Track 2: What will your firm look like in 10 Years?

The old "pyramid" model of accounting firms – with a large incoming workforce of young accountants supporting a smaller tier of partners at the top – is proving less and less tenable. What will firms do to shore it up – or to replace it altogether? A look ahead at how everything from private equity to virtual work, ad hoc partnership and firm networks, gig work and much more will offer a host of new ways to organize accounting work.

Transcription:

Dan Hood (00:11):

So we may as well, well kick off this. A lot of the focus of firm growth form has been about sort of practical things you could take home you implement at your firm. This one is, while there's going to be some practical stuff in it, it's also taking a little bit of a longer view. I'm sort of excited about it. The whole notion of what will your firm look like in 10 years? We say 10 years, it's probably going to be more like three or five because change is happening so fast in the profession that three to five years is probably as far out as we can look, but it's the kind of thing that can help you prepare strategically for what's coming. And that's what we're hoping to get some out of these conversations is a little idea of the sorts of issues you should be talking about and thinking about as you plan for the next three to five years or so.

(00:48)

So I say, we say it's what will your firm look like in 10 years? Who can tell? But we're going to try to give you a guess of three to five years maybe and some ideas about how you can prepare a little bit for that. But it is going to be some blue skying, so please don't come back in three to five years and blame us for anything unless you can find Bob, It's Bob's fault. But with that, let me introduce who we've got. You've probably seen some of them before, but Bob Lewis, the Visionary Group. Bob, thanks for joining us.

Bob Lewis (01:12):

Well thank you Dan.

Dan Hood (01:13):

Yeah, do you want to tell us a little bit about yourself and visionary group?

Bob Lewis (01:15):

Well Dan, thanks for asking. So let me see. We just work with CPA firms and accounting firms nationwide, 27 years. We do a lot of merger and acquisition in this industry, a lot of succession planning. We help firms figure out how to expand a capacity, whether that's offshoring or upscaling clients or value pricing. And then we really help them figure out how to build out their advisory departments. We've got a fairly good turnkey system to drop advisory into firms that need to partner to start.

Dan Hood (01:48):

Excellent. Alright, and next up is Mike Maksymiw, he's the executive director of the Aprio Firm Alliance. Mike, want to tell us a little bit about yourself and that?

Mike Maksymiw (01:54):

Sure. So I started my career as a staff accountant at a small accounting firm and worked my way up to partner at a different small accounting firm. Eventually we merged into a national firm. I did that for three years after the Caress Act. I quit mirrored it around a little bit, found this job at the Aprio Firm Alliance and essentially we provide small firms with resources that Aprio has, that the small firms. We want to make sure the small firms can continue to exist and thrive in their communities to continue to help the small businesses that are in those communities. It's just a vital piece.

Dan Hood (02:26):

Excellent. Alright, so the first way we're going to kick this off, I'm going to ask you each, what do you think the biggest change is that's coming for the profession in the future? And I want you all to think about it as well when we get to the q and a section. If there's, there's going to be a lot of changes that we're not going to cover here, but I want you to think about those and if there's ones you want to throw out to the group when we get to that part, I would encourage you, as we said, everybody's thinking about different changes that are affecting the profession. There are so many, but Mike, why don't you kick us off on that biggest change you expect to come?

Mike Maksymiw (02:52):

I Think the biggest change is that clients are going to be served by multiple firms instead of one firm trying to do everything for one client. I think that's going to happen because the smaller firms are going to super niche down into one area of focus and they're going to do that and the client that they work with is going to need more services than just that. So they will have a network of peers that they trust that will do the other pieces. So the client will be in the middle and with multiple firms on the outside providing the various services. Some of the clients will do, the firms will do that via an alliance. Some will have an informal network that they have. I'm a leadership academy alumni. I know that I could go on my Slack channel and find almost anything. So how they do it, I don't exactly know yet, but it's one of the reasons why I'm doing what I'm doing. I think we're a little bit ahead of where that's going.

Dan Hood (03:38):

And let me just quickly to clarify, what's driving that niching? Is it a choice or is it a necessity or is it a mix of both or?

Mike Maksymiw (03:45):

I think the depth of knowledge that someone needs in any particular area now has gotten so intense. We've been talking about the depth of the generalist accountant for probably the last 10 or 15 years and what clients want industry expertise. I mean, Alan said it earlier in day one that you'll win because you're the expert on construction client accounting services. Not the tax return, not the audit, how to do the job crossing and everything that goes into that. And that's where you dominate and you've got the best construction firms in your area that you do the work for. You only need 15 clients paying you 30, $40,000 a month to do that. You make a bunch of money, they're paying less than they would for an entire finance department. Everybody wins.

Dan Hood (04:31):

And that. But it requires that there be firms to do all the other pieces that there be that network of people that you're going to refer, say, Hey, I've got a guy I'm doing is I'm doing, you say the construction industry or I'm doing the construction tax work or whatever. But then we need other firms to fill in all the other slots that the generalist firm used to supply.

Mike Maksymiw (04:50):

Correct. And you can meet them at places like this where people are wondering what is the profession going to look like in 10 years? You want those kind of future minded folks that are going to be on the same team as you to serve that client. Excellent.

Dan Hood (05:00):

You heard it. This is your homework. Prayer builds your network. Alright, excellent. Bob, when you look ahead, what's the biggest change you see?

Bob Lewis (05:06):

Well, I'm going to sound like I'm agreeing with Mike because I am on a lot of what he just said. I'll use us as an example. We just work with accounting firms nationwide. So firms ask us, why don't you start working with law firms or engineering or other groups because I'm about 80% effective in a law firm. I'm a hundred percent effective in any accounting firm in this country. And that's what we're seeing now on these people that are coming at us on how to build their practices or when they have one that they're looking to exit and they're generalists. They don't have any industries they specialize in. They don't have any service niches. And in some of them, I know this, God, I hope this doesn't hit help to some people, but they have people doing audit and tax, not just audit or tax, but they're blending.

(05:51)

And some of it's been capacity driven. I don't have enough people and especially if this firm gets a little bit smaller, but when you get into any of these firms of any size, they're all taxed, they're all audit, they're all at C a s. They're not blending the disciplines together. It's impossibly keep track of all these regulatory issues. And Mike, when you mentioned the size of your alliance group, when you mentioned small firms, what, not that I'm pitching this, but what size firms are typically the range that join your alliance under 10 million. So in our opinion, these under 10 million firms, and we talk to them all day long. By the way, one of the misperceptions about us is people think we just do large firm deals. I wish we just were doing $50 million deals all day long. Most transactions are in the one to 10 million range anyway. These are firms that are trying to figure out how do they buy the technology they need to buy, how do they use it, how can they implement and manage it themselves? How can they open up a capacity and offshoring, how can they open up advisory? And it's honestly, it's an overwhelming task. So going back to what Mike's talking about, about niching, one of the firms in here, I think it's audit club kind of defines what they do. Guessing don't, they're not tax club, they're audit club, okay. They're very focused.

Dan Hood (07:05):

They're fractional staff for audit firms that need need help.

Bob Lewis (07:09):

Went right at it and right at it, right at it with a name too. So there's no misconception about what they do, but that is where firms are heading. And I agree. I think these firms are going to churn out the stats on the Fortune like 500 list that it turns over about 50% every 10 years. That's happening in our profession right now. These generalist firms are going to eventually just go away and reemerge a specialist and there's no really other way to survive.

Dan Hood (07:35):

Yeah, that makes sense. I'm going to throw out, I get to join in on this one because they gave me a microphone. I think one of the big changes, and we've talked about it a lot, people have mentioned this a lot, that it's accounting firms are going to have a lot fewer accountants. They're going to hell out a lot more. As you niche more, for instance, you get into more specialty areas, you may be bringing in expertise that isn't based on an accounting degree that maybe it's based on time in an industry. So if you're working, you mentioned construction, you may be bringing people who've been managers or people who've worked within construction firms. So they bring that insight expertise of what it's like to work there. You may be bringing, we had an ESG session earlier. You may be bringing in engineers, you may be bringing in soil scientists, climate scientists, any kind of narrow specialty.

(08:15)

We'll bring in people with other subject matter expertise that isn't necessarily related to accounting and as the, what do we want to call it? The pipeline shortage, the war for war for talent, not war on talent, which is the great Freudian slip of all accounting these days. Sometimes you hear people describe it as the war perspective on talent. Yeah, right. Well exactly. That's what their lives have been forever as that goes on. And that is from everything we hear, we expect that to be a permanent situation. The talent shortage is going to be permanent. We've lost a lot of people have left the workforce due to covid. We know the trends in terms of college graduations and then CPA exam tech, this is a permanent situation. So we're going to see firms react to that in a bunch of different ways. One, by bringing in all the expertise from outside, but also by finding ways to hire non-accountants to do a lot of their work. So I expect that you will see a lot fewer accountants in accounting firms. So that's my big change that I think is coming up. We could probably go on for days. I don't know if you guys want to throw out another one each.

Mike Maksymiw (09:12):

Well, to your point there about the accounting firms finding other people, I was just visiting one of our alliance members in Atlanta and they have a general tax compliance practice and they also have a film niche. The guy that runs the film niche is a director, not of an accounting firm, he's a film director. The staff accountants are film majors. They got a guy that relocated here from India who studied film there. And he also makes movies and they've got one person that has a Associates in accounting. It's the five person department that runs the super successful niched film accounting outsourced practice where they show up onsite for five weeks to do all the production accounting because they all know what should happen in the production. And teaching them accounting is easier than teaching someone all that goes on in a production. So I think we're going to see a lot more of that as we industry niche down is you only really one or two accountants to teach the accounting to the people that know how to do the industry niche.

Dan Hood (10:13):

Or to review their work where you say, listen, yeah, we kind of taught them what to do, but we need someone to make sure that it's, yeah, absolutely.

Bob Lewis (10:20):

And now look at the large accounting firms. For years they've been hiring non-accounting majors through their advisory work, how you build your advisory practice out. They can teach them how to do the advisory. They can't teach them how to do the accounting. And back to Mike's point, and now if we add in and layer in what's going on with artificial intelligence, which is a bit of a wild card still, but it is going to start to tie together all the baseline accounting work that we used to have to do for prep, whether we're prepping for accounting, prepping the tax return, prepping for an audit, that's all going to go away. So our people that are left, the accountants that are left are going to be specialists in review of probably what's going to be done through AI. And the expansion's going to come through opening up these advisory arms by using non-accountants, non CPA's to grow it.

(11:05)

That's an interesting example on the film director. We have a client that owns two hospitals, a c p firm that owns two hospitals in small communities. That's how these people are starting to niche out and they've, you know, got a bit of a stereotype as an industry. We're all stereotyped to some extent, but your stereotype is when people go, oh, you're an accountant, the first thing that people think of is that strip mall accountant that says Tom's taxes. And they think, oh, that's what you do. And maybe some of you did or did something like that at one point, but you got to overcome the stereotype. And unfortunately we create the stereotype by reinforcing it by just talking about tax or audit or advisory accounting, but not actually talking about how we can help the businesses. And that I think is the major transformation that's coming. And the larger firms, oh geez, our clients that are over like 30, $40 million, they're bumping up at 50% consulting as revenue inside their firms. And if you peeled them back 15 years ago, there were probably 90% compliance. They've just changed.

Dan Hood (12:16):

Well that's true. We've the latest numbers we see, we just came out with our top order firms report and you can see tax and audit have declined to about combined about 60% of revenue and they're sort of slowly over the last four or five years stepping down, still lots of revenue and the actual revenue isn't declining because the overall revenue is growing. But as a percentage of revenue for the firms, that number is declining and consulting m a s advisory services, that's all now about 43, 44% of overall revenues through the top a hundred firms and it continues to grow. So it's already the largest segment of the revenue and it's just growing over time. So let's, I'm just going to recapitulate what we're talking about, what the firm so far the firm we're describing looks like, right? Super niche. It's very specifically focused on probably both some services, some specific services and some specific industries, maybe just one. It's working in conjunction with a lot of other professional advisors. Many of them will be accountants, but many of them might not be. There might be lawyers, there might be insurance agents, they might be engineering firms, could be anything. But depending on the role, the firm, your firm may play a role in coordinating that. Is that fair or do we just think they'll just hook into a network.

Mike Maksymiw (13:25):

One of the firms will end up being the quarterback, probably the one that started the relationship.

Dan Hood (13:29):

Gotcha. Excellent. So again, super niched working in concert with a bunch of other professional advisors, a lot of non-accountants there, a lot of non accounting expertise in some case leading it. I'm glad you brought up AI. That's going to be a big change and we should probably dive a little bit just into technology in general, but talk about that specifically that there may be a strong role, a major role for accountants in sort of reviewing the work of artificial intelligence and not just artificial intelligence. Reviewing the work of a lot of the RPA systems that are put in place, not so smart, not so necessarily intelligent, but still managing a lot of data. People need to review those and make sure that the numbers are coming out are correct. Is that dark picture so far that we're painting.

Bob Lewis (14:09):

Add one more to this revenue sharing. So here's a quick question to the audience and excuse the people off to this side because you're like in a, there we go, they're back. So I need sunglasses up here. So just a quick show of hands, how many people have revenue sharing agreements with other organizations in their firms? How many people are air amount of hands, how many people would pay 20% or more in revenue share visionary people put their hands down. So the point is we hear a lot of people who want to do that want to work with us and go, Hey, we'd like you to bring us into a firm and then we'll share some revenue. And often what we'll hear the next words are, well, we'll share 3% for the first year.

(15:02)

Yeah, okay, somebody's laughing. So you bring somebody like a million dollar client and they're going to give you 3% for the first year and it's like they're going to keep that client for 10 years and well we don't pay past the first year. I'm like, why do you put the effort in to even do it? I think the problem is going to be as we evolve more into this niching, we're going to have to get a lot more creative on how we do revenue sharing. And we're going to have to understand that you're taking 20% in a revenue share is maybe better than taking the entire thing and trying to do it yourself. Because when you do that, you have to sink the investment in. So if you're going to, the biggest mistake I think a lot of firms make is they instead of outsourcing stuff like R and D, SALT and these specialty areas, they try and do it. They want to keep all the revenue and they also think that the outside party they're going to bring in is going to steal their clients. That's a huge mistake and I think we got to break that mindset. That's a big issue going forward because really handcuffing a lot of firms.

Dan Hood (15:58):

Well and that revenue sharing is going to be crucial for building sort of the universe of firms that you want to work with to get all the services you're not doing that your clients need. And particularly for those engagements where you're the quarterback, right? You need to be making sure that everybody on the team is happy and getting value out of the client that. So that makes a lot of sense. I mentioned maybe we talk a little bit more of technology. I don't know if we'll dive into that. I mean I think we're going to find a lot more services built around technologies. We've got whatever, it's an analysis tool that we use with your particular industry or firms of your or with companies of your size or clients of your size and you build a technology into a service offering. So it starts with we run a detailed data analysis of your business or some aspect of your business and then we take that and produce ideas and information and recommendations and advice around that.

(16:47)

I think we're going to see a lot more of that and it's going to be literally named like you're going to have names for these processes and these processes plus technologies that are your service offering. I think that's an element. There's going to be some branding involved there and there's also going to be some thinking about how do you make sure that it's clear, you push a button and the computer does some work and that comes out with some great information, but the real value is what you do with that information, what you tell them about that information. So I just think that's one way in which technology is going to be evolving over the next, or the relationship between accountants and technology is going to evolve over the next couple of years. Thoughts on any other ideas around technology specifically?

Mike Maksymiw (17:22):

I was talking to my friend Jeff Wilson, he's also a leadership academy along and he runs his own firm in DC and he said, Hey Mike, how many of your firms have an app? I was like, oh, we talk about it, but no accountants have an app. He goes, why not? Everybody walks around with their phone, it's their preferred method of communication, but not the talking on it part. Your clients should have access to you and all their stuff via their phone. Why isn't there dashboard on your app? Why isn't information they need on an app that they could just pull out their phone? Oh yeah, that's what that was. Put it back in their pocket. They do with any other

Dan Hood (17:56):

App. Well that Joe Woodard had a great phrase for it today, this morning when he was talking about being the advisor in their pocket, not the advisor in their inbox and the notion that they're able to carry you around all the time and carry their information. The other thing is that it's the kind of thing where, oh, I got to call my accountant and ask them this question. Now they don't even have to, right? They can just look up that information, get the KPI get the dashboard and say, oh, that's where I am, how much money I have, that's what my cash flow is, or whatever the question might be.

Mike Maksymiw (18:19):

Right? Or they hit the message button on the app and they go, Mike, what was this again? And something pings me internally. I don't know how that works on the technology side, but I get a popup probably on my phone and my computer that says, Bob wants to know what the answer to this is. Alright, I'll go get him the answer.

Bob Lewis (18:37):

Bob has a lot of questions, that's why he is always asking my questions. So I want to throw something out tied into your technology, go. He's a gaping hole that needs to close. Let's talk about data analytics. So I'm sorry, I have to put my hand up again. I'm raising your question just so I can see these people. How many of your firms, how many of you have a firm, how inside your firm could you push a button and tell me how many of your clients are banking with A, B, C bank or filling your own bank name? Raise your hand. Could you push a button and tell you how many of your clients are raising with A, B, C bank? No, that's the problem. You can't tell you who's got an estate plan, a trust, who the attorney is, maybe how big their client is because nobody's entering data into their onboarding system extracting it's really easy.

(19:27)

But getting back to Dan's point of bring pushing a button and getting benchmarks and key performance stuff, we can't even tell how many clients we have that are banking with a large bank in our area. So you go to a firm and they have none of this data capture they have in their time and billing system. Often the email address is the billing contact, which is even worse. They don't even have the CEO of the company. They got the billing contact that they're emailing their newsletter to. You got to start fixing that part before you can get the information. Once you've got the information, it's pretty easy to figure out how to start cross-selling your client and how to start asking them different questions. And then how did it go instead of sending 3000 emails out to your entire client base about some specialty niche to send it to the 300 that it applies to.

(20:13)

That is a huge problem because pulling information's easy that just don't have it collected and you can actually put that in your time and billing systems. To me, I think that's transformational coming up, which will tie back into you're using artificial intelligence. Look at chat GPT, which everyone's enamored with right now. Well if it's pulling garbage, it's going to chat some GPT garbage back out at you. And that's the problem we have in our firms right now. We really can't build our advisory departments. We don't know the data inside our own firms.

Dan Hood (20:45):

And knowing a lot of the things, particularly the examples you just gave, are going to be crucial to, I keep going back to this sort of solar system of firms that you're working with for your clients. You're going to need to know all those things new, which bank they're working with, which other accounting firms they're working with, which other service providers so that you're able to coordinate all that and make sure that you're all on the same page. So yeah, that makes a lot of sense.

Bob Lewis (21:05):

It'd be great to call the president of A,B,C bank and go, I've got 500 clients banking with you. What are, maybe we should talk and do some events. Yeah, let's talk about how we can work together that.

Dan Hood (21:14):

Also just to know who they're banking with. So you can be like, well this bank is terrible. We know it's terrible. You should be banking with this bank. But yeah, I mean all those things are going to be crucial. I want to throw in one other big change before I want to throw it out to you and just to shout out some changes. Then we're going to start talking about how firms can prepare for these changes or what they're going to need to do to be able to work in the firms of three to five years from now. One thing, big change, I think we're going to see, and this may take a little longer than three to five years, but we're already seeing some of it, is there's going to be a lot more and different firm structures or firm ownership models. Right now the sort of standard model has always been partnership and that sort of thing, but we are seeing, obviously we're already seeing firms being bought up by PE.

(21:56)

We're going to see firms being bought up by family offices, by wealth management firms, by I think eventually things like pension plans. I mean you can easily see CalPERS saying, Hey, I want a steady revenue and they're going to buy an accounting firm. Because even in bad times accounting firms put out cash and in good times they put out more cash. So that's going to be attractive for a lot of different people in a lot of different ways. And that's going to mean different ownership structures and different sort of marching orders in the sense of if you're owned by a pension fund, they're going to make sure they're maximizing our steady stream of revenue. That's pretty even across time. If you're working for a owned by a PE firm, they're probably looking at a greater growth rates and that sort of thing. So those will all come with different internal demands and requirements from the partnerships.

(22:38)

I think we're also going to see more, this is one smaller area I think we're going to see more of is sort of ESOPs or versions of ESOPs where more people in the firm, not just partners, but more people in the firm have some ownership stake and some skin in the game and simultaneously get the reward of successful growth and that sort of stuff. So I think that's just one extra one. I don't know if you guys want to throw in any others before we throw it out to the audience and then start figuring out what firms need to do to prepare for all this. I'm good. We could go for days.

Mike Maksymiw (23:03):

I'm good. I'm a big fan of changing the practice structure. I think partnership is a garbage way to run a company. It's a great tax efficient tool to pays lower taxes, but you could still run the company. It's a C corp.

Dan Hood (23:14):

There you go. Excellent. Bob, any last thoughts?

Bob Lewis (23:16):

I'm going to go to the audience. Let's hit it.

Dan Hood (23:17):

Excellent. You can just, we don't even need to see it. We really can't see you because of these bright lights. Really can't see any ideas of any big changes you think are coming to firms. Shout them out and we'll try to take them into account as we talk about how firms should be preparing for it. Big changes you all are seeing or expecting or maybe planning. Some of you, we are already on the verge of planning these practices or changes.

Bob Lewis (23:35):

What's the biggest challenge you're seeing too? What's, what's really holding you back from doing what you want to do or the next thing you want to do?

Dan Hood (23:41):

Anything out there?

Bob Lewis (23:43):

Otherwise we're going to have to listen to him.

Dan Hood (23:45):

Capacity, planning and this is going to remain an issue. Figuring out how to handle all those, the incredible crushing burden of work, which is better than the alternative of no work, but still it is enormous and it's going to be something that more firms need to be getting better at. One part of that is going to be project management. There are not tremendous project management skills in a lot of accounting firms. I think we're going to see that's going to be a core skill as will change management. There's going to be need to be, and maybe a way to put this is there going to be the need to have a lot more working on your practice as opposed to working in your practice. You to step back before you do an engagement, before you get deep into the client work and say, okay, wait a minute, how does this fit with all the other things we're doing? And now we got the right staff over the course of the next three months, six months year. Have we got the technology in place? Are our systems vetted? Are we ready to do all this work in the time we're going to need to do it? So someone's going to need to be thinking about that. So again, project management skills and change management skills going to be pretty crucial.

Bob Lewis (24:42):

Mike, when we had a pre-call, believe it or not, we actually talked through this before we did. It doesn't sound like it, but it is what it is.

Dan Hood (24:49):

We wanted to keep it fraction spontaneous.

Bob Lewis (24:51):

We had a pre-call and Mike brought up a point about changing metrics. So right now everybody looks at revenue per professional, had revenue per equity realization, percentages, utilization kind of core standard stuff. The metric he brought up, which I thought was pretty smart.

Mike Maksymiw (25:06):

Thanks.

Bob Lewis (25:06):

Yeah, he's a smart guy. So he was talking about how do we start measuring the value we're adding to the client and charging to that. So when we save a client $600,000 in taxes and send them a bill for $1,200, maybe we need to start measuring the value that we're adding. And if we're not adding any value, figuring out how we start to add value to the client so we can A, charge them more. And B, make the client much happier. Because you know what? Clients like to talk about their audit report. They get into a meeting, they get to talk to their peers and wow, my audit report was phenomenal. They talk about the fact that they helped them figure out how to get X amount of money back or how to resolve a problem and we're not really measuring that value. We let all that slip and that's a huge value add firms let out the door. I literally do have a client that did something just like that and charged $1,200 for a over million dollar result, but they only charged hourly and they aren't really measuring the value that they provided that a client. So I just thought that's a huge miss.

Mike Maksymiw (26:14):

Hourly sucks all of the efficiency and effectiveness that and innovation that you could have just in running the practice. Never mind. And the value you create the clients we need. I was talking about have your processors give you the bill with a 25% increase over last year when you have a compliance project and if you're good initial it or virtually initial it, whichever one you're doing, send it back. Billing's done. Now you can bill in March if you're a tax person, imagine that I worked at a firm that didn't do billing till May. I was like, how do you pay the bills? I need my paycheck to clear the guy's not going to not let me pay rent. So I think that getting away from billing just get lets you open up the possibilities of what else is there. So ingrained in everything that we've learned that as soon as your brain, let's go of that concept, you go, oh well why can't I do that too with whatever the weird crazy idea is.

Dan Hood (27:07):

I'm going to ask you two things because this leads to two different areas that we should probably mention before we start figuring out how to get make yourself look like this firm of the future. One is the shift in mindset because it's very common to say, we talked a lot of accountants, so I hear a lot of accountants talk about one of the values they bring, right is saving them people money, saving our clients money. I think there's going to need to be a little bit of a mind shift away from saving clients money because when you save them money, they're like, well, this is my money. You just saved it for me, but it's mine. You want to switch to making them money or helping them make more money because then you're looking at, I give you a million dollar idea or a billion dollar idea, then it's easy to say, listen, I need $200,000 of the result of that because it's created and your idea created whatever your idea was. So to start thinking about that in terms of bringing ideas that are not just saving money but actually making new money. The other thing I would say is we really haven't touched on pricing much. We sort of alluded to it, but pricing models are going to have to change. Subscription's going to be much more value, pricing's going to be much more important. So that's going to be a huge difference for firms.

Bob Lewis (28:05):

Well look at billing alone. How do you set a billing rate? Why your, let's say your billing rate's $200 an hour, why isn't the 500 an hour?

Mike Maksymiw (28:15):

Why do you care?

Bob Lewis (28:17):

And there we go. Why do you care?

Mike Maksymiw (28:19):

When I joined Aprio, they're like, what do you think your billing rate should be? I was like, my direct cost plus benefits. And they're like, what? I was like, I'm never going to bill hourly ever. I'm never going to fill out a time sheet ever. If I go show up at a firm's place to go talk with them, it's a number. It's 3000, 2000, 5000, whatever the number is, that's the number. I don't care. Put me wherever you want. I'm never going to look at it. It's never going to matter.

Bob Lewis (28:44):

You're handcuffing yourself by putting an hour rate in your engagement, you know, do your $600,000 value add and you go, oh, well my engagement letter says I have to bill by the hour and progressively, instead of billing five hours, I slide two more hours and then bill seven hours at $250 an hour. Or I raise it to 275. How do you even come down to the rate the rate's historically calculated? Exactly how Mike said, I'll take his cost, his total cost, I multiply by three and that's how I come up to a rate. The rate should be what the market's willing to pay. And if your clients are not willing to pay that number that he's shooting out, you've got the wrong clients and you don't know how to sell work on those two things.

Mike Maksymiw (29:27):

$1 less than when the client feels pain.

Dan Hood (29:31):

Well the and flip side of that, right, is firms are going to have to get better at communicating the value they're delivering, right? Everyone understands, okay, you did my taxes, I understand that, but the more advisory services you need to be able to communicate the value much more clearly so that they understand why you're charging 3000, 5000, whatever. Yeah, because they, by the hour they're like, well, I don't think you spent this much time, but at least I understand what an hour of time is. Whereas when I'm talking about I'm giving you an idea that makes your business better, they need to be able to see that and understand that so that then they can say, okay, that's worth $5,000 or $2,000 or whatever. Alright, so I think we've got a pretty good picture of what this firm of the future looks like our order look like in a few years. It's value pricing, it's subscription billing. It's not hourly. Right? Or much, much, much less. And that doesn't mean you can't use the hourly metric to get a sense of what your costs are. It just means you're not going out to the client with that. You're communicating your value much more clearly. It's much more niched. Were you disagreeing with that or did I get that wrong?

Bob Lewis (30:30):

No I am just laughing. I just started thinking about the firm of the future in the metaverse that yeah, we're just all like I cartoon icons in the metaverse.

Dan Hood (30:41):

You saw the one in Joe Woodard's, things where nobody had legs. I was like, what is that? And I realized we don't see anybody's legs in zoom. Everybody's waist up. That's the whole future. Legs will wither away, but that's probably more like a 20 year thing.

Bob Lewis (30:53):

I think a long pants will go away in the future. Everyone will just wear shorts under their zoom calls.

Dan Hood (30:58):

So I just make sure we're wrapping up all the things we've got. Wait, someone out there? Question. Yeah,

Audience Member 1 (31:17):

I'd love to your thoughts on why product? So talk about why (Inaudible).

Dan Hood (31:31):

Do you want to kick us off here?

Bob Lewis (31:34):

It's pretty easy because one, God, I hope the private equity people aren't in this room. I can't see anybody. One, they're overpaying right now. So they're paying to get a foothold into the industry. So right now, this is a really good time if you're going to look at private equity because you can get a larger bio thing we get if you do something different, two, they're going to let you still run the firm because they don't know how to run an accounting firm. They have absolutely no clue. So you're going to continue to run the firm, you're going to take some of your ships off the table by cashing out, still have ownership, and as the thing grows, you'll get that part of it. And three, to be perfectly blunt, we've got massive deferred compensation problems in firms that are all unfunded and younger professionals don't necessarily want to bite off that unfunded deferred comp liability.

(32:24)

So one of the ways to get around it is to take private equity money, take the deferred comp off the table and let the firm try and grow. I'm not a whole a hundred percent advocate of the whole private equity. It'll be right for some people. I think it has value in the market. I eventually it'll kind of level out like everything else. But right now it's a hot ticket. And to be blunt, inside your firms, if you look at the lifecycle of your clients, you've got a lot of aging clients that are looking to sell their companies. You can tap right into that and it can resell those companies or buy those companies and make a lot more money beyond just the whole firm CPA firm transaction. You can drill into your client base and cross sell other services. So many firms don't have wealth management in place. They can drop that right in. That's why they're going to be willing to overpay because they've got more resources and can put these things in place.

Dan Hood (33:14):

Right. I just want to check, were you asking why accounting firms are attractive to PE or why PE is attractive to Yeah, can you answer the question? Okay, good.

Bob Lewis (33:25):

Ship in.

Dan Hood (33:26):

No, I was just going to say because there's three ways in which accounting firms are attractive to PE. That's why I wasn't sure, I didn't hear the question correctly.

Bob Lewis (33:32):

Have any thoughts on that.

Mike Maksymiw (33:34):

I think we're the bond section of someone's portfolio. Steady Eddie, rate of return, doesn't matter what the heck is going on in the economy when it's going down, we're okay when it's going up. We're okay.

Dan Hood (33:46):

There is also though a lot of PE firms see there. They see a lot of accounting firms that are not operating at the levels they should be. Not in terms of huge growth, but in terms of efficiencies, they're looking at, this is not flattering unfortunately to accountants, but they look at it and they say, well this is veterinary practices. There was a movement of PE into the veterinary practice area because there were lots of small disaggregated veterinary practices around the country and they said, well we can build a platform that unites a hundred veterinary practices across the northeast or even across the whole country, get some economies of scale and get some training, get some set practices and standards and sort of elevate them all to a certain level and then put them in in a universe of vet practices that are all combined.

(34:30)

And there's PE firms that, that's what they see when they look at the accounting market. They see a lot of fractured small firms with small practices in relatively discreet geographic areas. And they say, well we can buy a bunch of those and like I said, implement some cost savings and some economies of scale and some other things and elevate them and make our money. So it's a second thing that's attractive about it there is the recurring revenue is super attractive, but there's also this notion that there's a lot of them that aren't operating quite as well as they should.

Bob Lewis (35:00):

Most firms are really focused heavy on the complaints. It's 85% repeat work. So when you think about how the training set up, that's what I love. When you look at all the CPA training, it's all technical because you're doing 85% technical work. The 15%, I hate the word soft skills, but nobody's training people how to actually talk to a client about what their issues and opportunities are. Which to me it is all greenfield. When we see a firm on the m and a side, it's not doing any client accounting services, no wealth management, no advisory. That's a trifecta. That's a huge win because we can go into that. Whoever our acquiring firm can take that firm and just sell crazy into the value that those clients need on the other services that they're not being talked about.

Mike Maksymiw (35:43):

If you all are ahead of the curve coming here, because it's not technical training. I mean you didn't have 163 J class.

Dan Hood (35:50):

It was a casual thing out on the veranda. Yeah, no, that was it. There was a specific reason for that focus. But alright, I think we got a few more minutes left. I want a quick go through. We haven't really talked about what firms need to do to prepare for this. I mean we've hinted at a lot of it, but maybe we can start with Mike. What do you think firms should be starting right now to make sure they're ready for their future? We've sort of described here.

Mike Maksymiw (36:14):

I think you need to start taking the steps toward it. Even though if you don't know what that entire path looks like, we we're here and we describe something that's up here. What we don't know is what on earth it's going to look like to get there. And you know, whatever you start doing, be honest, it's probably not going to work the first time. Or your other option is just to stay here and then do nothing. That's still a choice and you won't be relevant up here. It's better to start walking, make a mistake, do shoots and ladders, come down a little bit, go back up a few more spaces, you know, get to climb one ladder one day. Hopefully don't hit the big slide at the end. But don't be afraid of what those risks are because there's a risk of doing nothing Like the firm. Bob describes no wealth management, no css, no advisory services, strictly compliance, that firm's not worth anybody to someone that works that looks like me, that wants to get into the profession or be a partner in a profession. I don't want to sign a contract to buy that one. So it it's worth zero.

Bob Lewis (37:15):

So Mike, you're playing shoots and ladders. Is that true?

Mike Maksymiw (37:20):

You remember that game? You were a kid once.

Bob Lewis (37:23):

That was a long time ago. Yeah. Didn't have games when I was a child. Yeah, it just came right in.

Dan Hood (37:29):

And a smoking jacket, if you've ever seen Bob in his smoking jacket.

Bob Lewis (37:32):

That's a story for a whole different day. But Mike's right on what he's talking about inside these rooms. If you want to really figure out how to start something, the way we look at it is just take one sheet of blank paper, list the things you want to do, like the three things you want to do, list the three things that are causing you the most problems and then put some bullet points underneath each of those three items and then figure out which of these can you even get around to doing and which of them you're going to need outside help for. And if the list is so, so large, you have to step back and go, okay, what am I doing wrong? Because obviously I'm missing this. The one key thing to keep in mind is we talked about the session that Doug and I did two days ago.

(38:16)

We put up a slide on it from the AICPA 125,000 people sat in 1995 for the CPA exam. Right now that's under 90,000. A week ago at the BDO Alliance conference, their fearless leader, Wayne Berson got up and talked about the 150,000 accounting jobs is the demand and the 75,000 that are coming out of accounting grads coming out of school. So if there's only 90,000 sitting for the exam now we only have 75,000 coming out, that means probably 60 to 50,000 are going to sit for the exam. That gap is just going to continue to grow. Our shortage is going to continue to shrink. So if you're not offshoring, you're not call calling out the clients, you're not building out advisory arms. I don't know if there's really a ceiling on pricing. I have this theory that there's really no pricing ceiling at this point. There's got to be somewhere, but I don't know how much you're going to be able to charge for an auditor tax return before people just stop doing them. I'm not sure.

Mike Maksymiw (39:17):

To your point, Bob, when you go down that bullet list and you show up at places like this because you already have that progressive mindset, find someone who did one of those things, well yeah, go be their friend. You probably are doing something well that they, it's on their list. And you know, that's how you start networking to create this universe where you will go serve the client together. Because you would've had several conversations with Bob, you like him, personality in general, he's technically proficient and you're like, I would stick him in front of my client. And when they need that service, that's where you go, Bob does not do what I do. Your client gets all the services, you spent the time networking to get all those things done. And 10 years from now you'll be like, oh wow, I inadvertently set myself up for success. I wasn't inadvertent. You took a lot of little steps that you didn't realize there was no giant jump.

Dan Hood (40:07):

And I never tire of saying this, and many people in accounting profession already know this, but you're in a profession where everybody likes to share it is astonishing the things that you will tell people who are technically your competitors, right? Other CP.A firms. And just so you know, this does not happen in other professions and other industries. They do not share the way accountants will share with each other to help build the profession and help make everybody more successful. So it's a great idea to reach out to folks and there's no problem that your accounting firm has that some other accounting firm isn't somewhere along the line to solving and you're probably advanced on some problem they're looking to solve. So that's a great take. I've just quick before you jump in, but I just wanted one quick thing. I would suggest a, as you're looking at the list that Bob's having you make, I would strongly suggest, and I mentioned this earlier, but looking up change management and how to do change management at a higher level than not just most accounting firms, but that most businesses do, they don't handle change very well.

(41:01)

People don't like it. I would get expert in that because that's going to help you do all the things you're going to need to do to meet the picture painting of the future. But sorry, go ahead Bob.

Bob Lewis (41:11):

You're right. Kind of on a point. So we talk a lot about an inflection point inside firms. They're hitting a point where we're seeing an abnormal amount of $10 million plus firms that I consider to be a successful firm. When you get 10, 15, 20, $30 million coming at us going, we don't think we can do this on our own anymore. So they can't handle the technology. They don't know how to start the advisory. They're having a lot of trouble recruiting. And those are larger firms that have made good investments and have things in place and they're coming back with us going, we need to merge up because we just literally can't do this anymore. And it's not because they have a deferred comp problem necessarily, it's because they think they need to do this to remain competitive. I think we have seven firms we're talking with right now that are in an excess of 15 million with this exact conversation. And when you start looking at the top 400 lists, there's only 400 firms in the top 400. So that these are some larger firms coming at us. I don't understand. What I actually kind of do understand the problem is when we're looking at things like artificial intelligence and we're looking at how do I offshore and do this right? And people fail doing it, it's just easier to plug into somebody else who's been doing it. And we've got average baby boomer, how old's the average baby boomer? Anybody?

Dan Hood (42:35):

How old is it?

Bob Lewis (42:36):

How old's the average baby boomer? 67, 68, depending on how you count it. Okay.

Dan Hood (42:46):

But they seem like they're 70 or 80.

Bob Lewis (42:49):

70 is the new 50. So yeah, it's the new 50. But that is the problem. We got everybody aging up and they're all trying to figure out how to handle this stuff and it's easier to have somebody else handle it for you and just do what you do really best and let somebody else has already reinvented the wheel, just plug into what they have. This has been perplexing us for a while. That's an inflection point. We're seeing firms hitting and it's, it's rampant and it's inside your client base too, by the way. So if you're looking at opportunities, your clients are having the same issues. They're trying to figure out what to do.

Dan Hood (43:20):

Excellent. We got about six, seven minutes left. I've got, we're going to do some wrap up and probably have some extra points, but are there any questions at this point that people want to throw at us or throw at Bob and Mike? Yes. There's one under the light.

Bob Lewis (43:33):

75.

Audience Member 2 (43:35):

(Inaudible)

Dan Hood (43:39):

There you go. Clarification. Excellent. All right.

Audience Member 3 (43:44):

Referring to offshore. We offshore out and we're focusing on growth, moving toward the profit margin, expand and trying put yeah, there's appropriate technology in order to support, oh, you see, Bob mentioned about ladders.

Bob Lewis (44:22):

It was Mike. I was the one playing Hasbro games.

Audience Member 3 (44:25):

It is, how do you handle that? Because you have to budget for, but yet sometimes budget is not in order to support that. But how do you handle it?

Mike Maksymiw (44:37):

So in the current environment, one of the ways that you can look at it is where can you increase fees to your current clients based on a supply and demand curve? So a ripe one for your area might be where the two services you're outsourcing, right? It costs you $50 to for have them do it. You bill your client a hundred, you're making 50, but you're not using any of your own resources. That's great. Will that client pay you one 20 and now you're making 70 on it Instead? They probably will because where else are they going to go to get it? So maybe you could build up the budget over the course of six months while you're researching the technology. So when you could say, I could pull the trigger on that, now you've built up the kitty where you can make that initial investment.

(45:18)

And that's a great way for smaller firms to get on that technology train of trying to do something different. Take a couple of key pieces that you do, take them away from your onshore team that's under your roof, even if you're a remote worker, and use the extra money to invest back in the company and tell your team that's what you're doing. Hey, we got six people on this team. This is what we're doing. Just want to let, we're not just trying to make more money. There's a purpose behind this. I want you to do a different job. And they'll be like, that's an awesome job. I was all done entering data into QuickBooks Desktop. That's amazing.

Bob Lewis (45:55):

Great job entering data. Yeah, but he brings up really interesting point. We hear there's some firms that are like, how are we going to introduce out offshoring to our clients, but how are we going to introduce it to our staff? You're thinking you're going to cut staff to offshore. That would be insane. The staff doesn't want to do the work that's getting offshore anyway. They're going to be higher level review and not prep work. They're going to be high level review people and that's what they want. And that's where our higher dollars should be going into is preparing for the domestic in-person staff to be able to really take a much higher elevated role and not doing prep work. But absolutely.

Dan Hood (46:34):

Yeah. I will say just one other thing that this is worth always sort of bearing in mind is that in terms of technology and investments in technology and covering those, it is actually, it's when you think about it, it's much easier now to try out technologies than it's ever been between subscription pricing and getting out in the cloud. It is obviously some of the bigger ones would require more of an implementation, but it's easier to try things out now than it's ever been. So the investment is a little less than it would've been even 10 years ago. But it does still require a great deal of thought and planning in advance to figure out where you're going to put that, those dollars. But any other questions in the back?

(47:29)

I would sort of flip it. I would say what's going to happen is that all of us are going to have to change to accommodate them because the way they're working is going to be the way people work going forward. And that will require new management techniques around training and onboarding and building culture. And the company outing once a year is going to take on a tremendous added significance, right? Because it's going to be the one time everyone gets together in person kind of thing. So I think that's more of a management issue of saying what will work with them and we're going to figure that out in trial and error and see what they like. We're all discovered that the firm of the future we've discovered over the last 20 years, but particularly over the last three years, it's the employees that are driving a lot of how companies are run.

(48:13)

Not just accounting firms, but comp, all kinds of companies. They have more leverage. It's one of the few times in history that they have and they're making the most of it. So those are, it's going to be those management changes around what works best for them. Figuring out what trains them best, figuring out what's onboards them, what keeps them, those are all going to be up to the firm. It's not going to be, it's more about how you react to them as opposed to what they're going to do when they come in. I don't know if that answers your question or if you guys want to jump in on this as well.

Bob Lewis (48:37):

Got to hit inclusion on this too. So I had a person we interviewed once at a firm and she said my entire job was preparing boardroom presentations. Then she followed it up by saying, I have never been in a boardroom. She had no idea what happens in the boardroom. Her job was to prepare presentations to go into the boardroom. So the corrective action was really simple. Bring her into the boardroom session so she can see how she can prepare her work better. It's the same thing, taking these people on sales calls, whether it's Zoom based or live. We hear that often. I've never been on a sales call. I don't even know what happens. I think that's a big thing. We need to be looking at a profession. If you really want to groom the people to get them to stay and to be better.

Dan Hood (49:17):

And the thing is it's great is they have a lot less grunt work to do. The computer automation and AI are all going to be taken care of. A lot of that. So bringing them along and even just not necessarily empowering them. There's a lot of talk about, oh, they can do this work right out of college. They don't have to do the grunt work. They're not ready for it because in college they were never in a boardroom. But you can bring them along and train them that way. Teach them that way.

Mike Maksymiw (49:38):

We've always trained accountants. It's something that they stink at that's not accounting, whether it's business development, whether it's communication. This is just a new thing that we're going to have to teach them how to do. And to your point, the demographics say that the leadership class is going to remain in the minority for the foreseeable future. There's just not enough people to replace the ones that are retiring. So this is the reality. We could not like it, but it still exists.

Dan Hood (50:02):

Alright, We're just down to the second. So I want to just sum up some of the things we were talking about for firms to go to do as they go away. One come up with the list that Bob was talking about of changes you feel you need to make or you want to explore. You don't need to do them all at once. That's probably a thing we should just clarify. But set that list. I would say as part of that, then you want to build some change management skills around that. What were the other ones we had going on for preparing for this? I missed a couple. I was supposed to, but then I got all excited about what it's going to look like. Yeah. But I say those two things are great places to start. Build that list of things that you're prepared to change, that you think you're going to need to change. Build some change management skills around them.

Mike Maksymiw (50:39):

Play shoots and ladders. Take some steps. Ladder. Try to climb the ladders every now and again.

Dan Hood (50:42):

That's, there you go. Excellent. Over that. So thank you for this. We'll be around for a couple seconds. We've got more questions, but we're also heading into lunch at this point. Thank you. Thank you everybody. Thank Mike. And Bob.