Trends In Public Accounting For 2023
One of the joys of consulting to CPA firms for over 20 years is talking with clients, fellow consultants, media editors and speakers at conferences about what’s going on in the industry. Over the past three months, several clients and publications have asked me how I see 2023 shaping up. Here are my thoughts.
- Merger Frenzy: The merger frenzy continues with no end in sight because a substantial number of aging partners in the CPA industry have been unable or unwilling to develop new partners. Part of the responsibility for this rests with the firm for prioritizing the here and now – taking care of clients – at the expense of succession planning. Part of it is external, due to the severe shortage of labor and firms’ difficulty in recruiting. Many years ago, a wise managing partner told me this: “There’s not much that CPA firms can do about the supply of accountants, but there is a lot they can do to retain them.”
- Difficulty Finding Buyers: A merger frenzy doesn’t automatically mean that retirement-minded sellers will have it easy finding buyers. Buyers have become increasingly picky about who to acquire. The huge volume of sellers means buyers can cherry-pick the best. Retirement-minded partners will quite possibly have to keep working longer than they want to.
- Labor Shortage: The labor shortage will continue to cause firms to give very generous salary increases and bonuses to staff. Firms need to offer their staff salaries that are not only competitive with other CPA firms, but also with other industries. To be competitive, firms may need to realign staff salaries throughout the entire firm. Several firms have told me they have given their staff double-digit pay increases.
CPA Firm Mergers: Your Complete Guide, was written because every year thousands of mergers are taking place but relatively few buyers and sellers have much merger experience in one of the largest transactions their firms will ever be a part of. We address: ►the keys to successful mergers ►the 22 steps in the merger process ►how to assess cultural fit, benefits of merging upward ►why buying a firm for one times fees is a steal ►what larger firms should expect to see from smaller firms & vice versa ►how to negotiate a merger – from both buyer and seller view ►14 things the letter of intent should address ►data that should be reviewed ►due diligence and other issues.
- Remote Work’s Effect on Hiring: Firms will continue to find it difficult to hire and retain staff if their remote work policies do not meet the staff’s demands. If firms don’t offer remote work, applicants will find firms that will. As much as many firms want to return, at least partially, to working in the office, staff are resisting. It’s the old conflict between needs and wants: It’s very hard to take away a privilege once it’s given. Adding to this conundrum, several firms are finding it more difficult to get their partners in the office than staff.
- Slowed Growth: Revenues and profits will increase, but not as much as they did in 2021. With an economic downturn on the horizon, it’s quite possible that revenues and profits over the next 12 months will be less than desired. Thankfully, CPA firms are somewhat recession proof. As one of my clients told me during the last recession: “For CPA firms in a recession, flat is up!”
- PE Firms Out of Alignment With Smaller Firms: Private equity will not be a major factor for firms below the Top 100 (#100 has annual revenue of about $45M). In the short history of PE firms invading the CPA firm space, the transactions have generally been limited to the Top 50 firms, less than 1% of all firms. There are good business reasons why these large firms have been receptive to PE firms. Says Gary Shamis, “This reality is very different for small and midsized firms, who make up 99% of all firms.” These smaller firms can’t see (a) selling to a stranger who overtly plans to flip the firm in five years or so; (b) yielding management control over their firm to a company that will overvalue the importance of short-term profits at the expense of long-term success by laying off a significant number of staff. Shamis again: “The only goal PE firms have is to make money”; or (c) meeting the lofty ROI goals of PE firms without the partners taking a serious compensation haircut.
What are your thoughts on trends in the accounting profession such as the merger frenzy, labor shortage, and remote work policies?
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