venture capital and private equity are pouring billions into financial technology start-ups. and this business will never be the same.
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with rick telberg
for 卡塔尔世界杯常规比赛时间
a tsunami of venture capital and private equity is flooding into new tech startups, enough to swamp the entire tax, accounting, bookkeeping, and payroll sector, according to a new study by 卡塔尔世界杯常规比赛时间.
more: how private equity changes everything | the fintech flood: accounting will never be the same | the disruptors: re-inventing accounting with tyler anderson | the disruptors: how to scale with new padgett coo amanda aguillard | eat that frog: asking for a prospect meeting | growing revenue through client service | lease accounting is about to get very real | google ads for new tax season clients | exclusive: eisner ceo charly weinstein explains the private equity deal | flash briefing: a “call to arms” after private equity deal | four ways to beat the staffing shortage, with pasha malik
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here, 卡塔尔世界杯常规比赛时间 founder, publisher, and editor rick telberg delivers the keynote at the new york finance & accounting show, explaining what it means for the future of the profession, including:
– the real meaning of the “pandemic pivot” for accountants and small businesses.
– why is the accounting industry more than just ripe for revolution?
– the new rules driving investment capital into new financial technologies. and,
– the three essential strategies for surviving and thriving in the new age of fintech-driven accounting.
transcript
rick telberg: hi, my name is rick telberg, and i’m the founder and ceo of 卡塔尔世界杯常规比赛时间 research. what is the future of the small and mid-sized back office? spoiler alert: the future is already here, and the future is muscled up to buy out every tax and accounting firm in the country if they want to. but of course, they don’t.
they have their reasons. with that, let’s start with a look at today’s takeaways. we’re going to cover four main areas: the pandemic pivot, this industry that’s ripe for revolution, maybe extinction, maybe relevance, maybe obsolescence, the new rules that are dictating how this market works, and the new survival strategies. spoiler alert: get smart, get tech and get moving. there’s no time to waste.
bill gates says, “banking is necessary. but banks are not.” accounting is necessary, but accounting firms? we’ll find out. there were 42 fintech unicorns minted already this year, with investments of $125 billion. you’ve been reading about it. you know it’s a record. you know it’s going on. you know that people are leaving accounting firms. think about the number $125 billion.
by comparison, the entire tax accounting, bookkeeping and payroll industry grosses about $113 billion annually. assuming accounting firms may be worth one-time revenue, more or less $100 billion in equity funding is enough to buy out every partner and owner of every firm in the us in cash.
this is the smb fintech stack. i stopped counting about 150 and i’m sure there’s more on the list, but you already know some names. start with accounting, invoicing and tax. i’m sure you know freshbooks. if you haven’t already heard of pilot, you will. that’s the bookkeeping startup backed by jeff bezos, the founder of amazon. you know divvy and expensify in expense management. you know stripe in payments. you know gusto in payroll.
you know this. you’ve been watching it happen. let’s back up a little bit, though. let’s check into the history of money. it started with barter, gold nuggets and coins, paper money, and checking. checking was probably the first financial technology that we can call a financial technology. then came atms and credit cards, online banking, wire transfers, smart devices, the internet of things, mobile devices, alexa, siri, and watches.
now, we’re moving into an era of decentralized payments with blockchain and crypto, which may or may not all be upset once central reserve banks issue their own stablecoins. the big news is embedded finance. it’s frictionless, everywhere, invisible, and autonomous. think about uber. we hardly think about the transactions that take place. we don’t have to pull out our wallets.
think about buy-now-pay-later, which is replacing credit cards. think about shopify, which makes spending money too easy, like amazon. this is the terminology you need to get out of the way. robotic process automation is rpa. that’s when tasks are codified. this artificial intelligence extracts meaning from images, text, or speech. we’re still learning how to do that.
next on the horizon is autonomous finance. self-adapting technology, continuously learning, runs on autopilot. the two big examples of companies that are trying to make the leap from rpa to ai to autonomous are companies like vic.ai and botkeeper. before we get into that, i want to show you something. before the flood of money, let’s look at the gap between revenue and expenses at cpa firms. let’s look at the last 10 years or so. profits are up 94%. expenses are up 61%. productivity or realization rates in terms of employee revenue is up 45%. where are all the profits going? not back into the firms. owners or partners pull cash out of the business and not reinvest it. this is not sustainable. this is not healthy. it’s shortsighted. in the end, it makes the industry less and less competitive.
why should cpas worry about competition when they’re making so much money? well, we’ll get to that in a minute. complaints. yes, clients have a few. accountants are not proactive enough. they’re not always timely. they don’t give guidance. they don’t provide enough advice. they don’t educate. accountants understand that. they understand that there’s a knowledge gap. they understand that the number one item on their agenda is gaining tech literacy, building relationships, and getting into business advisory. we understand that we’ve been told that for years, but who cares? 67% of clients say they’re satisfied. 67% of clients say they’re satisfied.
do they not expect more? are they satisfied with the complaints they have? do they think there’s no way to get what they want from the current accounting business they’re dealing with or the industry in general? clients are satisfied, and this has led to complacency among accountants. still, accounting firms are trying to grow. 卡塔尔世界杯常规比赛时间 surveys show that 63.8% of firms are trying to add staff. only 3% are reducing staff, and 32.9% are holding steady. that 63.8% that are adding staff is phenomenal in a normal year and normal times.
these numbers are about evenly divided: one-third, one-third, one-third, between adding staff, reducing staff, and holding steady. two-thirds of the firms out there are trying to grow and add staff, which is a historical anomaly. we’ve never seen that before. when we ask, “is your firm turning down new work due to a staffing shortage?” 39% say, “yes, we’re turning down work.” their growth is stifled.
we know what needs to be done. we know that our office must go online and virtual. we know we must constantly adapt to new government tax and relief measures in this pandemic. we know the answer is in cloud technology, automation, and revenue streams from new higher price, higher-value services. we know what our clients need to do. we know that they need to keep up with changes in online technologies. we’ve seen them pivot to learn to be flexible, innovative and super scrappy.
they’re moving from brick-and-mortar to doing business online and virtual. it’s the last thing that’s a problem: doing business online and virtual. e-commerce is a trap—a trap that accountants can help with, but too many are ignoring. look at this. accountants know most small businesses are not in compliance with wayfair or interstate tax issues. we call it the salt bomb—the state-local tax bomb about to go off.
we’re about three years out from the wayfair decision. state tax auditors, commissioners, and revenue departments are getting wise. they’re building databases. they’re ready to launch attacks. what’s an accountant to do? what’s a small business to do? they’re going to ask their accountant. what’s an accountant going to say? there are more small businesses than ever before. one of the things that came out of the covid lockdowns was that we thought it would be a baby boom, but we didn’t get a baby boom.
instead, we got an entrepreneurship boom. new business applications soared during the pandemic. it’s part of the great reshuffle, part of the great resignation, part of working from home or anywhere. it’s part of people coming to grips with the new technologies that make it possible to go out alone or at least build a side hustle. in the old days, we built businesses with people and departments. we had procurement and partnerships. we had marketing and sales, we had finance legal, and we had hr operations.
the new software that’s coming out allows solo entrepreneurs and small businesses to do without departments. i used to have a landlord when i had a store, and he took care of all the plumbing and the electrical, made sure the floors didn’t fall out from under me, and the roof didn’t leak, and all i had to do was stock the inventory and run the cash register. well, the new plumbing is in financial technology, fintech. the new tech stack looks like wix and squarespace.
it looks like pipedrive, quickbooks, divvy, bill.com gusto, turbotax, and mailchimp, and you know what? here are three intuit references right there. see anything going on? there’s a stack for every vertical. the verticals are bigger than you think; they will dominate once they can drill down. in e-commerce, this is shopify and canal. in fitness and wellness, there’s talent/hack and interval. in trucking, there’s mudflap. among financial advisors are angellist and altruist. in coaching, there’s daylight and practice.
these new fintechs are digging deep into verticals, and it’s changing the way they make money. it started with sap and oracle doing on-premise licensing, then we moved to subscription software as a service, and then we moved to metered pricing. we move to trials and freemiums, such as you can get started on dropbox for free, then they hook you or airtable. the new fintech business model means they can make money in various ways. they can make money on every transaction, taking half a cent here and half a cent there. they can make money by making subscriptions and using software as a service. they can make money by giving the software away for free.
intuit has made no secret of the idea that they would give away quickbooks if they could own the data. plenty of platforms exist for this new wave of entrepreneurs, small businesses, and even midsize businesses to glom on to. you know sneaker jesus? i didn’t know sneaker jesus. his name is chris holbrook. he’s the top sneaker seller on ebay, running at about $1.5 million a year in volume.
ebay is one of the platforms on which businesses are being built, like shopify, alibaba, amazon, shift4shop, and lightspeed for retailers. there’s an asterisk next to lightspeed because its ipo has inspired many lawsuits. besides ebay among resellers, there’s poshmark depop and facebook marketplace. there are service providers like dumpling, mindbody, and turo. turo is the airbnb of car rentals. of course, there’s etsy, faire, wix and big cartel for people who make things, arts and crafts.
then there are content creators. monetizing youtube, taking payments through patreon, twitch, substack, podia, onlyfans, nsfw, and fiverr. bankers are already onto this. 95% of corporate bankers say they offer or may offer cash flow forecasting tools to business clients. 95% will offer cash flow forecasting tools. some accounting goes into cash flow forecasting, right? they already have the data. they’re going to put it to you. how long will it be before they start to do full-fledged accounting, before they start to do compliance and regulatory work before they start to do taxes? why not? i project that next april 15th, you’ll see at least two banks giving away tax software for free.
what are accountants doing? they’re rebranding. just don’t call them accountants or cpas. this is just an alphabetical list of 30 examples. there are probably 3,000 out there. let’s start with accountingdepartment.com. it’s a bookkeeping company. they’ve partnered with ups to sell their services to small businesses through ups stores. aprio cloud. there’s aprio, the cpa firm, and then aprio cloud. if we’re talking about back-office operations, there is backoffice.co, and that url has been taken. baker tilly acquired something called accttwo. recently, you’ve got to check out bench.io and bookkeeper 360. skip down to number 25. pilot, the jeff bezos company, the other one making the biggest waves.
it doesn’t always work. scalefactor went from hero to zero in no time. they took in $104 million, covid hit, they flamed out. they had other problems, but the ceo said, “technology alone is insufficient. you need human support.” human support wants to be the hero. human support is what makes the connection between the client and the numbers. human support takes the client’s dreams and aspirations and helps turn them into reality in a way that, so far, no piece of technology has been able to do because no piece of technology can get inside a client’s brain like an accountant.