outlook & analysis

‘great shakeup’ in cpa firms on the way

 

those that continue to make deep and sustainable investments will excel; “grinders” will face serious challenges to staying relevant.

by allan koltin
the rosenberg map survey

editor’s note: every year, the rosenberg map survey asks the industry’s top consultants to share their observations from cpa firms across the country. how do you think the next 12 months will unfold? also, how would you assess the last 12 months?

as i look to the next 12 months (july 1, 2023, to june 30, 2024) i see the “hourglass” half full! i know we have been in and out of a recession and flattening economy for the past 3.5 years, but i believe that in 2024 the economy will be better and stronger (i know i may be a minority opinion here!).

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whether i’m right or wrong may not matter though, as cpa firms continue to have strong performance in good and bad times. i realize that in a recession, the use of certain advisory and consulting services may be reduced or put on hold, but that aside, i think 2024 will be a strong year for firms as they continue to right-size and reimagine what their firm can be.

firm leaders seem to have much more partner support for making tough decisions and taking on the “sacred cows.” the proof has been in the record levels of profitability (and growth) that firms have sustained. a word of caution, however – nothing in business is forever and technology, talent and changing clients’ wants and needs (transformation) will impact pricing going forward. also, firms that continue to “milk the compliance service trough” and not invest deeply in building a more consultative and advisory-driven firm will find it harder to compete as advanced forms of technology will essentially “lift away” bread-and-butter compliance services going forward. i call it the “great mirage” – it looks so good right now and appears as though it always will stay the same but trust me, nothing could be further from the truth.

bottom line – buckle up, as there is going to be a great shakeup in cpa firms in 2024 and 2025, and many are going to be caught off guard and ill equipped to compete going forward. those firms that continue to make deep and sustainable investments in talent, technology and transformation of services will excel and the “grinders” will face serious challenges to staying relevant and sustainable.

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, as most clients understand the capacity crunch with talent and the low probability of getting more favorable pricing at the firm down the block. all firms are generally working crazy hours and struggling to balance their professional and personal life.

simply stated, 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 us. while the economics are great, the harsh reality is that young, talented staff does not want to do mundane compliance work and the “best in class” talent will leave firms if they don’t feel they are getting challenging and interesting projects.

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 (the 4 being those retiring and the 1 being those available to replace them!). bottom line, if you can outperform the competition in the war for talent, life is pretty, pretty good right now!

one response to “‘great shakeup’ in cpa firms on the way”

  1. john sanchez

    great observations here. i too believe the next 2-3 years are going to be very revealing for cpa firm owners. this is a very dynamic & fluid state of affairs.