Private equity (PE) firms have purchased stakes in five of the top 26 accounting firms since 2021 and show no signs of stopping. This trend in the accounting industry exacerbates pre-existing challenges, like the talent shortage, and introduces new pressures, like widespread operational restructuring.
Accounting has traditionally been a relatively stable, slow-moving industry, but agility and rapid adaptation are now becoming increasingly necessary to maintain client satisfaction and profitability.
Let’s explore the top challenges caused by private equity in accounting firms and the strategies you can use to turn those challenges into opportunities for growth.
With Private Equity Comes More Challenges, New and Old
CPA firms face many complex challenges in the age of private equity disruption. Some have been a growing concern for years, while others are a direct result of private equity entering the industry.
Here are three of the most important issues to address:
- Talent shortages: 83% of finance and accounting leaders reported a talent shortage in 2024, up from 70% in 2022. Already a critical issue, the demand for talent will only increase as PE firms look to scale their acquisitions.
- Demand for advisory: Client advisory services (CAS) practices reported a median annual growth rate of 16% from 2018 to 2022. PE firms are only adding fuel to the fire, as many are primarily interested in expanding these departments.
- Operational restructuring: Mergers and acquisitions often involve comprehensive organizational restructuring and leadership transitions, but even PE investments can mean an influx of disruptive technologies and systems.
Whether or not your firm partners with a PE firm directly, these issues are likely to impact your operation. The accounting landscape is shifting rapidly, and you’ll need to be proactive about your responses to keep up with the competition.
Adapting to Private Equity in Accounting Firms
CPA firms must deploy modern technologies and tactics to overcome the rapidly evolving challenges they face today. Here are just some of the ways to do that.
Seek Flexibility To Address Talent Gaps
The pipeline of newly minted accounting professionals may be shrinking, but it’s never been easier for CPA firms to bridge talent gaps with fractional staffing models and outsourced service providers.
Platforms like Paro can help you bring in skilled professionals on a contract basis whenever your in-house teams need support. Some of the primary advantages to that approach include:
- Agility: Flexible talent solutions allow you to quickly scale your labor force up or down to meet changing demands.
- Cost-effectiveness: Outsourcing lets you avoid many of the costs involved in recruiting, training and retaining full-time employees.
- Access to specialized expertise: Paro uses AI to quickly match you with professionals who have the skill set and experience you need.
Not only does this approach help relieve pressure on your teams when you’re understaffed, it also provides an efficient way to meet rapidly changing demands in an unpredictable industry landscape, like it did for Tri-State CPA.
Shore Up Advisory Services for Long-Term Growth
Advisory has been the fastest-growing service area in public accounting for several years. Previously driven largely by developments in technology and automation, the rise of private equity in CPA firms will likely cause the competition to accelerate.
As a result, now is the time to prioritize expanding your advisory services into high-demand areas, which typically involve helping clients navigate complex financial situations and make better-informed business decisions.
That might include services like:
- Virtual CFO
- Financial planning
- Strategic advisory
Consider starting with smaller, finite engagements to gauge client interest and refine your offerings. It may also be beneficial to have outsourced talent complete the extra work so you can avoid expanding or overburdening your in-house team.
Once you gain more experience competing in the advisory arena, then you can focus on strategic upskilling and hiring to facilitate long-term growth.
To Stay Agile, Rethink Your Operations
Agility is one of the best tools against uncertainty. You may not be able to predict exactly how increased private equity in accounting firms will impact your practice, but having more efficient and resilient systems can help you better adapt to anything that comes your way.
Your tech stack may be a good place to start. In 2024, 60% of accounting firms still describe themselves as being on the lower end of technological maturity, with at least somewhat:
- Disconnected software systems
- Inconsistent processes
- Non-standardized workflows
Just remember that having more tools isn’t always better. Incorporating too many new technologies can overwhelm your staff and cause them to resist the new systems. Instead, focus on having a few integrated, intuitive tools that make their work easier.
If you suspect you may partner with a PE firm in the future, you should prepare for potential leadership changes. This is another area where flexible staffing solutions can be invaluable.
When your firm goes through a transition, external experts can take on interim leadership roles and help maintain internal stability, especially if they already have experience working with your organization.
Embrace the Change and Get Ahead
Change can be intimidating, but it’s also inevitable, and resistance is counterproductive. If you embrace the influx of private equity in accounting firms as an opportunity for growth, you will be far better positioned than those that cling to outdated tactics.
You can still thrive in a PE-driven accounting landscape, but you must recognize changing demands in advance and adapt your strategies proactively.
Leveraging a fractional staffing solution like Paro is one of the most effective ways to get ahead of this new union of accounting and investment firms. Schedule a consultation with Paro today to learn how our staff augmentation services for CPA firms can help you cover talent gaps, expand your service offerings, and maintain stability in times of shifting leadership.
