Why Most Accounting Firms Are Unsellable

and why I became a Fathom Certified Advisor

Author

Marc Howard
September 16, 2023

Lots of exciting AI action this week in the world of accounting including a bit of a rant of why most accounting firms are unsellable.

Here’s a quick round-up for this week:

  • Why Most Accounting Firms Are Unsellable

  • Top LinkedIn Posts This Week

    • The 11 Best AI Meeting Assistants

    • What I Learned From Becoming A Fathom Certified Advisor

    • What to Say When Clients Ask “Can I Get a Discount?”

  • AI Accounting News of the Week

    • Illumeo launches AI search bot that answers CPE,
      accounting and finance related questions

    • IRS deploys AI to catch tax evasion

    • Meet EY’s newest partner: A $1.4B AI that never sleeps

Read time: 7 minutes

Why Most Accounting Firms Are Unsellable (And What To Do)

Many accounting firms are unsellable.

Unfortunately many owners and partners realize this too late.

Let's take a look at two "exit" strategies:

Option A: Make partner at your accounting firm. Get paid after you retire with a multiple of your salary--over 10-15 years. Without interest. Taxed as ordinary income.

Option B: Become a partner backed by private equity and get an immediate payout plus equity that can yield a lucrative exit in 3-7 years. Benefit from PE capital to expand capabilities and scale rapidly. Access significant paydays in your early career years instead of waiting until retirement.

I've seen a massive wave of private equity money pouring into the accounting industry lately (more about that in my newsletter).

Large private equity firms have suddenly woken up to the fact that accounting is a highly fragmented $150B industry ripe for consolidation.

Similar how IT managed services providers have been getting acquired.

They are eager to build national "platform" accounting firms by acquiring smaller firms.

And the barrier to entry is actually getting smaller.

The Barrier on Higher Valuations For Smaller Firms Is Disappearing

PE firms are now looking at firms with just several million in revenue and acquisition-oriented accounting firms even as low as $500K-$1M.

This creates tremendous optionality for small firm partners who are open to private equity investment or acquisition.

PE firms can provide large capital infusions to help a firm scale rapidly through acquisitions and technology upgrades.

A firm can modernize with needed tech investments in automation, AI, and offshoring to remain competitive in the face of declining compliance revenue.

PE firms are incentivized to help firms rapidly expand into higher-margin advisory services to fuel growth.

A Smarter Model Emerges

Modern PE firms are changing the game by moving away from the slow retirement buyout model and towards immediate payouts and equity participation that can yield big paydays in just 3-7 years when the PE firm looks to sell your now-grown firm.

This shift is already helping PE-backed firms attract top young talent away from even the biggest accounting firms.

This is the difference between exiting a firm at a sub-1x multiple versus 2x+ multiple.

This is the convergence of AI + Automation + Offshoring + Novel Business Models.

Firms who get this will be truly the firms of the future.

TOP LINKEDIN POSTS THIS WEEK

  1. The 11 Best AI Meeting Assistants [LINK]

  1. What I Learned From Becoming A Fathom Certified Advisor [LINK]

  1. What To Say When A Client Asks “Can I Get a Discount?”[LINK]

AI ACCOUNTING NEWS OF THE WEEK

  1. Illumeo launches AI search bot that answers CPE,
    accounting and finance related questions [LINK]


    My Takeaway: The miserable age of googling for answers may be over. This new chatbot can provide answers to complex theoretical accounting questions, function specific challenges and CPE related updates by automatically pulling data from multiple sources. As a free resource, definitely a must-have for CPAs in practice or soon-to-be.

  2. IRS deploys AI to catch tax evasion [LINK]
    My Takeaway: The IRS is now using artificial intelligence to detect tax evasion, starting among large partnerships worth over $10 billion, announcing it will audit 75 such partnerships by end of month. This move comes amid political controversy over the IRS's increased funding under the Inflation Reduction Act. The IRS argues AI is needed to unpack complex partnership tax schemes, but critics warn it could enable future claims of unbiased, "scientific" audits if used improperly. Its only a matter of time before that new $80b IRS budgets starts coming for small businesses, especially when its as simple as clicking a button and letting AI do all the work.

  3. Meet EY’s newest partner: A $1.4B AI that never sleeps [LINK]
    My Takeaway: As EY goes all in on a $1.4 billion artificial intelligence platform, the Big Four giant may unintentionally give a boost to smaller accounting firms seeking to tap AI's potential. While massive investments allow EY to blaze trails in machine learning, experts say regulatory delays could stall large-scale adoption, allowing smaller firms to follow its AI lead at a fraction of the cost. Savvy small practitioners who ride EY's coattails could find an AI shortcut to closing the innovation gap with accounting Goliaths.

💡Take Away: Now is the time to get an edge over your competition. Learn how to level-up your firm with AI and ChatGPT with our ChatGPT Playbook for Accountants.

TOGETHER WITH AI AMPLIFIER FOR ACCOUNTANTS

In a Nutshell: Command higher fees while cutting your workload in half with the new AI Amplifier for Accountants course.

Key Points:

  • Unleash the power of AI to turbocharge your firm's growth, boosting productivity within just 15 days.

  • Seamlessly balance work and life by incorporating ChatGPT, reducing your workload and reclaiming precious time for life outside the office.

  • Break free from the traditional accountant mold, and step into the shoes of a forward-thinking, AI-powered leader.

  • Future-proof your firm, building an AI-driven business that's a high-demand asset in the contemporary market.

Why it Matters:

This course will save you time and money so that you can grow and automate your firm in half the time.

👋 That’s a Wrap

That’s it for today folks!

In the meantime, if you want live updates, join over 95,000 other accountants, tax pros and entrepreneurs who follow me across YouTube, Twitter, and LinkedIn.

🧞‍♂️ Your wish is my command

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Until next time!

Marc

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