Accounting
Can PE buy transformation? | Accounting Today
For all the investments private equity is making into accounting, many of the firms receiving the infusion say the money is just a larger piece of the puzzle all forward-thinking firms are trying to solve — of much-needed transformation.
The money is a pivotal step toward becoming that future-focused firm, and the process of obtaining it kicked off a discussion about structuring private equity deals at Accounting Today’s PE Summit last week in Chicago, featuring panelists Jeremy Dubow, CEO of Chicago-based Prosperity Partners, and Richard Kopelman, CEO of Atlanta-headquartered Aprio Advisory Group.
Aprio, which
“We looked at everything,” said Kopelman, including merging up and a debt recapitalization, before the firm’s investigation of the market and internal finances led to PE as the best option.
Meanwhile, Prosperity Partner’s due diligence included cold calls, according to Dubrow, who heads the firm formerly known as NDH before it
“We were looking at the future trying to decide which direction we should go,” he explained. “We were a strong, profitable firm with success in our ranks, but realized we were at a crossroads in terms of people, the labor-constrained environment, and where we wanted to be.”
Alan Klehr
Talent was a ubiquitous topic throughout the two-day summit, as many firms described courting or accepting PE investments due to today’s sparser pipeline, and PE firms spoke about the value of accounting firms with their business being low-risk, with a positive cash flow, recurring revenue, and led by trusted accountants.
For Prosperity, a firm of about 120 people, picking up the phone was the best way to discover what PE could unlock.
“As a small firm, we started with a bunch of cold calls and emails,” Dubow recounted. “The process initially started through cold calls. We didn’t know the tidal wave of change on the horizon. We would take a few phone calls, understand how this is working and how to value your accounting firm.”
For Aprio, value had to be calculated very specifically, as Kopelman explains “we wanted to do away with the mindset to sell assets and monetize it. We see firms that robbed younger partners of the ability to serve younger partners in the right way.”
That meant moving away from the deferred comp model, he continued. “We wanted to move to a model of creating value for the business, for owners, for growing entrepreneurs.”
Dubow and his team had the same concerns for their people.
“Private equity allows us to issue equity to all employees, from top to bottom, where everyone shares in the upside of the firm,” he said. “Everyone participates and is growing in the same direction. Everyone is going to celebrate at the same time.”
The firm of the future
While ownership — or potential ownership — in the business can incentivize younger people to join a firm, there are other elements to a next-generation practice, and PE may help in attaining them.
“We have to create the firm of the future today, in key areas,” said Koltin Consulting Group CEO Allan Koltin, also co-chair of the PE Summit, during his keynote address. “It’s going to cost real money to do it. Nothing in business is forever. Not all private equity deals will be successful. Some are, and some don’t meet the goals of both parties.”
He also stressed that PE is
Dubow would agree. “Don’t just jump into private equity and say this is the only thing I’m considering,” he advised. “We spent time looking into alternatives.”
Once deciding on PE and specifically Unity Partners, Dubow found it accelerated change within the firm.
“As a small firm that changes with a 10% improvement every year, how do we increase that to 100%?” he said, explaining that PE “allowed us to think about people differently and be transformative with technology. We have a different business as a result. It allows us to be a firm of the future. We take that type of risk, and it allows us to move to the next level.”
Alan Klehr
Avani Desai, CEO at Schellman, explained during another PE Summit panel that the firm’s
“It helped me put together a true executive leadership team,” she said. “We now have a CRO, chief growth officer, someone leading digital transformation.”
According to Desai, an employee during a recent firm town hall expressed: “We have changed more in the last three years than the 18 years prior.”
Desai and her fellow practitioner panelists all agreed that PE had eased the administrative burdens and tactical headaches that often fall on partners, and allowed for more long-term strategizing.
This was new for New York City-based Regional Leader LMC Advisors, which joined
“Before Ascend we had no strategic planning, no strategy for top-line growth… no plan of action,” he said. “Through budgeting, and a three-year strategic plan, we really looked at our practice.”
The transition from independence to private equity-backed was not without surprises, according to PE Summit speakers.
This included a larger stress on the financials. “It was a whole new level of reporting, which was the hardest thing for me at the beginning — how much data they wanted,” shared Desai.
“The amount of reporting was a shock to us,” she continued, “but we learned. You can’t live your life in a spreadsheet, I tell my 28-year-old boss. But getting data from there, I’ve come to the realization that it really helps to be able to see that.”
Her co-panelist, Utah-based WSRP Advisory CEO and managing partner Dan Rinehart, agreed that the influx of numbers was helpful, especially for firms considering entering the PE space.
“As a bunch of accountants, we’re supposed to be the experts on accounting, financial reporting,” he said. “We didn’t know we had to really dive into the details of realization, utilization. We understood it, were tracking it, from a strategic planning perspective, but we had to dive into the details…. The extra reporting had actually been really good, to help us make decisions more in real time.”
Rinehart was also pleasantly surprised by the freedom afforded under the firm’s PE structure.
“For us, we haven’t noticed any control change; we look at the private equity partner as a partner,” he said. “Not someone that’s a boss to us, but a partner. I’m trying to think of one decision where I felt like I couldn’t make it. Sometimes I call the private equity partner [and ask] ‘What do you think of this?’ They say, ‘You’re in charge, you run the firm.’ I was scared about taking on private equity — is someone going to be walking the halls of the office, reading all the workpapers, seeing when I take lunch? That’s not going to happen.”
“It’s a partner, they’re not breathing down our backs,” Cohen agreed about LMC’s operations under Ascend. “The executive leadership team is making those decisions. The Ascend board is there to be a thought partner.”
Alan Klehr
Of the many detailed considerations to be made in a CPA-PE firm partnership, the appeal of the accounting profession was a central theme throughout the PE Summit.
Stuart Ferguson shared his perspective, as managing partner of strategic advisory firm Pointe Advisory, during another summit panel.
“One thing I’m fascinated by is that private equity investment in the space has brought swagger to the CPA industry,” he said. “Ten years ago, if a CPA firm was in the news it was usually for a bad reason, not a good reason. Now, the majority is related to the attractiveness and growth potential, the opportunity of the great businesses built by CPA firms. There’s a swagger, a reason to be proud of the business you built. Private equity, as its prone to do, is a disruptor and accelerates disruption. Firms are forced to think differently about talent [and more].”
“It’s a proud chapter in public accounting,” co-panelist Koltin chimed in. “You sacrificed your life, donated your brain and body to the cause, and never thought the business could be worth this on day one. The bar got raised, and internal valuations — maybe we need to change our valuation.”
Let’s face it: Clients of accounting firms come with unique, continuously evolving needs, which can make streamlining operations something of a moving target.
But in the realm of client accounting services, improvements in one area — travel and expense management — can have an outsized effect on maximizing efficiency. In pursuit of this goal, more firms are embracing integrated T&E solutions, which help them standardize their tech stacks.
However, not all T&E management solutions are created equal. And one feature in particular can give accounting firms a distinct advantage over the competition: enabling their clients to choose whichever credit card they like. Here’s why.
The changing face of T&E management
Traditionally, T&E inhabited separate worlds, and companies used separate applications to manage both. This legacy process has been fraught with inefficiencies, such as reconciling credit card statements and ensuring compliance with company policies. The result: a heavy load of busywork for admins — and a large number of headaches.
Once the benefits of merging travel and expense became clear, a single platform was as inevitable as it was game-changing. Today, modern solutions have brought travel booking, expense reporting and reimbursements together and automated many of the processes to a transformative degree. For some of these solutions, the innovations don’t stop there.
The case for flexibility
T&E platforms can differ in important ways, but the technology behind almost all of them mandates that customers switch corporate cards. Until recently, adopting the platform’s prescribed card was the only way to reap the rewards of a modern T&E solution. It’s been all or nothing.
Changing cards, however, can easily complicate a client’s overall financial ecosystem. And some clients simply don’t want to switch. In a recent survey, 71% of business travelers said they were happy with their corporate card solution but that their expense management platform doesn’t always support their needs. So why should they have to switch?
They don’t. Technology now exists that allows customers to bring their own cards — a flexibility that offers important advantages to accounting firms and their clients. These include:
1. Client autonomy and satisfaction: Clients may have strategic financial agreements, loyalty programs, or credit limits with their existing cards. Offering a platform that adapts to their needs rather than forcing a change strengthens client satisfaction and trust.
2. Tech stack standardization: Platforms offering card flexibility make it easier for accounting firms to standardize their tech stacks. Why work with more vendors and more complexity than necessary?
3. Simplified finances and comprehensive reporting: Supporting multiple credit cards lets accounting firms provide their clients with a more seamless integration into existing financial systems. Firms can more effectively capture comprehensive financial data, providing deeper insights and facilitating more robust financial analysis and reporting. It’s a holistic approach that aligns perfectly with the CAS model, by augmenting advisory capabilities with richer data sets.
4. Empowered negotiations and business relationships: The flexibility to select credit cards can empower clients in negotiations with financial institutions, potentially securing lower fees or enhanced bonuses. By allowing any credit card, firms can foster strong business relationships with clients who appreciate the autonomy and empowerment this choice provides.
5. Adaptability to multiple client requirements: Within the CAS model, firms may deal with a diverse clientele across various industries. Each client might have distinct policies, vendor relationships or geographic considerations that influence their choice of credit cards. An adaptable T&E platform mitigates the friction of onboarding and accommodates a wider array of client needs, ultimately enhancing a firm’s versatility and market reach.
Looking beyond the status quo
Delivering value is what every accounting firm wants to do for its clients, and an integrated T&E platform with flexible credit card options can help. Of course, the inverse is also true — restricting clients to specific credit cards may inadvertently limit their own adaptability and obstruct clients’ existing financial strategies.
Flexibility, adaptability and client-centric models are crucial for the future of T&E solutions, and key to what accounting firms can offer their clients. As the industry continues to innovate, platforms that marry robust features with client-first flexibility will lead the pack, setting a standard in service delivery that resonates across industries.
The bottom line is this: Providing clients with their choice of credit card clearly shows the firm is committed to a higher level of service, deeper insights and a more personalized client experience. For accounting firms advancing their CAS practices, this could be the linchpin for delivering enhanced client satisfaction and staying competitive in a dynamic market.
A federal court has greenlit the Internal Revenue Service to serve a John Doe summons on JustAnswer LLC, seeking information about U.S. taxpayers who were paid for answering questions as “experts” from 2017 to 2020.
The IRS wants the records of individuals who were paid by Covina, California-based JustAnswer, which operates a digital platform where the public pays for answers by professionals such as tax pros, doctors, lawyers, veterinarians and engineers.
In the
There’s no indication that JustAnswer has engaged in any wrongdoing in connection with its digital platform business, authorities said, adding that the IRS uses John Doe summonses to obtain information about individuals whose identities are unknown and who possibly violated internal revenue laws.
JustAnswer must produce records identifying U.S. taxpayers who have used its platform to earn income, along with other documents relating to their work.
“The gig economy has grown in recent years and with it, the concern for tax compliance issues has increased,” said Deputy Assistant Attorney General David Hubbert of the Justice Department’s Tax Division, in a statement.
“Like their fellow Americans who earn income through traditional means, U.S. taxpayers who earn income from digital and other platforms that comprise the gig economy need to pay their fair share of taxes,” added IRS Commissioner Danny Werfel in a statement.
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