When Nancy Ackley talks about the huge accounting firm of Arthur Young & Co. a note of sympathy creeps into her voice.
"I think they really lost money on us," said Ackley, the comptroller for a Canoga Park software company called FutureNet Corp.
Arthur Young cut its fees the first year with FutureNet to get the accounting business of what it considered a promising company. In November FutureNet was sold, and the new owners replaced Arthur Young with another firm.
The people at Arthur Young say they broke even on the FutureNet account. They accept the episode as another illustration of how the San Fernando Valley is becoming one of the most competitive new markets for the "Big Eight."
Increasingly interested in small- to medium-sized companies and lured by the many high-tech entrepreneurs, all of the national Big Eight accounting firms either have, are considering or are planning offices in the Valley within 12 months. The five that already have local offices are finding that their business is growing quickly.
Executives with those five say that their Valley offices are among the largest the Big Eight have opened recently in suburban areas coast to coast.
Arthur Anderson & Co., for example, has opened 10 suburban offices in the past three years. A year from now only the office in a western suburb of Chicago will have a staff larger than the 2-year-old branch in Woodland Hills, partner Tony Radaich said.
The Woodland Hills office has 34 accountants now, and a planned addition of about 60 more will give it the largest staff of any of the Big Eight firms in the Valley, Radaich said.
Missing Some Business
"Our sense is that there is a fair amount of business that we're not getting a shot at because we're not out there," said Robert Dodson, the partner in charge of the Southern California offices of Touche Ross & Co. He said Touche Ross is taking "a pretty close look" at opening a branch in the Valley soon. Touche Ross ended up in charge of FutureNet's books.
Ernst & Whinney is about to lease space in Warner Center. And the only question left for Coopers & Lybrand is whether to follow its competitors to Warner Center or go to Ventura County in anticipation of growth there.
The five Big Eight firms now operating in the Valley, all at the Warner Center office park in Woodland Hills, say they are planning expansions within the next 12 months. Besides Arthur Anderson, they are:
Peat, Marwick, Mitchell & Co., which opened a Valley office in 1980. It has a staff of 30 accountants and plans for 20 more.
Price Waterhouse & Co., which opened its office in January, 1983, and has 45 accountants. The firm has plans to add five to 10 more in the next year and eventually will have at least 100, its officials say.
Deloitte, Haskins & Sells, which came to the Valley in July, 1983. The branch has 10 accountants and is expected to have 35.
Arthur Young & Co., which opened its local office in February, 1984, and has 80 people. About 16 will be added.
The Big Eight accountants describe various strategies for the Valley, but one theme dominates. "We're all like prospectors looking for diamonds in the rough," said Larry Scherzer, managing partner of Arthur Young's branch office.
Prospecting for Diamonds
The diamonds are companies like FutureNet. The company, which makes software that helps engineers plot graphic designs, was begun in 1979. It devoted three years to research and development. In 1983 it had $1.7 million in sales, Ackley said, and in 1984 sales stood at $10 million, with a pretax income of $3 million.
Then the company was bought by Data I/O Corp., a computer hardware and repair business based in Redmond, Wash., with annual sales of $36.26 million.
The Big Eight here are aggressive self-promoters. Most of them spread their names through newspaper and magazine ads, by sponsoring seminars for local businessmen and by mingling at gatherings of community groups, to which they often contribute.
But it's pricing that shows the firms at their most competitive.
"They actually give away billing time to go after accounts," said Ackley, who interviewed four of the Big Eight before choosing Arthur Young.
Big Eight executives say they will discount rates by as much as 30% in some cases to go after attractive accounts, ones where a merger or public offering might be down the road. Usually, the firms start a relationship by making package deals covering a year.
The deals are based on hourly fees ranging from $30 to $175, depending on the services included. Ackley said Arthur Young charged FutureNet $12,000 for doing the company's quarterly reports, annual report, income taxes and various other work. She said Arthur Young also got a $40,000 fee for work related to FutureNet's purchase, but she thought she got a good deal overall.