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Ep003: Developing a Firm with John Flatowicz

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David Spray: Hi, John.

John Flatowicz: Hello, how are you doing?

David Spray: Hey, I'm good, and how are you today?

John Flatowicz: Doing good.

David Spray: That's excellent, so let me go ahead and get started. My guest today is John Flatowicz, the former Managing Shareholder at the CPA firm of Briggs & Veselka, the largest independent CPA firm in Houston. Is that correct, John?

John Flatowicz: That is correct.

David Spray: With that, why don't we get started? What I'd first like to do is I like to give our listeners just some context for our guests. I believe you grew up in Nebraska. Is that correct?

John Flatowicz: That's correct.

David Spray: Omaha? Or a suburb of Omaha I believe?

John Flatowicz: I actually grew up in Omaha, Nebraska, and pretty much stayed there until I left to go to graduate school in Austin, Texas, in my early 20s.

David Spray: I guess you went undergraduate then somewhere besides UT?

John Flatowicz: Yeah, so I attended the University of Nebraska for undergraduate school where I got my accounting degree, and then I went to the University of Texas in Austin to get a Master's in accounting.

David Spray: I did not realize that you had an undergraduate degree from Nebraska, and that's UNL in Lincoln?

John Flatowicz: Yeah.

David Spray: Or where you in Omaha? Okay. Excellent, and so then when you graduated from UT, I guess that's what brought you to Houston?

John Flatowicz: Yeah. At the time, of course, everybody wants to stay in Austin. 

David Spray: Sure.

John Flatowicz: The jobs were all pretty much in Houston. At that time, there were The Big 8 accounting firms, not The Big 4 as they are now, and heavily recruited UT's Master's in accounting graduates and decided to come to Houston and followed several friends that went to Arthur Young & Company in Houston.

David Spray: Then, they subsequently merged with Ernst & Whinney I believe-

John Flatowicz: That's correct.

David Spray: Which formed Ernst & Young.

John Flatowicz: That's correct.

David Spray: I also believe that... Am I correct? Is my understanding correct that you are a first-generation American? Is that what it means that you were the first in your family born in the U.S.?

John Flatowicz: Yeah. My Dad was originally from Poland. My Mom was from Paris, and my two older siblings, my older brother Pierre, my older sister Martine, were born in Paris. My next oldest brother, Frank, was actually born on the ship coming over here and I was the first one born actually in the United States, along with my younger brother Glen.

David Spray: Oh, wow. I did not know that. Just for the record, I used to work at Briggs & Veselka and John was my primary boss, so I thought I knew a lot about your background, but it turns out that there's a lot I didn't know. Well, congratulations on being the first in your family to be born in the U.S.

John Flatowicz: Thank you.

David Spray: You came to Houston to go to work for Arthur Young, and so I guess, did you start in the audit practice?

John Flatowicz: Yeah. When I was at Arthur Young, I started in the audit practice side and spent about a little under four years there.

David Spray: What year did you start there?

John Flatowicz: I think it was 1978.

David Spray: You were there from '78 to '82?

John Flatowicz: That's correct.

David Spray: What made you leave Arthur Young? What made you decide to leave?

John Flatowicz: I was with Arthur Young, like you said, a little under four years out of college. I learned a great deal there, being with an international Big 8 accounting firm. However, it was large. It was a large firm. I worked way too many hours and didn't really have strong relationships with both my clients and fellow employees. They weren't great because we never saw each other, always on jobs. 

At the time, I wanted to go to a firm where I could make some kind of immediate impact, where I'd know everybody, and coincidentally at the same time, Briggs & Veselka was a small tax firm looking to start an audit practice to become a full-service firm. It was the picture perfect time and so I learned of it and interviewed and got the job and started the audit practice at Briggs & Veselka. 

David Spray: That's exciting because at that time, after four years at Arthur Young, had you even been promoted to manager? 

John Flatowicz: I was getting ready to be but I was not. To be honest, it was a little scary because coming to Briggs & Veselka... at a large Big 8 accounting firm, they have so many levels of supervision that you don't learn the full picture right away or as quickly as you would at a firm like Briggs & Veselka, so there was a lot I didn't know, but my nature is to kind of... I love challenges and that was a great challenge. I can honestly say there was no one at Briggs & Veselka that knew any more than I did about audits, so that made it a breeze.

David Spray: Sure. When you look back on your... you were probably about, what, 27 or 28 at the time?

John Flatowicz: Yes, about 26, yes.

David Spray: About 26. When you look back, are you like kind of scared for your younger self in hindsight realizing just what a big challenge it was?

John Flatowicz: Yeah I was, although at that time, I didn't really have a concept of liability and I was and just anxious to grow things and make things happen. All these years later, I am more conscious of that, so yes, I was scared.

David Spray: Understood, and so when you joined the firm, how many people were at the firm when you joined?

John Flatowicz: We had either eight, nine, or 10. I'd say around nine people at the time.

David Spray: The firm started... what year did Briggs & Veselka start?

John Flatowicz: Briggs & Veselka officially started in 1973.

David Spray: They had been in business nearly a decade, nine years or so, and I guess Johnny Veselka and Mel Briggs decided that they wanted to start an audit practice.

John Flatowicz: Yeah. They were pretty much a tax practice and they got together and decided they wanted to be a full-service accounting practice, and in those days, audit and tax were the two main practices you had to have to be a full-service practice.

David Spray: Sure, sure. What was it about the opportunity at Briggs & Veselka that was attractive? Obviously, with four years under your belt at a Big 8 firm, you would have had a lot of opportunities if you wanted to leave, right? You could have gone in-house, internal audit or as a controller, or you could have gone to a smaller CPA firm that had an audit practice already. What were the elements that made Briggs & Veselka attractive?

John Flatowicz: Well, like I was saying earlier, the thing that was really attractive to me is they didn't have an audit practice and it was a chance to start something up and build it from scratch. Not saying I knew how to do it then, but it was attractive because they were committed to being a quality firm. If you've met Johnny Veselka, tremendous integrity, great reputation in the city, and I had an opportunity of kind of a lifetime to start an audit practice for a quality firm, and especially at my age. I just looked at it as someone was looking out for me, and I looked forward to it. I'm not saying it was always easy, but through the years built up the audit practice to what it is today.

David Spray: That is a great story. I guess in summary, there was only one opportunity to start an audit practice from scratch, and then it sounds like the icing on the cake, then, was just your respect for Johnny in just the sense of connection you felt with the other people. It felt like a comfortable place to be.

John Flatowicz: I'd say so. As I look back on it now, Johnny was a tremendous influence when I interviewed with him. Interviewed with Johnny Veselka and Steve Awalt and I got a sense after that interview that they were down to earth humble, despite having great reputations. Again, with the culture that they had, the opportunity they said they would help me grow, how fast I wanted to grow, they'd help support it, and they said, "If you do well, you have a clear shot to make partner one day because you're starting a whole new practice." All of those things combined were very attractive to me, and you have to remember, this was in the early '80s when the Houston economy was bad, the Savings and Loan debacle, a lot of real estate problems in the city. I kind of looked at it as a gold mine and took advantage of it and here we are.

David Spray: That's awesome. Do you remember what year, then, that you made partner?

John Flatowicz: I think it was... I'm trying to think. I think it was in 1989.

David Spray: Do you remember at what point that the audit practice was as large as the tax practice? Was that a couple of years? Or did that take a decade? Or was it 20 years?

John Flatowicz: I'd say obviously from the time I got here in 1982, it was probably 15 years, 15, 17 years, and primarily because for many years, when I became partner in '89, I was the lone audit partner and probably at [crosstalk 00:12:13] that time, five or six tax partners, so obviously the tax practice was going to grow faster, but at some point in time through the years, until we started doing lots of acquisitions, that was, the audit practice had caught up to the tax practice.

David Spray: That is helpful. Talk to me about your philosophy of building the audit practice. What kind of people were you looking for? Just again, what was kind of your philosophy? Was it to be the cheapest audit in town? Was it to be the most expensive audit in town? Was it to... just talk to us about what your philosophy was.

John Flatowicz: That's easy for me. My focus and philosophy, number one, has always got to be two things. It's got to be quality. We have technical standards the AICPA puts out, generally accepted accounting principles and auditing standards, the SASes, and so number one, you have to have quality. You have to know what you're doing. You have to study all of those SASes. That's number one, and the second thing that's critical I've always felt and lived by this creed is client service. Clients expect calls the same day. Clients expect you to be proactive if you have an idea that can help them, but even beyond that, once we had that, and that took a while to get because I was alone in the audit department for several years. 

Once we had that, my nature, and I'm not sure where I got that from, but I like to grow things, so once I felt comfortable that we had a quality control system in place, my goal was to get out in the business community and meet as many bankers, lawyers, insurance folk, and join boards of directors, do speeches in the community or do whatever it took to grow the practice, which took a lot of work, too.

David Spray: It sounds like that philosophy is really been a very durable philosophy because from what I know about you and the firm's philosophy, it's unchanged, right? Quality and client service.

John Flatowicz: Yeah. We've spent for example... sometime in the last few years, we spent a lot of time defining our core values because if it's all about making money, it's not good. Making money is critical, but you got to have core values. You got to believe in something. You got to believe in the things that we believe in. We believe in, number one, compassion. Compassion for employees, compassion for our clients, making sure we give back to the business community. Like I said, making sure the quality has always got to be there. Making sure that we're proactive with our clients. 

One of my famous comments with prospects and existing clients is there's probably over a hundred thousand CPAs in the State of Texas. There's several good competitors, great competitors, and so we have to do something that they're not doing. We all say we have great client service, but we have to be proactive, we have to meet with them regularly, figure out what their needs are, how we can help them solve it. Point out things that they may not know that could help them and it's never an easy row. 

Millennials, different generational type people that we hire, we spend a lot of time on culture, client service, soft skills training, technical skills, and I honestly believe that we still to this day have that same culture, the same core values as large as we've become. It's something that we believe in. We talk about in our board meetings and we actually do.

David Spray: That's awesome, and to give a context, we talked about when you joined there were about nine people in 1982. Approximately how many total employees does the firm have now?

John Flatowicz: We have around 300 people now.

David Spray: Wow, that is just amazing growth. Are you aware of any other firm in the state that has had that level of growth over that period of time? I can't think of one.

John Flatowicz: I don't know some of the firms. I know all the firms in Houston I don't think have had that type of growth. I can't say on all the other firms in the rest of Texas, but...

David Spray: I really appreciate the insight and kind of hearing the story of the audit practice from the very beginning. What about from like when you started... You talked about the '80s and you made partner in '89. Now, let's get into the '90s. What were some of the significant events that happened in the '90s? Was that the year that, or was that the decade that the El Campo office was opened?

John Flatowicz: Yeah, the El Campo office I think was opened in '89 or '99, but some of our growth, it's hard to pinpoint, but I would say most of our growth, the majority of our growth of the years have been organic. It's been based upon the things that Johnny stood for, our core values, the quality work, fair prices, and trying to hire team players who live our culture, serve our clients, do the timely service, treat our employees well. Also, in addition, as you said, David, we opened up our El Campo office I believe in 1999. Had three to four small acquisitions prior to 2017, but through that period it was a lot of internal growth. 

I sincerely believe that if you treat your clients well, you're proactive, give them value for what they're paying, most importantly treating your employees and training them, finding out what they're passion is that all of those factors together make you so valuable to the community and they refer their friends. All of our referral sources are happy with the services we provide their client in, so when you take all of that together, I would say that in total is the most significant factor of our growth.

Now after 2017, from 2017 to current, we've done five additional major acquisitions and those have all been none that we approached them first. We were approached by those companies and we've always said that we want to be a Texas CPA firm, and to do that we needed to be in the major Texas cities. We had every major international, national, and regional firm try to buy us out. Five or six years ago we decided we wanted to be a legacy firm and we decided that to do that, we needed to be in the major cities, so we have to have the resources to have all the technical resources we need, all the changes that are taking place in the CPA profession. We've all heard about the artificial intelligence, robotics and everything that's going to change the audit and tax practices, and the computer and IT areas that you really need to be up on and spending the resources.

When we were looking for acquisitions or they came to us, geographical location was critical. I think you know that we have made three acquisitions in the Austin area in the last year and a half, two CPA firms and one valuation practice. We started our San Antonio CPA practice from scratch two years ago, and then we acquired a Woodlands CPA firm and also we've acquired a Woodlands-based IT forensics company. Again, we're looking for geographic location. The culture of these firms have to be right. Found to mix a culture that does not have our core values would never work. 

We were looking for complementary or new niche areas that we didn't have. We were looking for strong, young personnel that could be future partners, and then most importantly, to myself and our successor Managing Partner Sheila Enriquez, we're looking for growing innovative firms with strong leadership because as we open up in other cities, we don't know the markets as well, so we're counting on the strong existing leadership to have the same core values we have and to be innovative, to be growth-oriented. Fortunately for our firm, we've been very successful with all of these acquisitions.

David Spray: That is great. That is really an amazing acquisition spree over just a few years. 

John Flatowicz: I hope we continue.

David Spray: Sure. I'm just curious. Why was it important for the partners in the firm to remain a legacy firm? It seems like the easy thing to do would have been to have sold to a national or a regional firm. What was the motivation or the underlying cultural decision that made you all make that decision to stay a legacy firm?

John Flatowicz: A great question. We received some tremendous offers that for some of the senior partners such as myself, we could have retired a lot earlier. Monetarily, it was a great deal. Less stress, less pressure, but our firm, we always make decision for the best interests of the firm and all the partners, and many of our young partners, as we promoted them through the years, we promised them that we would be a legacy firm. They joined the firm, many came from Big 8, Big 6, Big 4 regional firms or even local firms and they wanted to be with a firm that one day they'd have leadership responsibilities. They'd have the same chance, for example, that I had to grow something, to grow a niche, to grow a department.

When all these firms approached us, and we spent probably six months with nine or 10 of them, several days with each, we had all the entire partner group listen to their presentations and everything else, and then we decided after a few months that we needed to make a decision, legacy or sell out? We did PowerPoint presentations on the pros and cons, some people call it smart analysis, and we held a vote. Our senior partners were hoping that we would remain a legacy firm, but we really weren't sure what the younger partners were thinking because it was one vote per one partner. To our surprise and happiness, it was unanimous to stay a legacy firm and all of the partners in the discussion said they want a chance to build this firm. 

We think we could be a top... at the time, a top 100. Now, we're thinking about top 50 firm, but they want a chance to grow it, prove themselves, and we were all happy with that decision. The only caveat that we had going out of that meeting was we need to be in all the major Texas cities and grow enough to keep up with technology and robotics, the artificial intelligence, all the efficiencies and bring the right people in-house that we need to compete because I hear so many of our competitors that are smaller and several that have been surprised that have approached us that they don't have the resources. They're scared about the future.

We've worked real hard to make sure we have the best people in all areas, whether it's administration, audit, tax, consulting, and I think we all made the wise decision. We have a super group of young partners and can't wait to see how they're doing in the next five years.

David Spray: That's awesome. I remember you told me probably more than a decade ago because both of us being in Houston, we're familiar with other firms in town. It wasn't hard to notice that some other firms that 20 years ago were larger than Briggs & Veselka, but grew at a much slower growth rate than Briggs & Veselka, and now Briggs & Veselka is larger, maybe even a multiple. One of the things that you told me, one of the reasons that the growth was so important was because you had these great young rising stars that if you didn't have growth you would lose them, or you would make them have to wait for a spot to open up to make partner. I always found that to be really interesting, especially when I've seen other firms that literally have told people that I've heard rumors to the effect that, "Yeah, you have everything it takes to make partner, but you need to wait till a partner retires till there's a slot."

Could you just expand a little more on that? First of all, was my recollection correct on that conversation?

John Flatowicz: Yeah. It's interesting, you hit the nail on the head because I've always attributed our growth to a philosophy that when I took over as Managing Shareholder, the tendency for most CPA firms and some of the established senior partners is, "Well, if we make a younger partner, we'll make less money." There's more ways to split the pot. I have never felt that way. I felt exactly what you just said, Dave. Number one, if you don't make young partners or young people that are qualified to be a partner, you're going to lose them, and secondly, if they're doing real well and you make them a partner, they're going to go out there, they're enthusiastic, they got more energy than someone like me being a lot older. 

Our philosophy has always been since I was running the firm that we're going to make as many partners as we can. I don't want to mention names of firms, but I remember it was, I don't know, it was somewhere eight or 10 years ago, we were about the same size as two of our competitors in the City of Houston, and now, like you said, I don't know if we're twice their size, probably two or three times. I believe the difference is in that period of time, like it was an eight- or 10-year period, I think we made 10 or 11 new partners and while I don't know exactly, but I think in one of our competitors they made zero partners, and the other one, I'm not really sure, but it couldn't have been more than one or two. I have always said that I believe, especially the partners we made, I saw the results. 

Every year, our existing partners made more money. The younger partners, after two or three years, they built their books up. It was large as some of ours and it's a way, number one, like you said, to keep your talent because, who would stick around a firm that's never making partners? They'd look around and say, "Well, why waste my time here?" That's not always be true, but generally it is, and that was one of the philosophies, and I'll be honest with you, like I said earlier, I wasn't sure I was right, but it's something that I just believed in. Over the years, it turned out to be right. I just believe in people and I think if you believe in the people and you give them that chance, 99% of the time they're going to perform for you.

David Spray: That is really a refreshing attitude. I appreciate your candor there. Hey, just for the record, what year where you elected as Managing Partner? How many years did you serve?

John Flatowicz: I believe it was in, and I may be six months or a year off, I think it was in 2009, and in that year... I think I had done a two-year transition before that with Johnny Veselka. Whenever you have a new Managing Shareholder, we go through a two-year transition and I think I took over in 2009 officially after that two years, and then in July of 2018, last year, I stepped down and Sheila Enriquez is my successor at the firm.

David Spray: That's a long time to be leading the ship, and so if I'm just doing my simple math, you all had a lot of organic growth during that time with some acquisitions near the end, right?

John Flatowicz: Oh yeah. Unfortunately for myself, I had some health problems last year I think you're aware of and the transition was supposed to last until October of 2019 this year, but after being in the hospital for a while, Sheila was temporarily running the firm and I saw some great qualities in her. We were in the middle of several acquisitions, we had the hurricane, we had the new tax law, and several other things that were going on and I guess I was so impressed and my philosophy has always been, like I said earlier, that if you have young talent and they're capable of doing a great job, the best thing you can do is promote them as quickly as you can. 

Based upon some of my health concerns and what I saw she did while I was out, it was quite obvious to me that for the future of this firm and the success of this firm that she needed to be running it. Called a board meeting when I got a little bit better and made it happen, so she's been running the firm since July of last year, 2018, and doing a great job. Just a super job.

David Spray: She's an impressive individual. Just out of curiosity, what are some of the reasons that you believe that she was chosen as your successor as the Managing Partner?

John Flatowicz: Interesting, another great question. Dave, you knew Johnny Veselka personally, and the entire business community, all of us, Johnny Veselka had tremendous integrity. When you were around him, you knew he was honest, you knew his integrity, you knew he was humble smart as he was. When I was thinking about who could be my successor, I was thinking of our Executive Committee members and there were... I can't remember, four or five or six at the time, and I spent a lot of time thinking about who could really run this firm with the core values and have the qualities that I really think it needs in the future. 

After a lot of scratching on weekends, I came up with four things I was looking for. Number one, I needed someone that was growth oriented, innovative. Secondly, proactive in changing our firm from the compliance aspect to more of the consulting, the IT, the robotics, data analytics, cyber risk assessments and several of those things that we know are the future of the CPA profession. The compliance, the audit, and tax will always be a core of our services, but the high margin areas are more in the consulting areas and I needed someone that understood that, that was keeping current on all of that.

Then, the last two that were even more important to me is, and this was so difficult with people being emotional and all of that, is I needed someone that was fair and balanced to everyone. For example, even if Sheila or I do not like one particular partner for their personality, but they live their core values, they did a great job for the firm, they were a team player, you need to respect them and be fair to them. Not everybody can do that, but she could. 

The final one was no ego, team player, and to be humble. I felt like of all the people I was considering, she was the only one that had that. Now, I could tell you all the other qualities she had, as you've probably seen. She's very eloquent. People just love being around her just like they did Johnny, but these four were the four things that I thought were important to our firm at that point in time and she had all of those qualities.

David Spray: Let me just recap the four things you were looking for; growth-oriented, proactive in leading the firm through an evolution due to technological change, the third being fair and balanced, and then the fourth being someone with no ego and a team player with humility. Did I capture that?

John Flatowicz:Got it.

David Spray: Excellent. Well, I would say from my experience of spending time with Sheila, I would certainly agree. Interestingly enough on that, I'd noticed recently that the managing partners of all of the Big 4 firms in Houston all have female managing partners, and so this isn't really something I've paid attention to, I've just happened to notice it. Is this a trend that's been going on for a while? If so, do you have any thoughts on why that is? It just seems interesting when for so long there were no female managing partners, and then suddenly all the firms have female partners. I know I'm kind of asking your opinion here.

John Flatowicz: This is just an opinion, this is not based upon any facts, but it is true in the last few years that the remaining Big 4 accounting firms and even some of the regional firms all seem to have female managing partners. The obvious reason is, and I don't know how many years, but maybe the last 10, 12 years the majority of accounting graduates have been women, not men. If you go to the University of Houston Bauer, I don't know, 60 or 70% of accounting graduates the last several years have been women, so eventually the numbers are more favoring them to rise up to become partners, managing partners [crosstalk 00:36:47]-

David Spray: Oh, interesting. I wasn't aware of that.

John Flatowicz: But I still think in some of the local firms, although the trend is changing to a lot of female managing partners, it's a little different than the national firms. I still think there's a lot of men managing partners still, and that may be because some of them are hanging into their 70s and some in their 80s, believe it or not, but hopefully that'll get kind of balanced out in the future.

David Spray: Well, thanks for that. What would you say... There's a couple of questions I want to ask, but I'm also sensitive to our time. What's one unique thing about the firm that most people outside the firm are not aware of? If anything that comes to mind?

John Flatowicz: Something unique about our firm…

David Spray: That maybe isn't just super well known.

John Flatowicz: I would say... Although I don't know if this is the case at other firms, but at our firm, one of the things that surprised me actually in the last five years is we're an extremely diverse firm in terms of our personnel. Just like Houston is one of the most diverse cities in the country as far as people, I have learned that we speak over 20 different languages-

David Spray: Oh really?

John Flatowicz: Yeah. I don't know how many countries we have represented here, and it's kind of a surprise to me because if I go back more than 10 years ago, I would never have imagined that. I was talking to our business development manager about a year or two ago and he said we speak over 18 different languages. I don't know how many, 20 or some countries we have people here, and it's really helped because whether it's Hispanic... We have I think three or four Mandarin-speaking partners. 

When a lot of the business community is as diverse as it is, when they have people that they can trust and be comfortable with that are their same culture and everything, it really helps. I don't know how many opportunities I've had where... One of them asked me, "Well, do you speak Japanese?" I said, "Nope, not even close", but it really helps in the relationships, and again, I don't know if we're unique in that, but I thought that was unique about our firm.

David Spray: I would sense that this is unique. I know we actually share a client that's owned by Chinese people, and the tax partner for that engagement is one of your tax partners who speaks Chinese. I remember because they were a client of ours before they became a client of Briggs & Veselka and I didn't even know they were looking for a new firm, but when they announced that they had selected you all, it made perfect sense because of your partner Shen Shen, and so I can imagine where that cultural connection they have and the fact that this company is active in China. I can see where that can be a real asset because I can imagine some of the other firms in your space, I wouldn't be surprised if none of them had any Chinese-speaking partners.

John Flatowicz: We also have... Interesting in the Asian community, we actually have one of our audit shareholders is fluent in Mandarin, and of course, Shen as you mentioned, and Forest, another tax partner, both also fluent in Mandarin, so we have a large Asian practice also because of them primarily.

David Spray: Sure, sure. No, that makes sense. I'd like to shift gears now and talk about the Briggs & Veselka philosophy of referring clients to service providers other than Briggs & Veselka. The firm has always had a reputation of making introductions to banks and other service providers that perform services that the firm does not. I assume that the firm historically has not been compensated for such referrals. With that in mind, why do you and your partners invest the time to make these introductions when there's no benefit to the firm financially?

John Flatowicz: One of our core values that I always kep referring back to is to make sure that we provide high-quality, hopefully proactive and effective service to our clients, and to be honest, we do not always have the resources or capabilities to help our clients in all these things that can benefit them. We spend a lot of time looking for high-quality service providers most of the time in Houston that can help them, for example, save taxes, better loan terms, other valuable and necessary services that are clients need and expect from us. As you well know, we don't have the capability and we don't do IC-DISC and some of the things that you do and the cost segregation that others do or R&D or some of these other things.

We vet pretty hard these outside vendors who can help our clients, and it's not about us always getting the money, it's about making sure our clients get the best possible help they can to do what they need to do or save money or structure better. A lot of times, we have to look for outside service providers and we've done well over the years to make sure that whoever we're recommending for our clients are high-quality people, they have the same core values we do, great client service, and the know what they're doing. It's just like a natural thing to do.

David Spray: It sounds like when I flip back... would you believe I already have four pages of notes? When I flip back or look back to the first page, you talked about the philosophy back in '82 of quality and client service. It really sounds like what we're talking about here is just a subset of the client service. It just sounds like it's just a natural part of the client service. Is that right?

John Flatowicz: No, that's exactly right.

David Spray: How do you decide when to bring a service in-house either organically or through acquisition? Is it just when you get to the point that you've referred out a hundred projects for a certain area that you think, "Well, geez, maybe with that level of volume, maybe it would make sense to develop it in-house"? Or would it be like a specific client request? Or what kind of goes into that thought process?

John Flatowicz: Dave, I think that's part of it, like you said, where you're outsourcing so much revenue that you think, "Okay, we can do this and we can keep the revenue in-house", but I think another more important part at least the way we think here is, are the people that we're outsourcing the services to, are they providing the same high-quality service, the same responsiveness to our clients that we would expect? What we've traditionally and historically done is when the outside service providers are, we see no need for us to get into that area because our clients are being served. They know we recommended a quality person, so it's okay. 

It's interesting that you bring that up because in the last two years, one of those situations happened. We, and obviously I'm not going to mention any names.

David Spray: Of course.

John Flatowicz: Were referring tons of work on what they SALT cases, sales and use tax, because we didn't really have the expertise in-house. Every state in this country, every municipality, they all have different rules and regs and so whenever we had a situation where the state was auditing one of our clients, our clients would call us and say, "Hey, do I need to pay sales tax on this?" All this was before the Wayfair decision that happened recently. We referred it out. We started getting comments from our clients in the last couple of years, all various partners who brought it to my attention saying, "Hey, they're not responsive. It's been six months. What's going on?" It got to a point where we had a board meeting and we started saying, "Hey, do we need to find someone from the outside to start an in-house practice?" We did. 

It wasn't... yes we were giving up a lot of revenue, but the real impetus of this was the lack of quality service that the various outside vendors that we were sending to our clients just wasn't working. Service wasn't there. Too many complaints, and that was our SALT practice. Again, I don't know, somebody is looking out for our firm, but a gentlemen named John Cooney, who headed up Pricewaterhouse's SALT practice in the Houston office, he had just retired. I think they make their partners retire like in their 50s or something like that, and one of our partners had met him at some function or somewhere and conversation developed. He was and still is at his peak, and we got him in-house. It's just been wonderful. No complaints. In the first year alone, it's on our internet, he saved our clients over 25 million in sales tax savings-

David Spray: Wow.

John Flatowicz: Combination of during sales tax audits, inform our clients, "No, you don't need to pay sales tax on that." It's a cumulative type number and that was within one year. I haven't seen what... he's been here a little over two years, but more importantly than all of that is we know we have someone that cares about our clients, that's giving quality service. We've gotten no complaints, and not only has he done that, but our clients are talking to other companies in town and he's going out and helping them. What I've learned because he's been in front of some of my clients, I used to think sales and use taxes were a pretty simple thing, and it's so complicated. Each industry has different rules and it seems like it would take a lifetime of learning to know all of that, and he's done such a wonderful job. 

As an example with the Wayfair Supreme Court decision which basically, and I'm not an expert on this, but basically said for many years if you didn't have a physical presence in another state, you didn't have to pay sales tax. You didn't have to file all the forms, but everybody complained about online internet sales and those were exempt. The Wayfair said no longer, so each state is coming up with rules to say, "Hey, if you do a certain amount of internet dollars online, we're going to tax you." He has been in high demand lately because you don't want clients to suddenly after two or three years get these huge bills, or if they're trying to sell it does often due diligence. John has been just a super asset to this firm. His client service and quality are exceptional.

Again, that was a case we brought someone in-house for the first reason you said, because we were sending literally tons of money that we could have had, but more importantly, we kept getting complaints. Now, it's another area we don't have to worry about. It's a growing area of the firm and there have been others thought the years like international tax, but those are the reasons that we would take it in-house.

David Spray: I think there's a great learning lesson there I think all of us in the service business can take notice of, and that is that you had either one or a collection of SALT firms that you were referring business to, and here you are a rapidly growing firm, which I would assume would mean the referrals you were sending them are growing, the number of referrals you are sending them are growing, and they had this really this golden goose that was just automatically growing that all they had to keep it going was just to feed the goose and take care of the goose. Apparently, for whatever reason, they took their eye off the ball and the goose flew away. I guess it's just a reminder to never get complacent in serving both clients and your centers of influence for new clients.

John Flatowicz: That's true, and that applies to us, too. I always try to remind our managers and seniors and actually fellow partners that we're only as good as our last job. You got to keep up with all the technical standards, be in front of your clients all the time. Make sure that they're getting their needs answered and solved. It's a constant... you're like us, we're all in the service business and we need to do it. You cannot ever become complacent.

David Spray: Sure, sure. Well, wow, I can't believe how fast the time has flown. We're already 50 minutes in. Let's see, so you mentioned you've got offices in Houston, El Campo, The Woodlands, San Antonio, and Austin, and you mentioned that you want to be in all the major cities, so that would imply that the Metroplex, Dallas-Fort Worth is on your radar screen. I'm not going to ask any specific questions as far as things you're considering doing, but is it fair to say that you expect to have an office in the Metroplex at some point?

John Flatowicz: That's correct.

David Spray: You had talked about that I think the HBJ article of Sheila, she was talking about that the firm was nearly in the top 100, and that you had mentioned that you've now kind of set new goals of trying to be in the top 50 at some point. If we were guessing like five years from now, how large do you think the firm might be? Or maybe give me... I don't know. What are your thoughts there? If you had 600 people five years from now, would that surprise you? Maybe that would be a better way to phrase it. If the firm was twice as big five years from now, would that surprise you?

John Flatowicz: Actually, no. We update our strategic plan every year. We have an internal organic growth percentage, and it's always exceeded whatever our plan is, plus we have an acquisition strategy. Both Johnny, myself, and Sheila are eternal optimists, by the way. Keep that in mind. 

David Spray: I've observed that.

John Flatowicz: I believe that based upon our past organic growth, the expected future growth, expected acquisitions, and more important to me, and the super leadership team that we have assembled... I can say their names. Sheila is our Managing Partner. Jason Sanders is our Tax Department Chair. Adam Dimmick is our Audit Department Chair. I'm really excited about that leadership team. At least compared to me, it's young, it's smart, it's technical, it's innovative, and I see a firm in the next five to 10 years at least doubling in size. I believe we'll be bigger than that, but a lot of it depends on what acquisitions you do. There's a lot of factors that you can't control, but it would not surprise me at all.

David Spray: Wow, that is great, and speaking of your partners, how many partners does the firm have now? Or shareholders I guess technically?

John Flatowicz: I'm going to say approximately, if I don't get killed on this one, I think around 32 or 33.

David Spray: Wow, that is really... that's really impressive because your partner growth has occurred along with your employee growth. One of the questions I had that you answered already was as the firm has grown, what are some of the things that have not changed? I think that you had mentioned that commitment to quality in client service. Is there anything that we didn't cover today that you think we should have talked about or that you would like to mention?

John Flatowicz: Yeah, one of the other things that I think I mentioned it briefly answering another question, but I would like to emphasize, you've got to believe in your people and it's a different era than it was 10 or 15 years ago. You've got to make sure that you offer the best training, the best opportunities. You've got to figure out what each individual's passion is. You don't just put X number of people in audit tax and consulting. Each person is unique. They have unique talents. We spend a lot of time trying to figure out where their passion is, where they can help the firm the most, benefit themselves the most. That's sort of on the technical side.

On the people side, we want to make sure that just like I get up every morning and I love coming to work almost 40 years here, we want to make sure that all of our people, it's an environment where they feel they can speak up, their ideas are listened to, but it's also a fun place. To that end, one of the things I think Johnny and myself and Sheila are most proud of is we've gotten Best Places to Work either from the HBJ or The Chronicle I think we're going on years 13 or 14 now, but we do a lot of things. We do a lot of employee activities. We spend several days out, all of our employees, out in the community. We pick like 10 or 11 charities in the community. Groups go out to those charities and volunteer for an entire day, and that's important to a lot of our people. 

As an example, I'm a dog lover, so I go to BARC and let the dogs out of their cages and walk them.

David Spray: That's awesome.

John Flatowicz: So the community, charity, making sure it's fun. We have a lot of outings and we do a lot of fun things at the firm and we offer all of those. I think that... I've just seen it work through the years. I've seen people do things like, for me as a partner, come to my house, drive 50 miles on a Sunday to drop off something so I don't have to. Keeping your people happy, challenged, I think it's so important to the success and I believe that we make that effort and it really helps the firm grow.

David Spray: This is great. It's really clear that you have a commitment to the firm and your clients. You've always had a reputation as having tremendous client and employee commitment and it's just really great to kind of hear it right from your mouth, your thoughts on this and your passion and conviction on the type of culture that you've tried to build and hope continues even after you retire. It's just really clear that it's really heartfelt and genuine. 

John Flatowicz: Well, I have to say I love the firm. I care about the firm. I also care about the profession, and the profession took some hits in the public eye over the years, so quality is important. Like I say, giving back to the community charity-wise, giving back to the profession. Many of our CPAs are very active in the Houston CPA Chapter, The Texas Society of CPAs, and it's all about giving back because it's been great for our firm, this city and this community, and I want to plug you if that’s ok.

David Spray: Go ahead.

John Flatowicz: I've known Dave for, gosh, I don't know, over 20 years. More than that maybe, and Dave is one of our service providers that we don't feel like we need to do anything in-house because Dave was with us for a short while but he is one of these outside service folks that does a great job of quality, timely service. I know in the past I could call him up no matter what hour and say, "Hey, my client needs this", and he is on it, so I'd like to put a plug in for your business, too.

David Spray: Well, John, that was very kind of you. You didn't need to do that, but in all fairness, almost everything I know about client service I've learned from you, so if you're happy with the way we treat your clients, it's because I learned it from you, so thank you for showing me how to do that. You're good at it.

Well, John, I really appreciate your time today. I know you're busy, and I do just want... could you just share your contact info? The phone number is the main number, 713-667-9147. Is that right?

John Flatowicz: Correct. That's correct.

David Spray: Your email address is?

John Flatowicz:

David Spray: If somebody just wants to reach out to you directly, just say hi, they can do that, but what about if somebody is interested in exploring a relationship with your firm? Somebody that owns a business that's looking to change CPA firms. Would you rather they reach out to Sheila? Or would it make sense for them to reach out to you? What would you prefer?

John Flatowicz: Either way is fine. One of us is always here in the firm, so they can call me, they can call Sheila. We also have a business development gentleman named Bill Penczak. They can call him. Any one of us three and we'll make sure we get them to the right people. It may not be me, it may not be Sheila, it may be whoever has the expertise and the industry experience to help those people.

David Spray: Great. Well, that sounds awesome. Well, John, thank you again for your time, and best of luck in the continued growth of the firm.

John Flatowicz: Thank you so much, Dave. Appreciate it.

David Spray: Bye.

John Flatowicz: Bye.