We dive a number of key insights from Accounting Today's 2026 Top 100 Firms and Regional Leaders report, from the many ramifications ot private equity to the impact of demographics and much, much more.
Transcript:
Dan Hood (00:03):
Welcome to On the Air with Accounting Today. I'm editor-in-chief Dan Hood. Ordinarily, these podcasts involve me talking with someone about some area of expertise in accounting. This week's episode's going to be a little different because what we're going to be talking about is the results of
(00:47):
I'll start by telling you a little bit about how we put that together. Usually we send out survey forms to about 400 accounting firms usually get between 300 and 350 replies. And from those, we break them down into the largest firms, that those go into our top 100 firms, list and then our regional leaders are composed of the major leading firms in 10 different subregions of the United States. Usual cutoff for that's about $10 million in revenue. So hopefully we're gathering all or almost all the firms in those different geographies that make the cut. So with that, it gives you a sense of the number of firms we're reaching out to and the sort of snapshot we're able to get of the profession and where it's going. And with that, why don't I just dive right in? Again, we won't be having a yes. It's just going to be me, yapping at you, if that sounds terrifying,
(01:33):
I totally understand. Turn us off now. And you can find a lot of these insights throughout the report, which is available on accountingtoday.com. And again, a bunch of different stories. They're a little scattered. So this is just one chance to bring them all together in one place. But to get them, I do, as I said, have to listen to me talk to you for 15 or 20 minutes. Okay. Let's start with the sort of big takeaway, which shouldn't really be a surprise to anyone, but that's that private equity is everywhere. It's making the weather for not just the largest firms in our top 100, but for a lot of the firms and our regional leaders as well.
(02:08):
All the new firms on the top 100 list, and there were five or six of them this year are in some way private equity based. It's Archer Lewis, Nichols Colley, Platform Accounting Group, Prosperity Partners, and Soren. Those are all significantly involved in private equity. That hasn't been the case in previous years, even since private equity began to get into the profession. This is really the first time we've seen every single new entrant be a private equity backed firm. I should say that they're also, the private equity is also having a lot of impact further down the list in terms of mergers and acquisitions. We'll talk a little bit about, for instance, the ranks of our billion dollar firms decreased by one because of a combination between Baker Tilly and Moss Adams, but there's also a ton of growth that's driven by M&A, and that M&A is in many cases, almost all of them, being driven by private equity.
(02:56):
And even if the M&A itself isn't driven by private equity money, any M&A that doesn't involve private equity is being significantly impacted by other private equity deals in terms of changing about what firms are looking for, what they expect, what kind of multiple they expect, or how much cash they expect as the deal assigned, all that sort of thing. So you would expect no less. I think the funds are pretty aware of the impact that private equity is having, but it's always worth repeating and we're going to see it play out through a lot of these other key takeaways. I'd say the second big takeaway is an expansion on that, which is that there are all kinds of options for how to set up an accounting firm. Many more than we had as little as five years ago. And that's, I think, really largely due to private equity coming in and making firms realize, hey, wait a minute, there's something other than the traditional partnership model for building an accounting firm.
(03:42):
You can be PE back, but that also means you can be owned by a wealth management company or funded by a family office or you can be an ESOP, you can be a number of other things. It's opening accounting firm's eyes up to the different options that are out there. And even within the quote PE model, there are a number of different options are, all our firms, the new firms that added added to the list this year, sort of give a great example of that because they're all over the map in terms of how they took PE, how they structured themselves. They range from sort of a combination of similar size firms under a single name that would be like a Soren where they brought together 13 firms together to make a single large PE backed firm, or it might be Platform Accounting Group, which is a straightforward sort of accounting platform, firm platform, where they acquire firms, but then allow the firms to operate under their own names and somewhat independently.
(04:31):
They may change their name slightly, but they're not all combined into a single firm. They work together with platform. Prosperity Partners, which is a more traditional form of PE model where a private equity firm bought Prosperity Partners, which went under a different name before then, but then fueled a lot of expansion for them. And we're seeing Nichols Colley was an interesting use of private equity money or outside investment to bring together three different firms, an accounting firm and an insurance firm and some other firms into a new model. So there's a lot of different options for what an accounting firm can look like. And PE has both fueled a lot of those, funded a lot of those, but also created the idea that you can do that, that you can have an accounting firm that doesn't look necessarily like your father's accounting firm, like a traditional accounting firm.
(05:18):
So I think it's a really interesting time to be running an accounting firm because that's a decision firm leaders will have to make is, "Hey, what kind of structure do we want? What kind of partners do we want? Do we want outside partners?" And all that's, again, a conversation being driven by private equity. Third, number three, it's all about M&A. And M&A is being driven by PE as we know. I would say it's always worth remembering that growth is not just about M&A in the accounting profession. It is certainly, M&A is certainly driving the biggest headline numbers of growth for the profession. It's worth noting that the top 100 firms, for instance, grew about 8.6% this year, which is up from last year. A lot of that was driven by combinations and M&A and that M&A, again, driven a lot by PE, but it's not the only driver of growth.
(06:03):
It is important to remember that all the firms on the top 100 are also looking at other ways of growth. They're looking at organic growth. It's very important to them, particularly looking in terms of moving towards advisory work. We're going to talk a little bit more about a lot of the approaches they're taking, particularly to fuel organic growth, but it's definitely top of mind for a lot of accounting firms, particularly in the top 100. They don't want to be reliant on M&A because M&A is, one, expensive. And two, what we hear a lot of is people saying, "Wow, are there any targets left?" So many firms are getting acquired that some people are afraid that the shelves are going to be bare. It is not yet at that point by any stretch of the imagination, but as firms get more picky about the kind of acquisitions they want to make, they may get a little difficult to find the top-notch firms, top-notch acquisition targets that you may be looking for.
(06:54):
One final thing, just to give a sense of the scale of M&A and what it's doing in terms of accounting is over the last four or five years, the top 100 firms have generally reported somewhere between 110 and 120 deals per year, altogether. All 100 of them have generally reported, somewhere between 10 and 120. If for this year they reported 225, so more than a hundred more than previous, almost double the number of deals. So you get a sense of the explosion of M&A deals, how many more in the velocity that it's going at. But again, I want people to think that it's the only source of growth or that firms are also pursuing organic growth. And with that in mind, let's get to our fourth big takeaway, which is that 2026, particularly for the top 10 firms, is going to be the year of the client.
(07:44):
We ask every year, we ask them to talk about their growth strategies, how they're planning to grow in the coming year, the next 12 months. Over the last several years, it's become clear to a lot of top on our firms that growth cannot be driven by a single initiative. For many years, we had a thing where they would say, "Well, this year we're trying M&A, or this year we're trying cross-selling, or this year we're trying ... Actually, this year we're trying Y." What we're discovering is more and more. In fact, the majority of them have multi-pronged growth strategies where they're taking three, four, five, six different initiatives to try to build their growth, maybe a little bit of M&A, maybe some geographic expansion, maybe staff development, maybe marketing improvements, maybe digitizing some of their back office sort of stuff, automation, all these sorts of things will go into their growth strategies and firms will report a lot.
(08:27):
But then there's also trends that go along with that. Even if they're all saying, "Hey, we're using these five or six different levers to try to move growth." There are often single sets of approaches that take priority. And this year, the priority is the client. It's from a bunch of different perspectives. We're seeing a number of firms talk about creating an ideal client profile. So they know who they want to go with. They know who they want to work with. They're not just taking anybody who can sign a check. They're making sure that the clients they're looking for, the clients they're prospecting for are the ones that exactly fit the services they want to offer. And in some cases, just the sort of vibe that they want. They want people who they want to work with. And that can be the difference between wanting to work with entrepreneurs or wanting to work with stable companies.
(09:10):
It doesn necessarily mean jerks or not jerks. In many cases, it can mean just literally different types of clients. So that's a big focus for a lot of firms. Similarly, we're seeing firms focus on onboarding, making the onboarding process for bringing on new clients. Frictionless, easier, making it easier for people to come on board and making sure that the firm is getting what they need out of them when they come on board. So that experience is both valuable for the firm, but also not painful and hopefully in some cases pleasant for the client. Frictionless relationships meanwhile in terms of getting data back and forth, getting reports back and forth, getting the information that the firm needs from the client, but also getting the information to the client that the client needs in a way that the client can consume it and make use of it is a big focus for this year.
(09:54):
So keeping those relationships going. And then obviously cross-selling, that's been one for accounting firms for a million years, but it's taken on a big focus this year for the top 100 in terms of growth strategies, is making sure that everyone knows what services they offer, that they are aware of what clients need, that people who serve clients in one area are paying attention to what the client talks about and says in terms of what they might need in other areas to make sure that the firm, if it offers those services, can provide them. So all across the board in four or five different areas, serving the clients, serving clients better, selling them more services, selling them the right services, and keeping their relationships and their client experience, top-notch is a big focus for the top of our firms. Next up, we want to talk a little bit about cash.
(10:37):
That's number five. That's our fifth big takeaway. Cash remains a big deal. Again, this might not be a surprise to people because it's been a big deal for the last few years, but it is by far the most common area of growth among the top 100. And I should be clarified when I say that. I don't mean that it's not all their fastest area growth or their biggest area of growth, but it is the one that almost everyone is reporting growth in, whether it's their fastest growing area is another question. But something like 80% of the top on our firms are saying that Cass is an area where they're seeing growth. About a fifth of them, so roughly 20% named it as their fastest growing area. So if that distinction makes sense, I hope. But that's unusual for us to see a single area have that concentration among the top 100 of the top 100 firms saying that it was not just an area they saw growth in, but an area that was their fastest growing.
(11:24):
Now it's worth saying that for a lot of the top 100, CAS is starting from relatively small base. There are some top number firms that have long, longstanding cash practices with a big footprint called Resnick springs to mind. Then there are some others, but by and large, for a lot of the top 100, it is an area they're relatively new and it's relatively small, which may help explain why its growth rates for some of them is very strong, but it's worth noting that it is among a number of other non-traditional offerings, including financial planning, which is really non-traditional, but it's not one of the core two or three legs of the stool for accounting firms. Those are growing up in terms of the amount of the fee splits that they account for. And what we're seeing is advisory work for a lot of accounting firms staying roughly the same in terms of percentage of fee splits, but audit and tax are actually declining slightly across the top 100.
(12:24):
Not a huge amount, a percentage point from year to year or so on. But where that growth is going is not necessarily to advisory specifically, but to CAS and to other, like I said, non-traditional offerings that aren't really advisory in some cases there, except wealth management is a big one, but some other very specific specialties are growing up at different firms. So it's worth paying attention to that to see the sort of diversification of revenue lines among accounting firms, and it's creating some interesting changes. But again, the big key takeaway there is CAS is remains a huge area for the top 100 and for the regional leaders as well. It's always worth a look in and worth thinking about. Since we're talking a little bit about advisory, I want to keep that up. I don't want to suggest that people aren't pursuing advisory. They absolutely are.
(13:10):
It is a big top of thought, top of mind for a lot of accounting firms of all sizes. In many cases, particularly for smaller firms, it's a question of how do they actually move into advisory work. But we look at among the billion dollar firms, advisory is a huge, huge, huge thing for about 44% of their revenue comes from advisory services. But interestingly, when you move down to the firms that are between a hundred million and one billion in revenue and under a hundred million, which is someone like 85 of the top 100 firms, that percentage is a fee split drops significantly. So 44% of billion dollar firm revenue comes from advisory, but only 21% for firms between 100 million and a billion dollars in revenue, and only 13% for firms under a hundred million dollars in revenue, which partially explains why they're so excited about moving into advisory.
(14:04):
They want to grow it. It's an area that they have some room for expansion. And the interesting thing is the tax remains much bigger for those two cohorts, whereas tax is only about 25% for firms over a billion dollars. It's roughly 40% for all the firms below that. Tax remains a major, major area for accounting firms. But what that means is that there's a lot of room for expansion for advisory work, and they're all aware of that and aware that that is often higher value work. Some of the advisory work they may be looking at is actually tax related, so that's great. But still, we're seeing a lot of interest in advisory work. And I think that the reason we're seeing that is because firms have not yet fully exploited or even begun to try to exploit the opportunities there, as we know from being the most trusted advisor for your clients, et cetera.
(14:48):
Tremendous position of opportunity for accountant firms. We're going to talk about that a little bit at the end. We're going to pause here for a second. We're going to step away for a break to give you a chance to digest some of those and a chance for me to catch my breath.
(15:07):
All right, and we're back. We've talked about six major takeaways from our top 100 firms. Again, I can't imagine anyone is coming into this midway, but if you are, I'm the only one talking. I'm Dan Ho I'm the other chief of accounting today. And I just wanted to take you through some of the highlights of our top 100 firms report, because we think there's a lot of fascinating things. Some of them are continuations of trends we've seen for a while. Some of them are new. I want to talk for the second half a little bit about demographics and the degree to which it seems a bit like demographics are finally catching up in some ways. We are starting to see partnership numbers fall very slightly. Again, not a huge decline. This is particularly true among some of the regional leaders. We're seeing firms reporting partnership growth, our partnership decline of a percentage point or two percentage points, and we're seeing growth in new partners decline a little bit, except where we're seeing major acquisitions.
(15:56):
Obviously, that'll boost your partnership numbers in a heartbeat if you can bring on a firm with a bunch of partners. But by and large, we're definitely seeing what I think is a natural result of the huge number of Baby Boomer partners and accounting firms really starting to retire. That retirement's starting to catch up with the profession. A lot of them were eligible as much as 10 years ago, but accountants love their work. They love where they are. They love serving their clients. They love working with their colleagues. And so we see a lot of older partners, maybe more partners not retiring. I think where we didn't see a lot of that, I think we're starting to see more of it. And also what we're starting to see is that the profession hasn't been making new partners at the rate of needed to. Not unless it's a surprise.
(16:38):
We've talked at great length on this podcast and everywhere else and everyone else has been talking about it as well about the lack of the pipeline problem of new people coming in and wanting to become partners and accounting firms. It's one of the things that's driving PE. As firms look around and say, "Well, we don't have enough partners to keep the firm going as a partnership. Can we bring in outside money from private equity?" So we're beginning to see, I think, that those demographics of the mass retirements that come along with having such a large percentage of accounting firm leadership and accounting firm partnerships be baby boomers, we're starting to see that effect. That combined with the effect of not having enough of a pipeline of new partners come along and to see those numbers start to drop. I should say, we are, on the other hand, seeing firms grow their headcounts.
(17:26):
So while there's still a lot of talk about staffing, people are concerned about staffing and making sure that they're able to hire the people they need, it does not have the same, I don't want to say the same anxious edge that it has in some of the years past of accounting firms are definitely paying attention to their staffing, pay attention to their hiring and thinking about it, but they're also thinking differently about it. So for instance, we're seeing a lot of firms think about more about lateral hires than entry level hires. They're talking more about hiring non-accountants and so on. They're also talking about automation and AI and they're talking about offshoring. So all those things are making their staffing issues a little less serious and it's enabling them to get more work done on a more time basis.
(18:09):
I mentioned, I think my big other takeaway was I started talking a little bit about the billion dollar firms. I mentioned that the numbers there went down from one because the combination of Moss, Adams and Baker Tilly, but Citron Cooperman is right at 985 million. And I'll tell you, all they have to do is look in the cushions of the couch and the break room. They'll probably be able to break a billion dollars pretty easily. I've said that multiple times. I'm going to keep saying it until somebody laughs because I think it's hilarious, but they are right close to a billion dollars. So we'll get that roster back up to 16. And there are enough firms above 500 million that 500 million dollars say that a couple of combinations, a couple of major acquisitions could create more billion dollar firms in the future. I will point out the difference between as little as 15 years ago, we only had six billion dollar firms and now we've got 16.
(18:59):
This is creating a major new cohort of firms. We used to be, you look at the top, the big four and maybe Grant Thornton and maybe RSM and say, okay, those are the biggest firms. They're different from a lot of our accounting firms. They operate differently. That remains true, but now we're seeing this much, much larger group of firms that are going to be operating more and more along the big four firm model, which has a couple of differences, but that's a big takeaway, big enough that I want to highlight it because it fascinates me, is the ways in which some of the ways in which, I'm not to describe all of them, but some of the ways in which those billion dollar firms are different from the other 43,990 or so that make up the rest of the accounting profession. One big way is you start to look at things like revenue per partner, a number of staff per partner.
(19:47):
And when you look at revenue per partner, you see there's not really huge differences among our firm cohorts, right? It's not a much different revenue per partner for a big four firm than it is for a firm with between 67 million and 100 million. That's the threshold. The entry threshold was 67, $68 million this year. Those firms, even the ones just below $100 million, still making not a big difference. Maybe the difference between say $250,000 a year per partner or, sorry, $200,000 per year per partner between, or $250,000 a year per partner.
(20:20):
That's not an area where you see a huge amount of difference in terms of revenue per partner. Revenue per employee, excuse me. Sorry, I've been talking about revenue per employee, not revenue per partner. Revenue per partner does change. That's where you do see a big gap and a big gap between the billion dollar firms and all the other 85 firms in the top 100 firms. There's a big jump, big gap there. And I think the big explanation for that is that when you then look at the number of staff per partner, you see a similar gap. And what it tells you, or it suggests at least, is that at the big four firms, partners are operating much more like corporate management, corporate vice president, they're running divisions, they're running large groups of people. They are not necessarily doing technical work. They are running a lot of people.
(21:06):
They are managing a lot of people. They are not probably doing a lot of technical work. They're spending much more time in a management capacity, and we're seeing less of that in smaller firms.
(21:19):
And that's one key explanation. And now it's always worth pointing out that those billion dollar firms also have much larger IT departments and much larger HR departments and much larger learning and development departments to support partners in managing all those extra people. But if you're looking at each partner managing double the number of people, you can see how the amount of leverage they're going to get if the revenue remains the same. Revenue per employee remains the same across all these cohorts. Having a single partner manage or be responsible for or have under them a much larger group of people is obviously going to significantly increase revenue per part. So it's one of those things we're going to see more and more firms of these large size acting more like sort of think about them as large corporations rather than partnerships. So that's been something we've been noticing for a couple of years about every area I highlighted just because I think it's strongly suggestive of a major trend.
(22:15):
I think we're going to see in firms of all sizes, which is as they grow, they make this shift towards more of a corporate environment, more of corporate partners being leaders in those corporate leadership sort of sense, as opposed to a technical leader sense. Finally, that was our ninth takeaway, if you're keeping track. Here's our 10th, which is that it is a great time to be a running accounting firm. I mentioned that growth rates are up around 8.6% for the top 100. If you leave out the big four, literally just the big four who are huge firms, and it's harder for them to make significant changes in growth. If you leave those out, almost all the cohorts, including the billion dollar firms that aren't among the big four, all of their growth rates were over 12%. And even for the billion dollar firms that weren't big four firms, growth rates of close to 15%.
(23:08):
Again, flattered enormously by major M&A in all categories, but the fact remains that we're seeing huge growth for a lot of firms across the spectrum. We're also seeing large opportunities across the profession. We talked to all of the firms that submitted and asked them, what do they think the opportunities they're seeing? I mentioned advisory being a huge opportunity for accounting firms in part because for many of them, it's starting from a low base. A lot of our respondents this year were talking about advisories in the area they want to explore, they want to grow. They talked about client need and demand for it is enormous. They're willing to pay for it, maybe not quite as enormous, but still largely than you might expect. So a lot of firms looking to double down on advisory and grow that significantly. They also talked about technology and artificial intelligence, which you would wholeheartedly expect.
(24:02):
AI remains sort of a, we're looking at it. We hope to get a lot of it. We expect to get a lot out of it, but technology is already providing a huge, huge help for accounting firms in terms of automating entry level work and allowing them to reduce some of the burden on all their staff at all levels from having to do grunt work and that sort of thing. So automation and that's been going on for 20 years or more. Helping that also is more and more outsourcing. We're seeing firms get better at outsourcing. We're seeing the outsourcers get better, but we're also seeing firms take advantage of that more. And again, a lot of that's driving that lower levels of anxiety about the staffing crisis. And then finally, an interesting area of opportunity that some firms were talking about was involved private equity and both sides of private equity.
(24:49):
There were some firms in top and our firms and the regional leaders, and not just firms that had taken private equity money but firms that were still remaining independent, but we're talking about the entry of private equity, the entry of all the capital they're bringing, the entry of the expertise that they bring, the entry of the resources that they bring creates tremendous opportunity for firms to grow and grow faster, to grow in different ways, to improve their operations in a number of different ways. Obviously a lot of private equity firms, whether they're platform firms or motherships or whatever, however you describe them, bring expertise for accounting firms to help them operate on more efficiently and more profitably. But interestingly, there are a large number of firms that said the entry of private equity was creating opportunities for them because they weren't with private equity and because people, both staff and clients would often say they didn't want to work with a private equity backed accounting firm.
(25:44):
So that there were a large number of both top and our firms and regional leaders that said, "Hey, we're going to sit back and we're going to collect all the people who leave, all the qualified staff, the lateral moves, the great partners who just didn't want to work in a PE backed environment." So it just wasn't for them. They want to go work for an accounting firm that's going to remain independent. And there's accounting firms ready and willing to snap them up. Similarly, a lot of our talent firms and regional leaders said they were going to grab clients who weren't comfortable working with a PE backed accounting firm. Now, to be fair, a lot of firms in the top 100 and the regional leaders are more than happy and prepared to work with a private equity almost a third of the top 100 are already, and a number of them we know are at the very least talking to private equity firms.
(26:29):
It's a kind of due diligence, but there is a cadre of firms that are saying, "We intend to remain independent and we intend to remain to reap the benefits of other people who want to remain independent." So all around, it's an opportunity. It's kind of double the opportunity you might expect. All right, those are my 10 key takeaways from the Top 100 firms. You can find all the numbers and all the data, whole bunch more of information, a whole bunch more insights in all the different parts of our report. It's available on accountingtoday.com. You can find the link right on our homepage right down the middle there. I hope you take a look at it. I hope this has been informative. And for those of you who stayed all the way through, I'm going to offer you one line yap, one extra takeaway. And that is when someone leaves your firm, do a couple of things.
(27:10):
One, make sure that there's a balanced notification on their email so that when someone reaches out to them, they find out one, that person no longer works for the firm, and hopefully that they know who to contact. You also want to make sure that their emails get sent to someone at the firm who will actually look at them and pay attention to them and respond to them. We every year, we get tremendous response from accounting firms who share a huge amount of information with us that they don't have to, and we appreciate it. I think it makes the profession better. We're always very grateful. But every year there's a number of firms where someone has left. There's a lot of turnover in accounting. Someone has left and firms may not get on the list because there was no bounce back, there was no notification. We just assumed at that point that they didn't want to reach out to us.
(27:48):
And then we discovered later on that, "Oh no, we just didn't know that you'd sent them an email." So something to bear in mind, leaving aside whether you'll get my message or our emails about top and other firms reach the leader survey, it's also there's some security issues and some opportunities. What was someone was reaching out to become a client that reached out to that person and didn't hear back from them, they'll assume you weren't interested. So anyways, one final thought there, just to make sure that when someone leaves your firm, that their emails are tracked and carefully looked after so that anyone who's trying to reach them knows they're not there and knows who to reach instead. And also make sure that you're paying attention to their emails because they may be getting messages you want to hear about. All right, with that, that's all I have to say about Tom and our firms.
(28:27):
I'm sorry you had to listen to me for 20 minutes, but hopefully the information was useful to you. With that, again, thank you all for listening and come back for another one or I promise we'll have someone else do the talking as opposed to me. This image was online here. It was produced by accounting today with audio production by animates. Ray to review our content on your favorite accounting platform and see the rest of our content on accountingtoday.com.
