■ Accounting
■ Accounting
that if per-partner revenue is not strong enough, there is not enough equity to make a PE firm interested in a deal. For those firms, their fate would likely be merging with another similarly sized small firm.
Opportunities for Smaller Firms
While some firms are merging into large firms, others are taking the independent route, and reaping a reward from the fallout created by PE investments that leave some employees disenchanted. Such is the case at Sax LLP, a firm that( so far) is dedicated to building growth independently.
“ In the last 18 to 24 months, we’ ve probably picked up seven or eight lateral partners who are playing key positions within our organization today,” says Damiano.“ These additions range from the tax side, business valuations, and on the transaction advisory side. We now have talent in-house that in the past that we would have had to outsource to other folks.”
Traphagen agrees.“ We have an abundance of talent right now who are exiting quality firms. When I look at the resumes, these are highly qualified individuals who have either decided they don’ t want to continue in a larger entity or want to be part of something they can have an integral impact on. So, the direct effect of PE for us is an extraordinary abundance of talent,” Traphagen says.
What Is the Client Impact?
CPA firms with PE investors expect more ROI. Pundits predict acquired firms should double in revenue in five years or less. That means investing in new services, increasing fees, and finding efficiencies by cutting costs. Efficiencies are often driven by pushing work down the chain of command to less costly personnel, engaging offshore operations, and a greater reliance on technology, including AI. However, as firms become large enterprises, there tends to be less client / partner interaction, particularly for smaller or less strategic clients. When this occurs, it creates opportunities for smaller firms.
“ I think we have as much opportunity from an organic growth perspective and a lateral partner perspective than we’ ve ever had,” claims Damiano.“ It’ s probably as good as it has ever been for Sax.”
“ We’ ve been retained by clients formerly using what I consider quality firms who now have PE investments,” says Traphagen.“ Their concerns were related to service. Phone calls that do not get returned, and questions require the person to consult with three departments before they get back to the client. There’ s a lack of accountability.”
Technology is Key
Beyond expanding client service, the profession continues to lean hard into leveraging the power of technology. From tax and audit automation to AI-driven processes, CPA firms large and small are learning, adapting, and opening their wallets.
“ We all have access to the same technology,” says Joe Damiano.“ But technology is becoming more of a challenge, and we’ re seeing more AIdriven big data management tools. Our technology spend year-over-year for the last three years is over 30 percent. It’ s a big increase as a G & A item,” Damiano admits.
Where Do We Go From Here?
“ I’ m committed to independence until something changes my mind,” says Robert Traphagen.“ Not that I’ m not exploring all of those opportunities.”
“ It’ s all about adding value,” says Joe Damiano.“ I think as long as we continue to add value, whether we’ re independent, owned by private equity, or we continue to do what we do and just stay this path, it’ s still going to be based on adding value to client relationships and being that number one advisor to the clients. That’ s where we add our value,” he concludes.
“ The landscape is changing in front of our eyes,” notes Johnson.“ I think the industry is being redefined, and we’ re in the midst of it now. The future may be completely different for CPA firms a few years from now, but that doesn’ t mean there’ s not space for everyone,” she concludes.
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