A Morning with a Luminary of the CPA Profession

We are talking about none other than Michael Horwitz, the Executive Director of BDO Alliance USA, the largest association of US-based independent accounting, tax and advisory firms. The Alliance comprises more than 250 CPA firms and 150 advisory firms and vendors that serve CPA firms. Ninety percent of the BDO firms are under $30M, reflecting Michael’s expertise with small and mid-sized firms. As a result of this focus, Michael may be in a better position than anyone to know what’s going on with small and mid-sized firms. He leads a team of 30 professionals. Michael was the guest speaker at a Fall 2024 meeting of the Chicago area roundtable of the largest local CPA firms, expertly run by Art Kuesel.

Here are some highlights of what Michael shared with 25 MPs. As you read his observations, resist the temptation to say to yourself, “We do this; we do that, etc.” The question to ask, honestly, is: how well do you do these things?

The haves and the have-nots

[Let’s set the stage for this section on higher and lower profitability firms. Anecdotally, the ratio of the income per partner (IPP) of the top 10%–15% of all firms compared to the IPP of the lower 10%–15% ranges from 3:1 to 4:1.]

There is a growing chasm between the haves and the have-nots, those firms that are highly profitable vs those that are not. Horwitz believes this is caused by:

• Short-term vs. long-term thinking.
• Some firms don’t seem attractive to young people.
• Lack of willingness to invest in the firm via technology, higher staff salaries, and acquisitions.
• Concern over the lack of funded buyouts.
• Partnership vs. the corporate model of management.

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Staff and labor supply

Staff turnover is the lowest it has been in quite a while, per The Rosenberg Survey. The average in 2023 averaged about 12% compared to 15%–19% in previous years. During this time, firms have been hiring aggressively to accommodate the rising demand for services. Because of the lower turnover, some firms are reducing the number of interns they are bringing on because they have less work for them than in the past.

The younger generation isn’t as excited about working hard and becoming partners. Rosenberg adds that many partners fail to do a good job showing the staff how great it is to have a career in public accounting.

If one is looking for a future, it’s all about relationships. This is a very important point for partners to drive home with staff who remain unaware of this.

There has always been a huge gap between what colleges teach accounting students and what CPA firms want them to learn. Firms need to close this gap by ramping up their training early on.

Why aren’t CPA firms opening up their wallets and paying the staff more? No one seems to have an answer. Partners are earning way more than they ever thought they would, but salaries are now average compared to other fields. This can only be explained by short-sightedness, greed, and complacency.

Clients, growth and pricing

CPA firms don’t do a good job of communicating the value of their work to clients, especially the many services they offer beyond compliance.

Based on what he is seeing with BDO firms, Michael strongly suggests that firms convene meetings with their “A” clients, for free, and ask them what their needs are, how the firm can better serve them, what keeps them up at night, etc. It’s a great way of cross-selling to clients.

The BDO Alliance has found that firms who enjoy significantly greater profits have figured out how to do more work for their existing clients.

The more advisory services that firms provide to their clients, the higher the profits.

For the first time in many years, BDO firms are experiencing pushback on pricing.

Technology

Artificial intelligence is profoundly affecting the work CPA firms do. This is more the case with larger firms than smaller ones. Historically, major changes in firm management—mergers and technology, to name just two—start with the larger firms and eventually trickle down to the smaller firms. Horwitz feels the movement to AI applications is definitely on the rise.