Allan Koltin

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Koltin Consulting

I think the last 12 months (July 1, 2022 to June 30, 2023) have been strong for CPA firms nationally. [For the most part,] they have experienced solid growth and corresponding profitability. Billing rate increases have been easy to get from clients. All firms are generally working crazy hours and struggling to balance their professional and personal life. … firms can’t find the talent they need, so they continue to cull out low margin clients (or at a minimum raise those clients’ fees substantially, knowing they might leave). I do feel that things have leveled out a bit and the “great resignation” has come and gone. It feels much more stable now in terms of the workforce.

Clearly the biggest spike has been the amount of work that is now offshored, where work can be done at $25 an hour vs. the $125 an hour in the U.S. … A major issue that just seems to get worse is the final chapter of the baby boomers retiring. At some firms, the ratio of retiring partners to young successor talent is as high as 4-1.

Jennifer Wilson

Convergence Coaching

Client demand for services has never been greater, and firms have many opportunities to sell new services to both new and existing clients. High client demand and short staffing led to most firms killing it financially and partner earnings coming in at an all-time high. … Firms also experienced record levels of turnover as their people sought better paying jobs at more progressive or flexible firms or companies. The high client demand has contributed to overselling in most firms, creating a feeling of [being overwhelmed]—even burn-out for all staff levels including partners.

But there have been bright spots in leadership around the country, with progressive, talent centric firms making hay during these tumultuous times, offering anytime, anywhere work, rightsizing their client bases to bring work in line with capacity, investing in dynamic capacity strategies and automation, raising fees and salaries, and helping their Next Generation team members and leaders build a firm they love.

Matt Rampe

The Rosenberg Associates

Staffing was a red-hot challenge cited by almost all the firms I worked with in the past 12 months. Impacts of the staffing crisis:

  • ▪ Slowed revenue growth. Many firms had to slow (or stop) taking on new clients due to capacity constraints.
  • ▪ Succession woes. With many baby boomers retiring and not enough qualified successors, firms faced the challenge of figuring out how to transition clients and buy out partners while sustaining the firm.
  • ▪ Rising staff costs. Soaring staff compensation (along with recruiter fees) pressured profitability.

Firms that did well did this:

  • ▪ Invested in being a destination firm. They built a firm that people genuinely want to be a part of. This included both strong compensation and a strong culture where people create positive relationships.
  • ▪ Allowed options to work differently. Firms that allowed hybrid and remote work and flexible career paths (e.g., non-CPA track, non-equity partner, fixed 40 hours year-round, etc.) were more successful at attracting and keeping staff.
  • ▪ Pushed back on clients. This included raising rates, being clear on who their ideal clients are, and regularly culling the worst clients. This protected profitability and reduced staff burnout.
  • ▪ Tried other capacity solutions. Strategies that firms found success with this year included leveraging more technology, outsourcing, and hiring non-accountants to help boost capacity.

Terry Putney

Transition Advisors

Private equity and other alternative investors into the CPA industry have disrupted the market substantially. We are seeing alternative investors from wealth management, pension funds, family offices, and even public companies (in addition to CBIZ). Firms are modifying their governance, owner agreements, and compensation structures in response to how private equity evaluates firms. We are seeing a shift from the partnership model to a more corporate model at some larger firms. Virtually every Top 250 firm has been approached by multiple alternative investors; many firms are taking a pass. There is a lot of new thinking, however, about how to manage their firms within firm leadership because of the observations they have made about the effect of alternative investors.

Marc Rosenberg

The Rosenberg Associates

How do you think the next 12 months will unfold? Trends? Predictions? Other thoughts? …

  • ▪ Private equity shows signs of trickling down to sizeable local firms (say, $15-30M firms).
  • ▪ The aging of baby boomers—ages 57–75—continues, but at some time in the next five years or so, their tremendous wave of retirements will abate somewhat and there may be fewer sellers.
  • ▪ Artificial intelligence has ramped up its awareness in the CPA firm market. Though many have warned of the negative impact of AI, its upward trend is relentless and knows no bounds.
  • ▪ We’ve seen a handful of firms consider changing from the flawed partnership structure to the more business-like corporate form of governance. It’s about time!
  • ▪ Most agree that remote work is here to stay but, at the same time, many are concluding that firms are less productive when remote work levels are high. It’s also harmful to job satisfaction because people lack the person-to-person contact they crave. The hybrid model is showing signs of going from 2 to 3 days in the office to 3 to 4.