Franklin & Moore LLC offers expertise in all areas of accounting, bookkeeping, and financial-based planning. The firm has a solid and loyal customer base in a market that has experienced constant but slowing growth in recent years. We have increasing competition from a variety of sources. The firm is highly dependant on revenues from tax planning and preparation for businesses and individuals. These areas account for more than 75% of total revenues. This presents a long-term threat to the firm due to competition and changes in our market. We must diversify our revenue base to realize ongoing growth and stability in a changing industry.

Market Needs

Franklin & Moore LLC provides tangible and intangible value. Our objective is to minimize the tax exposure of our clients and adhere to all state and federal tax laws. The bigger picture means that we are providing peace of mind for our clients - they are legally using their financial resources in the most productive manner possible. We work to make the complex understandable. We act in an advisory role to our clients that will enable them to better influence and optimize their personal and/or corporate wealth. We desire to make them more money and give them a better night's sleep.

The Market

Franklin & Moore LLC is a full-service accounting firm, serving the personal and business needs for the community of San Clemente, California and beyond. Our most important clients are mid to large-size organizations that rely on our services for their accounting needs. Tax preparation and planning is just the beginning as we strive to become an integral part of their financial management and planning process. Our best clients value their time and resources, and seek to minimize their tax obligations. They do not like negative surprises. They realize and appreciate the value in the services we offer, along with the lost opportunity costs of not benefiting from our services.

Market Analysis

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Market Demographics

Individual Accounts - The base of individual accounts serves to offer consistent revenues for the firm. Approximately 20% of these accounts also depend on the firm for ongoing financial planning of their investment portfolios. The balance of the clients primarily look to the firm for tax planning and preparation.

Organizations of Over 50 Employees - Our most profitable business clients fall into the "over 50 employees" category. These corporate accounts generate the highest revenues on a per-hour basis and also generate revenues on the most consistent basis throughout the year. Many of these accounts are in the medical/health, dental, and lodging industries. These clients are also more likely to look to Franklin & Moore for the widest range of services the firm offers, such as assisting with pension planning and investment management services. Target clients in this category have annual sales over $3 million, operate more than one location, serve a national customer base or more, and are publicly owned.

Organizations Under 50 Employees - Organizations under 50 employees represent some of the fastest growing clients within the firm. Franklin & Moore offers attractive services that understand and meet the needs of these clients. Again, many of these clients are in select vertical markets, including medical/health, dental, and lodging industries. The key clients in this category have annual sales between $250,000 and $3,000,000, serve customers in the Southern California market, have a local or statewide customer base, and are privately owned. The long-term strategy is to grow with these clients as they expand and their needs for our services increase.

Market Demographics

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Market Trends

Market trends fall into three general categories: increasing use of software, and key client growth.

Increasing use of software - Tax software is one of our major competitors and continues to erode revenue from individual clients with simple returns. This includes products produced by Intuit with their "Turbo Tax" line and H&R Block Financial with their "Tax Cut" products. Software has also been a resource to increase efficiencies within the firm. For example, we are producing in excess of 50% more work, and therefore billable hours, with the same resources we did in 1995 due to the computer systems now in place.

Key client growth - A cluster of our premier clients have experienced substantial success and growth. Meeting these clients' needs will "bring us along" to offer additional services and provide an opportunity for us to strategically expand the services we offer. As we gain expertise and establish our reputation in these areas, we market those to other clients and use them as a point of interest to attract new clients. Pension planning services are one example of this phenomenon.

Market Growth

The growth rate of our combined target markets has averaged approximately 8.6%. This is due to the growth of established businesses as well as movement into the San Clemente area. This growth rate has plateaued in recent years and is expected to remain constant for the foreseeable future.

Macroenvironment

The following issues impact market acceptance and Franklin & Moore's ability to generate revenue:

Consumer trends - Those clients that are PC literate are more likely to consider tax preparation software as a viable alternative to using our services.

Economic changes - Two economic changes are taking place, due to the increasing assets of the over-70 "depression generation" and their saving behavior. First, they have proportionately greater assets than their predecessors, particularly individuals with assets in excess of $1.2 million. This group and their heirs may realize increased benefits from tax and estate planning. There is also a phenomenon where the children of this aging population are more likely to inherit assets and need to integrate these newly acquired assets with their own. Both present opportunities for tax and estate planning activities.

Technology advancements - Franklin & Moore has benefited from firm-based software that is enabling us to become increasingly more productive with our existing resources. Unfortunately, technological advancements are also creating greater challenges in the competitive environment.

Competitive activity - Competition has increased on all fronts. In addition to the impact end-user software is having on the industry, firms of similar size have grown and expanded and there are more sole proprietors and licensed tax consultants and bookkeeping services. We consider the market to be at or near saturation.

Political and legal environment - Our business activity is directly related to changes in state and federal tax laws. The most negative activity in this area would be tax laws that lead to significant simplification of tax laws.

The Company

Franklin & Moore LLC is an accounting firm offering traditional accounting services and business consulting. The firm's reputation is impeccable and is known throughout the San Clemente, California area as one of the top three accounting firms. Franklin & Moore LLC serves the accounting and financial needs of businesses and individuals to enable them to realize their financial goals.

Mission

Franklin & Moore is to be a profitable firm that continues to meet the financial objectives of the shareholders and provides a successful environment for its employees. Our firm will maintain strong growth as a provider of high quality professional services to our clients. We will strive to consistently be perceived as a firm that is professional, trustworthy, accurate, and timely. Franklin & Moore will offer the innovative approach clients need to reach their business and personal financial goals. Wealth is good.

Service Offering

Our services offer expertise to enable our clients to better realize their financial objectives. Accomplishing this for our clients falls into these basic service areas:

Business Clients

• Tax advising, planning, and preparation
• Consulting services, including:
  • Industry-specific consulting
  • At-risk business consulting
  • Corporate-pension consulting

Individual Clients

• Tax advising, planning, and preparation for individuals
• Consulting services, including:
  • Personal Financial Planning (general)
  • Pension planning
  • Retirement planning

Providing quality service is also critical. Our business and individual clients judge our competence based on how we treat them. This is their primary - and in many cases their only - measurement of our capabilities. They ask themselves the following about our firm:

• Do they act in a professional manner?
• Do they know who I am?
• Do they remember my name?
• Are they genuinely concerned about my best interest?
• Will they actively support and defend their advice and council if needed?

Our services must be strong enough that each of our clients will answer positively to these questions.

Positioning

Franklin & Moore LLC offers a unique team of CPAs and a professional accounting and bookkeeping staff with proven expertise as business consultants. We do more than prepare taxes. We also provide a variety of valuable services that enable a business to optimize their profitability and minimize their tax exposure. We will work to offer our services in an innovative manner to create a source for business planning solutions that will be difficult to emulate. We offer a premium level of service and expect to receive premium compensation for those services.

SWOT Summary

The SWOT analysis addresses the strengths and weakness within Franklin & Moore and the opportunities and threats that exist in our environment. This analysis highlights areas to be leveraged and points out where we must improve within the firm and within our industry and market.

Strengths

• A core of CPAs that have established solid reputations within our market
• Highly experienced staff with an increase in total billable hours.
• A state-of-the-art computer system, utilizing the latest software that continues to enhance our productivity and expand our capacity.
• High client retention, providing consistent referrals to the firm.
• Expertise in specific vertical markets of medical/health, dental, and lodging industries.
• Three CPAs, our "rainmakers," who bring in an estimated 65% of the new client work.

Weaknesses

• Over-dependence on tax preparation work for individual and business clients and, therefore, a lack of diversification in our revenue sources.
• Inability to generate sufficient billable hours in the off-season, based on the current capacity of our systems and full-time staff.
• Difficulty in retaining aggressive non-partner CPAs, as they move to smaller firms that will make them partners sooner.
• Being perceived as a non-progressive, "too traditional" firm and maybe overlooked as a viable option for new clients.
• Some individuals within the professional staff do not have an understanding of or a commitment to the marketing activities of the firm.

Opportunities

• Benefiting from the ongoing increase in population to the San Clemente area, particularly for the retirement segment. 
• Increasing income levels of the population over the age of 60 that have aggressively saved for retirement and have increasingly complex tax planning, tax preparation, and estate planning needs.
• Leveraging the positive perception business has about locating in this section of Orange County.
• Growth that is occurring in three industries where we possess expertise; health/medical, dental, and lodging.

Threats

• Increased competition from sole practitioners and new firms.
• Continued sophistication and affordability of software that replaces or minimizes the role of a CPA for tax preparation, accounting, and bookkeeping services.
• General perceptions that accounting firms are only used for tax-related aspects of business rather than as a valuable resource for broader business consulting issues.
• Some organizations planning for an Initial Public Offering (IPO) perceive they must use a national accounting firm.
• State and/or federal tax laws that lead to gross simplification, such as legislation leading to a flat income tax, which would result in reducing billable hours for business and individual taxes.

Historical Results

Our past marketing activities have produced mixed results. The following is a summary of those activities and categorizes them in terms of "successful" and "unsuccessful." A successful marketing activity produced billable hours that were equal to or greater than the total investment into the activity, excluding time. An unsuccessful activity generated traceable revenue but was less than the cost of the effort.

Successful -

• Referral-based activities; Professional referrals, Individual referrals.
• Selective Sponsorships: Southern California Opera, Youth Sports.
• Yellow pages: Competitive size ads for our area.
• Board member participation: Lodging Association of Southern California, San Clemente City Commission on Land Use, California Opera, Youth Sports.

Unsuccessful -

• Advertising (non-sponsorship based).
• Service club participation; Rotary, Lions, Sierra Club, Boy Scouts of America.

Additional work is required to better track revenues resulting from each of our marketing activities.

Historical Data

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Competition

Competitors fall into four primary categories; other firms, sole practitioners, licensed tax consultants and bookkeeping services, and software.

Other CPA firms - A total of 5 firms conduct business in our area that are comparable to Franklin & Moore in size and capabilities, including one that is a national firm. These firms have staff and technology resources similar to ours, although their focus and areas of specialization vary.

Sole practitioners - An estimated 23 sole practitioners exist in the immediate area. This ranges from individuals that have been in business for over 20 years to those that are in their sixth month. Their resources are limited in terms of staff and technology.

Licensed tax consultants and bookkeeping services - The "Type I" individual client, with straightforward and uncomplicated needs, often looks to licensed tax consultants and bookkeeping services in lieu of the services we offer. This client type may consider these preparers on the basis of "self preparation avoidance" rather than from seeking proactive advice and council.

Software - Increasing competition from individual software, particularly Intuit's "Turbo Tax" and H&R Block Financials' "Tax Cut."

Direct Competition

The following companies are direct competition to Franklin and Moore. More about them are discussed in the following tables and charts.

1. Huber & Huber PC - Are our strongest competitors. they have a strong image and are a very stable company growing at a good pace.
2. Lang Pauls & Rowe - Come in a close second to H&H. They too are well known in the market and offer quality services.
3. Wright & Ellison - The biggest threat W&E pose to us is the strong strategic alliances that they have. These alliances have positioned them to grow quickly and they could become a bigger threat.
4. Insight - This is our weakest competitor. They have not been around for very long and struggle with providing quality services backed with expertise.

Growth and Share Analysis

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Competitive Analysis

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Indirect Competition

Tax Software is our largest indirect competitor.

As the public becomes more comfortable with home computer technology, they are increasingly relying on tax software packages like Intuit's "Turbo Tax" and H&R Block Financials' "Tax Cut." However, for the kinds of clients we pursue, these software packages lack the nuances and prompting that yield best results.

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