In the early 2000s, we saw private equity firms fueling transformative growth in sectors like technology, healthcare, and real estate. Now, private equity has turned its attention to a new frontier: the accounting profession.
With its stable revenue streams, high client retention, and potential for scalability, the accounting industry is ripe for a 21st-century gold rush. And I have heard through various sources that private equity has over a trillion dollars to invest in the professional services sector. As the prospectors use to say, “There’s gold in them thar hills.”
As we continue to see the shift to becoming better business advisors and providing greater value to our clients, Client Advisory Services (CAS) has become the fastest growing service line within the accounting profession.
Fundamentally we are seeing a shift towards monthly recurring services that are supported by having the right people, processes, and technology in place, therefore creating a stable and profitable revenue model. As a result of these predicable cash flows, this is what is attracting private equity investors.
This is simple. The more value-added services you are providing to your clients the less likely they are to leave you. Firms are having to re-evaluate their client engagements and figure out creative ways to upsell their services and convert those annual clients into monthly recurring ones.
Keeping your clients is responsive and should be your highest priority while neutralizing price sensitivity, therefore creating a higher impact and long-lasting client relationships. This is attractive to private equity and a good long-term investment for them.
From the largest of firms to the smallest, we are seeing a shift from generalization to specialization. Firms are shifting to be more industry focused and to specialize in a few great areas versus trying to be great at everything.
This is much easier for a firm to manage by putting those repeatable processes and services in place, allowing them to grow and scale more rapidly. As a result, this makes them a prime target for roll-ups and consolidation, where firms can grow quickly through mergers and acquisitions.
Private equity backing provides accounting firms with capital to expand service offerings, invest in technology, and build strategic partnerships. Many small firms are now able to access tools and expertise once reserved for the largest industry players.
Private equity involvement often brings in experienced operators and technology investments to streamline operations. This can lead to greater efficiencies and improved profitability, allowing firms to better compete in an increasingly digital world.
With additional resources, accounting firms can offer more competitive compensation, career development programs, and work-life balance initiatives, attracting top talent in a field where skilled professionals are in high demand.
Private equity’s drive for profitability can sometimes clash with the service-oriented culture of accounting firms. Successful partnerships require clear communication and alignment of goals to preserve firm values and client relationships.
Private equity deals often involve leverage, which can impact a firm’s financial stability. Firms need to carefully weigh the benefits of rapid expansion against the risk of taking on excessive debt to do so.
Private equity firms eventually look for exits, which can mean further mergers, acquisitions or even going public. Accounting firms need to plan for the future carefully to ensure continuity and independence, especially in client relationships.
Private equity is more than a source of capital—it’s a partner in innovation, transformation, and growth. As firms across the country weigh the opportunities and challenges of private equity investment, the industry is set for an evolution that could reshape accounting for decades to come. The gold rush is just beginning—are you ready to stake your claim?
If you are interested in learning more about how private equity could transform your firm and how to prepare for it, take a second to fill out our Woodard Buyer Seller Program form here and a representative will be in touch.