As we fast approach the end of another whirlwind year, it’s safe to say new changes have been brought, once again to the accounting industry. With that being said as we head into the new year, we wanted to take a deeper dive into ‘the firm of the future.’
Earlier this year we presented our thoughts on how the firm of the future needed to encompass technology, leadership, strategy, and technology. If you didn’t catch the live webinar you can watch the full recording here.
This time around I was honored and delighted to be joined by leading practice management consultant and M&A advisor, Allan Koltin, CEO of Koltin Consulting.
In this fireside chat, we would take a deeper dive into this hot topic and hear Allan’s insights and advice on the evolution of the ‘firm of the future’.
To transformative years of pandemic
The last two years has seen firms having to adjust through pandemic times. Included amongst the changes were the unprecedented number of mergers and acquisitions, and an influx of new money from private equity firms.
Change, undoubtedly is part and parcel of being that ‘firm of the future’.
With this in mind we kicked off our chat with a two-sided question:
- What are the key characteristics to ‘‘the firm of the future’’?
- Firms that are struggling with these adjustments in the industry, what is holding them back?
“There is a storm out there… a good storm.”Allan Koltin
Allan explained how he has seen more change in the accounting profession in the last 2 years than the 38 before that. From the commoditization of compliance, BOTS and AI, offshoring work, the war on talent, and now the entrance of private equity.
Three distinct types of firms
Not all firms are embracing, digesting, selling, or convincing others on the change. Firms are falling into one of three distinct buckets:
- Firms that get it, embrace it, and are talking to their partners
- Firms that get it but can’t get the partners to really embrace what is happening due to many firms having record years of profitability in 2020 and 2021.
- Firms that are almost pounding their chest saying “what’s the fuss, life is great and blinded by their success”
It all starts with leadership, no matter the size of the firm. “Great leaders truly understand where we are, what the challenges, obstacles, and opportunities are and they can create a leadership group around them… that line-up, engage, listen and follow.”
To build off the topic of leadership I was keen to hear Allan’s insights on firms that do have strong leadership. For those that do have existing strong leadership, was the infrastructure and mentality already in place to enact change quickly? Or do firms now view change in a different way due to the pandemic?
In response, Allan explained how not only in the accounting industry but in fact, any business, in any industry, will face testing times when they are stuck in a ditch. It boils down to “how leadership propels, how they rally, how they unite, and at some point how we, as partners, follow their lead…There are some firms that simply don’t value this kind of leadership and see it as pure administration…Leadership is what will define the next wave of current firms and great firms going forwards’’.
The rise of private equity in firms
Something I had not foreseen happening, was how over the last year the number of private equity firms that are now investing and partnering with other firms. Particularly as PE firms are better known for investing in other industries that have larger growth, compared to the steady stable growth with accounting. With such a drastic development, it led me to ask Allan his thoughts on why?
Many firms that Allan consults are asking the question, how can they create more capital? Private equity firms look at our business, and say, (not publicly) “They don’t think we are managed that well. Not to say we don’t do a good job with the constraints we have, call it a partnership. But they believe tough decisions, being built for speed, running truly like a business, not a partnership, and most of us don’t do that as well as we can.”
PE firms look at recessions and challenges, and as with the pandemic, saw accounting firms still making revenue. Whether times are good or bad, this is a great industry. There is the positive cash flow and repeat business, high integrity, transformation, the fourth investor revolution, going from compliance to consulting advisory outsource… they need capital.
M&A is a hot topic
Our chat then switched gear and touched upon Mergers and Acquisitions, an area Allan has vast experience in. Much like PE firms investing in the accounting industry, there has been an increase in the number of Mergers and Acquisitions.
My question to Allan was, what makes two firms a good candidate for a merger? And is this fast pace set to continue with M&As?
Where there is a cultural and strategic fit between two firms, makes for the ideal candidates for merging. Allan went on to explain that often the financial fit comes after. This idea, can, at times be challenging when firms and partners are looking for the financial fit first and foremost and for cultural and strategic to be secondary factors. “Culture, strategy and fit all need to line up or it’s a disaster.”
When talking about the increase in pace for M&As, Allan stated, “it is beyond anything I have ever seen, the amount of activity.” Looking back to 10- 20 years ago, M&A deals happened because there was a major succession problem. Today you now see great accounting firms. However, looking 5 years into the future things are going to change, and being part of that bigger ship will help. We are very much in the midst of the M&A wave as we head into 2022, but Allan foresees that the surge will start to calm in 2023.
The war on talent
I rounded off my chat with Allan, to ask his thoughts on the war on talent. A topic of concern for many firms now, like so many other professional services. It’s no secret, talent has been going towards private equity, tech sectors, investment banking. What are some tactics firms can take to retain and attract talent?
You can hear Allan’s insights and advice for firms on the talent battle in the full recording of our fireside chat.