in demand, but the accounting isn’t necessarily in place. The company might have been tax-motivated as opposed to growth-motivated. When a company is tax-motivated, they are looking for the least amount of taxable income. But a growth-motivated business looks at how they can increase equity to enable them to leverage the company to finance and capitalize future growth. Those two motivations don’t always go hand in hand.

The challenge becomes whether to use their scarce resources to pay taxes at a current valuation or use the money for development of product. It’s always a yin and a yang that I find working with entrepreneurial companies.

NJBIZ: How has technology changed the way you work with these companies?

NM: Technology has not only enabled CPAs to respond to clients in real time — we are now expected to do so. There are accountants who think email makes them accessible. But, with some of the types of clients I have, they use their own video conferencing network and I have to be logged in it all the time because I never know when a call is going to come in.

These companies force you to adopt new technologies and be responsive. If you don’t have a service mentality, it can be difficult to understand the needs of a startup company.

I have one simple rule: I don’t want to be judged by how well I provide service compared to other accountants. I want to be judged on how well I provide service compared to all other companies.

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