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Pathways to Growth: Complexity, speed, constant pivots

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With sand tumbling through the neck of the hourglass that is 2024, I’ll use this space to share my thoughts about forces at play and areas to conquer in our CPA profession. I focus on three distinct themes: complexity, speed, and the imperative to pivot.

1. Complex environment

I was conservative in my choice of the adjective “complex” to describe the current scene. To be perfectly honest, we more accurately find ourselves in a tsunami. As I close my eyes and envision the past several months, I see a giant wall of water washing up over a managing partner clinging mightily to the leg of a sofa being swept into the deluge.

Complexity, and its evil twin uncertainty, are new to us. For a long time, there was predictability in our labor force, in our business model, revenues, profitability, services, clients and even competitors. We didn’t have to break a sweat to manage this. But things have changed, as we find ourselves wondering if it’s time to don the Gore-Tex and batten down the hatches.

Maybe you’ve experienced something like what happened at a firm I know: Kimberly, a team member who masterfully managed the intake of tax returns for years, left to find herself. Mark, her replacement, has barely found his way to

the bathroom after six weeks on the job. Multiply that by the 10 others that the firm lost in 2024, and the impact becomes seismic.

2. Speed of change

Our profession has remained comfortably in the right lane for more than 100 years, driving forward in a paced and predictable manner. As stewards of the public trust, it’s what the market required of us. Now several factors are propelling us into the fast lane — factors like the infusion of capital into our markets, the role of corporate players. and unrelenting changes in technology. From succession planning to financing the firm of the future, the breakneck pace shows no signs of slowing.

The need for speed runs counter to the nature of accounting firms and a partnership model that fosters slow decision-making, where everybody gets a vote on everything. This is at odds with the sheer number, scope and pace of decision-making required in today’s firms. Without a dynamic, corporate-style organizational structure, firms will be unable to move into, let alone remain in the left lane without getting rear-ended by faster, more agile organizations — the ones with the people, succession, financing, and deal-closing strategies all figured out. The ones capturing the markets with an evolving menu of shiny new services — the markets you are used to owning.

3. Strategic pivots

When I left IBM — then considered the most admired corporation in the world — it looked very much like public accounting looks today. We were big, we were solid, and we had little in the way of competition. Most important, we had tremendous predictability and a solid business model. I went from Big Blue to a tech startup where I lasted only 90 days. In explaining why he was firing me, the CEO said, “We are not IBM, and we do not operate like they do. We are not slow and predictable, with our i’s dotted and t’s crossed, and we do not own the marketplace!”

My brief tenure with that startup taught me a lot. In my next chapter, I would have to make my way to a new planet, one where oxygen was unpredictability and strategic and tactical pivots were standard operating procedure. I came to understand that moving forward would require me, and those I later counseled, to become more entrepreneurial, more agile, and more creative. For more than a decade, public accounting fought this imperative. We remained firmly inside the box. We resisted approaches like offshoring and making strategic use of non-CPAs. We stubbornly rebuffed advances in tech. Luckily, that tide is slowly turning. But now we have our backs against the wall.

Prepare to soar

Many firms are acknowledging these realities, and some are taking appropriate action. But still others are thinking, “We’re good. Business is up and so are profits. I don’t see anyone moving my cheese.” If you haven’t yet witnessed these challenges, you soon will. It will be evident when you’re up against stiff competition from alternative firms with better value propositions, pricing, client experience, and service delivery.

Successfully addressing these demands requires creative approaches (like inviting outsider “friends of the firm” into your strategic planning process), as well as consultative input from sources familiar with operating in the left-hand lane. Having come from the technology world, I can tell you that this is their daily fare. Consider importing people from unpredictable early-stage environments, as well as from companies sustaining annual growth rates of 30% or more. They are comfortable discovering and executing strategy amid uncertainty. But they aren’t the traditional hires in CPA firms.

As you plan for 2025 and beyond, consider stepping back, thinking bigger, and evaluating the complexity, the critical need for speed, and your readiness to pivot. Attack your strategic plan in a more open, creative way than in the past.

I cannot predict that you’ll become an instant frontrunner, forever dominating the fast lane, but I bet with confidence that you’ll bring tangible benefits to your firm and those you serve. Wishing you a coming year of confident decision-making and continued prosperity!

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Accounting

Accounting firms seeing increased profits

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Accounting firms are reporting bigger profits and more clients, according to a new report.

The report, released Monday by Xero, found that nearly three-quarters (73%) of firms reported increased profits over the past year and 56% added new clients thanks to operational efficiency and expanded service offerings.

Some 85% of firms now offer client advisory services, a big spike from 41% in 2023, indicating a strategic shift toward delivering forward-looking financial guidance that clients increasingly expect.

AI adoption is also reshaping the profession, with 80% of firms confident it will positively affect their practice. Currently, the most common use cases for AI include: delivering faster and more responsive client services (33%), enhancing accuracy by reducing bookkeeping and accounting errors (33%), and streamlining workflows through the automation of routine tasks (32%).

“The widespread adoption of AI has been a turning point for the accounting profession, giving accountants an opportunity to scale their impact and take on a more strategic advisory role,” said Ben Richmond, managing director, North America, at Xero, in a statement. “The real value lies not just in working more efficiently, but working smarter, freeing up time to elevate the human element of the profession and in turn, strengthen client relationships.”

Some of the main challenges faced by firms include economic uncertainty (38%), mastering AI (36%) and rising client expectations for strategic advice (35%). 

While 85% of firms have embraced cloud platforms, a sizable number still lag behind, missing out on benefits such as easier data access from anywhere (40%) and enhanced security (36%).

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Accounting

Private equity is investing in accounting: What does that mean for the future of the business?

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Private equity firms have bought five of the top 26 accounting firms in the past three years as they mount a concerted strategy to reshape the industry. 

The trend should not come as a surprise. It’s one we’ve seen play out in several industries from health care to insurance, where a combination of low-risk, recurring revenue, scalability and an aging population of owners create a target-rich environment. For small to midsized accounting firms, the trend is exacerbated by a technological revolution that’s truly transforming the way accounting work is done, and a growing talent crisis that is threatening tried-and-true business models.

How will this type of consolidation affect the accounting business, and what do firms and their clients need to be on the lookout for as the marketplace evolves?

Assessing the opportunity… and the risk

First and foremost, accounting firm owners need to be aware of just how desirable they are right now. While there has been some buzz in the industry about the growing presence of private equity firms, most of the activity to date has focused on larger, privately held firms. In fact, when we recently asked tax professionals about their exposure to private equity funding in our 2025 State of Tax Professionals Report, we found that just 5% of firms have actually inked a deal and only 11% said they are planning to look, or are currently looking, for a deal with a private equity firm. Another 8% said they are open to discussion. On the one hand, that’s almost a quarter of firms feeling open to private equity investments in some way. But the lion’s share of respondents —  87% — said they were not interested.

Recent private equity deal volume suggests that the holdouts might change their minds when they have a real offer on the table. According to S&P Global, private equity and venture capital-backed deal value in the accounting, auditing and taxation services sector reached more than $6.3 billion in 2024, the highest level since 2015, and the trend shows no signs of slowing. Firm owners would be wise to start watching this trend to see how it might affect their businesses — whether they are interested in selling or not.

Focus on tech and efficiencies of scale

The reason this trend is so important to everyone in the industry right now is that the private equity firms entering this space are not trying to become accountants. They are looking for profitable exits. And they will do that by seizing on a critical inflection point in the industry that’s making it possible to scale accounting firms more rapidly than ever before by leveraging technology to deliver a much wider range of services at a much lower cost. So, whether your firm is interested in partnering with private equity or dead set on going it alone, the hyperscaling that’s happening throughout the industry will affect you one way or another.

Private equity thrives in fragmented businesses where the ability to roll up companies with complementary skill sets and specialized services creates an outsized growth opportunity. Andrew Dodson, managing partner at Parthenon Capital, recently commented after his firm took a stake in the tax and advisory firm Cherry Bekaert, “We think that for firms to thrive, they need to make investments in people and technology, and, obviously, regulatory adherence, to really differentiate themselves in the market. And that’s going to require scale and capital to do it. That’s what gets us excited.”

Over time, this could reshape the industry’s market dynamics by creating the accounting firm equivalent of the Traveling Wilburys — supergroups capable of delivering a wide range of specialized services that smaller, more narrowly focused firms could never previously deliver. It could also put downward pressure on pricing as these larger, platform-style firms start finding economies of scale to deliver services more cost-effectively.

The technology factor

The great equalizer in all of this is technology. Consistently, when I speak to tax professionals actively working in the market today, their top priorities are increased efficiency, growth and talent. Firms recognize they need to streamline workflows and processes through more effective use of technology, and they are investing heavily in AI, automation and data analytics capabilities to do that. Private equity firms, of course, are also investing in tech as they assemble their tax and accounting dream teams, in many cases raising the bar for the industry.

The question is: Can independent firms leverage technology fast enough to keep up with their deep-pocketed competition?

Many firms believe they can, with some even going so far as to publicly declare their independence.  Regardless of the path small to midsized firms take to get there, technology-enabled growth is going to play a key role in the future of the industry. Market dynamics that have been unfolding for the last decade have been accelerated with the introduction of serious investors, and everyone in the industry — large and small — is going to need to up their games to stay competitive.

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Accounting

Trump tax bill would help the richest, hurt the poorest, CBO says

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The House-passed version of President Donald Trump’s massive tax and spending bill would deliver a financial blow to the poorest Americans but be a boon for higher-income households, according to a new analysis from the Congressional Budget Office.

The bottom 10% of households would lose an average of about $1,600 in resources per year, amounting to a 3.9% cut in their income, according to the analysis released Thursday. Those decreases are largely attributable to cuts in the Medicaid health insurance program and food aid through the Supplemental Nutrition Assistance Program.

Households in the highest 10% of incomes would see an average $12,000 boost in resources, amounting to a 2.3% increase in their incomes. Those increases are mainly attributable to reductions in taxes owed, according to the report from the nonpartisan CBO.

Households in the middle of the income distribution would see an increase in resources of $500 to $1,000, or between 0.5% and 0.8% of their income. 

The projections are based on the version of the tax legislation that House Republicans passed last month, which includes much of Trump’s economic agenda. The bill would extend tax cuts passed under Trump in 2017 otherwise due to expire at the end of the year and create several new tax breaks. It also imposes new changes to the Medicaid and SNAP programs in an effort to cut spending.

Overall, the legislation would add $2.4 trillion to US deficits over the next 10 years, not accounting for dynamic effects, the CBO previously forecast.

The Senate is considering changes to the legislation including efforts by some Republican senators to scale back cuts to Medicaid.

The projected loss of safety-net resources for low-income families come against the backdrop of higher tariffs, which economists have warned would also disproportionately impact lower-income families. While recent inflation data has shown limited impact from the import duties so far, low-income families tend to spend a larger portion of their income on necessities, such as food, so price increases hit them harder.

The House-passed bill requires that able-bodied individuals without dependents document at least 80 hours of “community engagement” a month, including working a job or participating in an educational program to qualify for Medicaid. It also includes increased costs for health care for enrollees, among other provisions.

More older adults also would have to prove they are working to continue to receive SNAP benefits, also known as food stamps. The legislation helps pay for tax cuts by raising the age for which able bodied adults must work to receive benefits to 64, up from 54. Under the current law, some parents with dependent children under age 18 are exempt from work requirements, but the bill lowers the age for the exemption for dependent children to 7 years old. 

The legislation also shifts a portion of the cost for federal food aid onto state governments.

CBO previously estimated that the expanded work requirements on SNAP would reduce participation in the program by roughly 3.2 million people, and more could lose or face a reduction in benefits due to other changes to the program. A separate analysis from the organization found that 7.8 million people would lose health insurance because of the changes to Medicaid.

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