Consider the pyramid.
It's one of the earliest, most pervasive and most durable of monumental structures, popular for millennia in places as wide-ranging as Central America, the Middle East, and Southeast Asia. Despite what the History Channel may tell you, that ubiquity has nothing to do with ancient aliens or new age mysticism: Pyramids are as widespread and long-lasting as they are because — to quote a historical joke circulating on the internet these days — they are simply the best way to pile up a bunch of rocks and not have them fall down for a long while.
For much of its modern history, the public accounting profession has relied on the pyramid — at least metaphorically — in building both the ownership and management structures of CPA firms, and it has proven a remarkably enduring model, to the point where it was effectively the only model from the 1930s up until the late 1990s, and remained overwhelmingly the most common model for the first two decades of the 21st century.
But while the pyramids of Giza and Teotihuacan look likely to last far into the future, the pyramid model of accounting firms is facing serious challenges, specifically over the last four years, as more and more firms experiment with a host of new or newly popular models for how firms can be owned and managed.
There may be no better way than the pyramid to pile up rocks and not have them fall down for a long while, but it turns out there are plenty of people who think there are better ways to bring accounting professionals together to profitably offer compliance and advisory services to clients.
Models macro and micro
Before diving into the ways accounting firms are changing, it's worth revisiting the monolithic shape that has dominated the firm landscape for almost a century.
"The basic shape has been highly leveraged, or the pyramid shape," American Institute of CPAs president and CEO Barry Melancon explained to attendees of last December's Digital CPA Conference. "That basically came about from Arthur Andersen, who advocated in the 1930s across the country that the structural model of the profession should be different from a law firm, which was more like a cylinder. And it was largely adopted."
Andersen's structure involved important elements for both ownership and management: a broad base of inexperienced labor coming into firms straight out of college, being managed by a smaller cadre of more experienced, veteran accountants, who are in turn employed by a smaller group of partner-owners at the apex of the pyramid. The partners rely on a constant stream of young labor to get client work done, but perhaps more important, they expect some of those young people to move up the firm's hierarchical management structure to the point where they buy into the partnership and fund the older partners' retirement.
That was the ownership and management structure of most accounting firms until just a few years ago, but now there are a host of new options, and firms are trying them out in relatively large numbers.
The highest-profile is the alternative practice structure, where a firm is split in two — with one entity for attest services and one for everything else — and then bound together by a services agreement. It's actually not a new model, having been popularized in the late 1990s to allow non-CPA firms to acquire CPA firms, and it's currently a staple of private equity acquisitions, such as the inaugural 2021 deal between Top 100 Firm EisnerAmper and TowerBrook Capital Partners, and the dozens of deals that followed through what are called "platform firms" — PE-owned accounting firms that act as vehicles for acquiring yet more firms and bringing them into the alternative practice structure.
Other models of new ownership include selling CPA practices to registered investment advisory firms, family offices, or, as in the case of the 2023 acquisition of Top 100 Firm BerganKDV by Creative Planning, wealth management firms.
Those aren't likely to be the only outside players interested in buying into the accounting profession. "There are going to be new groups coming in," said Phil Whitman, CEO and president of Whitman Transition Advisors, who regularly works with firms on ownership and succession plans. "I wouldn't be surprised to see pension funds coming in directly, because a pension fund can get a very favorable, reasonable return on their investment. If you could get a 6% to 8% return year over year in a pension fund, I'm sure there's a class of participants that would sign up for it."
Beyond pension funds, the roster of those who are eyeing the accounting space includes sovereign wealth funds, technology companies, and even clients, according to Whitman.
"It's in vogue to invest in a CPA firm," he said, adding, "We're going to have more CBIZes as well, by the way. We will have other publicly traded companies buying CPA firms."
Born out of a rollup from the late 1990s, CBIZ has been the only publicly traded firm in the field — but it might not remain that way, according to Allan Koltin, president of Koltin Consulting Group, a major broker of CPA firm M&A and one of the key figures in bringing PE into the space. He noted that part of the plan to split Big Four firm Ernst & Young into separate audit and consulting units — which was cancelled last year only after a couple of years of internal planning and debate — involved an initial public offering for the consulting arm.
"I think with the Big Four doing IPOs, I would not be surprised if all of them at some point go down that path," he said.
Another structure that is not new but has seen fresh interest recently is the employee stock ownership plan: Less than a handful of firms have been ESOPs for years — most notably Top 100 Firm KSM — but Top 10 Firm BDO USA and Top 100 Firm Grassi both announced ESOPs in 2023, and experts in the field say that has led a large number of other firms to explore the possibility.
Completely changing a firm's ownership structure or selling to entities outside the profession aren't the only ways to remodel; some changes are more internal, and often focus on management. Broadly, there has been a move among midsized and larger firms toward corporate governance, with a more executive managing partner (often called a CEO instead of an MP), and more carefully delineated reporting structures that create more upward accountability for the individual partner. But firms have also been exploring narrower initiatives.
"Take the whole idea of non-CPA ownership," said Jennifer Wilson, partner and co-founder of consulting firm ConvergenceCoaching. "Firms are moving toward recognizing that you don't necessarily have to be a CPA to be a serious contributor to the success of the firm, and to be worthy of being an owner and a manager. This idea of more strong non-CPA leadership and management, and seeing that as impacting both ownership structures and management structures. … I'm excited about more non-CPA leaders joining the ranks. I think that is part of the success formula for the future."
"We're seeing a lot more non-CPA leadership in CPA firms," agreed Whitman. "When you say we've always been a partnership model, I think in most cases, we've always seen where the guy that's been running the firm has been a CPA … and ultimately the partner with the biggest book of business becomes the guy that's the managing partner of the firm, and he gets taken out of a role that fewer partners are really good or great at, and that's making rain and developing business. In some firms right now, I'm seeing where the guy that's running the CPA firm is not the audit or tax partner, but a consulting partner that knows very little about audit or tax services."
Not only are non-CPAs being considered as partners — some partners are nonowners.
"Another structural change that firms are working through is who's an owner versus who's a nonequity partner," said Kristen Rampe, managing partner of consulting firm Rosenberg Associates. The number of firms naming nonequity partners has boomed in the last several years, sometimes as a stepping stone to full partnership, and sometimes as a position for valuable talent with no interest in an ownership role.
"That structure is really interesting because it plays into this question of how many people really need to own the business?" Rampe continued. "What does it mean to own the business? Obviously someone has to own some business at some point, but does it need to be 12 people or could it be one person, or is it better that it's six? What is the magic there? And I think that's one where there is no single 'If you do it this way, it's guaranteed to work,' kind of answer."
(For a comprehensive look of the many different ownership and management structures available to firms now, see
Why change now?
Even granting that some of these structures and models have existed for a while, the years since 2020 have seen an unprecedented flurry of activity around them, with firms investigating a whole range of new options, begging the question: Why the sudden interest?
"All of this is grasping for a solution and, in my view, none of it is really actually grasping one; it's just attempting to find one," said David Wurtzbacher, the founder and CEO of Ascend, a PE-backed platform that acquires independent, entrepreneurial CPA firms.
"The industry at large is realizing how different the next couple of decades are going to be than the last couple of decades," he continued. "I think there is a realization that the next couple decades are going to be a lot different, a lot harder, and maybe there's even a lack of belief that they will prevail in the long run. And is my firm really going to figure out artificial intelligence? Is my firm really going to figure out an innovative talent model? If your implicit answer to that question is no, then you may want to consider some other options, if you care deeply about your people and about your firm."
Koltin said there is no single reason firms are suddenly examining their options. "It's the culmination of many things," he said. "I've referred to it as 'the perfect storm,' and it's a transformation on steroids. You have the starvation for talent, which won't be getting any better. You have the investment in technology and AI and bots and machine learning. … You've also got the transformation from compliance shops [to advisory work]."
All of these areas, he noted, require significant investments of capital — the kinds of investments that the partnership structure is ill-equipped to make, whether it's to acquire other firms, to fund technological innovation, or to pay for talent that is increasingly expensive, and scarce.
"I think there's a realization about the investment required for not only what's going to be coming in the technology arena, but from the people perspective," noted Whitman. "I've never seen this before — I think we are at a crisis or epidemic or call it whatever you want as it relates to talent."
With accounting firms all facing the same crises, seeing other practices grasp at solutions can itself drive a firm to consider radical changes. "A major driver is keeping up with the Joneses," suggested Wilson. "You know — 'Gosh, all these other firms are doing all this structural change and considering mergers and should we be buying firms? Should we be merging up? Should we merge with equals? Should we consider these things because all these other people are?'"
But as important as all those factors are, one of the most important drivers of the widespread willingness of firm partners to explore all these alternatives is very personal: their own retirements. "To me, the No. 1 driver is the significant number of older Xers and baby boomers who want to take their money off the table," said Wilson. "Keeping up with the Joneses and these other things are a piece of it, but getting my max valuation and taking my money off the table is a driver, big time."
With private equity money flooding into the profession and other cash-rich players expressing interest, firm partners have never had so many opportunities to cash out at high valuations. "Now, for the first time ever — other than in the really small CPA firm arena, the less-than-a-million-dollar firm — now is really the first time that a multipartner firm can see a cash payment at the close of a transaction," said Whitman.
That can be a powerful incentive for baby boomer partners — particularly when it's paired with a future that looks extraordinarily uncertain, thanks to AI, pipeline problems, growing competition, and a host of other concerns.
"If you're retiring in seven years, you're really making a bet that the firm's going to be around for 17 years," said Wurtzbacher. "You start looking out that far and you go, 'I don't know.' There's a lot changing here. … You may want to consider some different options if you want to get your money out."
On a broader level, there's a heightened awareness among firm leaders of the challenges that they, their practices and the profession as a whole are facing — and that consciousness is coming from a number of different directions.
To start, there's the success of younger firms that have already adopted new models and structures. "We're starting to be able to see how there's all these startups and everyone's figuring things out and they're all advancing and how are they doing that?" said Rampe. "It's because they don't have 10 people all trying to make decisions at the same time, which is really inefficient. So I think traditional shops are realizing, 'Hey, maybe we're really not that great at running this business.' … And I think firms are realizing there are other ways to run a business and that in fact, it can be really murky and awful to have people who aren't really great at running a business running a business together."
Then there's the impact of COVID-19, which accelerated the pace of change in every corner of the economy, and opened a lot of eyes to new possibilities. "I think the pandemic blew everybody's mind in the way that they had all these traditional thoughts and then they were all completely thrown out the window because of a massive requirement that we all think differently and operate differently," said Wilson. "And when they saw that that could happen and it could work, these crazy shifts we had to make, they started to think maybe they don't have to stand on principle on all these other old ways of thinking too. I do think that pandemic created a way of thinking that tradition isn't necessarily a necessity to carry forward."
In the aftermath of such upheaval, returning to the earlier model doesn't make sense, she added: "If there was an earthquake instead of a pandemic, and all these firms had physical structures, and they all were broken and shaken by it, nobody would rebuild the same structure they had. If our homes were struck down, we're not going to say, 'I want it exactly the same way.' We would say, 'How about we use more improved materials and how about I move that door I always hated, and how about …?' Nobody builds the same thing, and I think the pandemic is similar; it just shook everybody's belief systems, and as they're thinking about 'Now what?' they want to make improvements."
And the kinds of improvements they need to make are being brought to their attention in a number of different ways.
"The AICPA has done a good job of highlighting the pipeline problem. They're doing a good job of highlighting the need to shift to advisory services," explained Wurtzbacher. "And certainly private equity coming into the industry has gotten people thinking about strategic alternatives. It's just really forced a lot of conversation, and what I know is that a lot of partner retreats are not about, 'Hey, do we want to do private equity or not?' It's, 'Hey, let's talk about five different things we could do, and one of them is private equity.'"
Not everyone's changing
With all this talk of major change, it's important to note that the overwhelming majority of the roughly 44,000 accounting firms in the U.S. have fewer than five partners, and are not likely to be exploring alternative practice structures, PE or most of the other alternatives described here. They are mostly the preserve of the 400 or 500 largest firms — but even among those ranks, plenty of firms are content with the traditional model they've always used.
Many would no doubt argue that the partnership-pyramid model is serving them well — and their current revenues would certainly support that idea.
"The slightly deterring thing in our industry is that even partners at the least profitable firms make pretty good income, so they don't have to change — there's not an economic incentive," said Rampe.
Koltin agreed: "I think there's a whole population of firms where the feeding at the trough is so good right now that they can't see beyond today, and at some point the 'grind-grind-grind, don't spend-don't spend-don't spend, defer decisions-defer decisions-defer decisions' [mindset] is going to catch up with them, and I think their hand will be forced. I think they'll then realize they need to do a transaction, but I think you'll see a reversal in valuations, where firms won't be in as much demand, and firms be going to market in weaker positions. So lots of chaos."
That complacency is often rooted in the partner group. "The partners do not want to make the changes necessary," said Wilson. "They don't want to go to performance-based compensation, they don't want to shift pricing structures, they don't want to report to their service line leader, and so what ends up happening is they create this lack of momentum or lack of success because of their obstinacy against change, and then they end up selling themselves either into private equity or in a merger, and then they have court-ordered change and it's all at once, often, and their voice in that change in the new entity is very limited. And I find it ironic or sad that by resisting change, they force themselves into a corner that requires that they change dramatically, and not necessarily in the way that they would have chosen if they had stopped resisting and started really managing change."
(Are partners the problem with the partnership model? See
And make no mistake: In the long term, change is going to be necessary in the face of the many challenges the profession faces.
"Growth has always been there in this industry for a long, long time," said Wurtzbacher. "I can't tell you how many CPAs have told me, 'My compensation has never gone down,' and they will say that with pride and it's cool, but having an intentional growth strategy has been optional. And I don't think it's optional anymore. If you want to do something different in the talent model — new career paths, faster career paths, more rewarding careers financially — you have to grow, and you have to have a strategy to grow. I'm not saying you have to grow a little — I'm saying you got to grow a lot."
A new Andersen?
Firms have a broader range of options to structure themselves for growth than they have had for most of the past century, but that begs the question of how long they'll be available. Will firms always be able to choose from a broad menu, or will some 21st century Arthur Andersen promulgate a new model that the entire profession settles on?
"Are we going to have just one new fancy model?" asked Rosenberg Associates' Rampe. "I don't think so. I think there's always going to be a place for variety. I think it's going to be diverse for sure and I really think that's in the blood of our country, this entrepreneurial nature. There's always going to be some small business in some small town that wants to work with the local person that they can bump into at the coffee shop and have that personal touch."
Koltin warned that for those who are interested in PE, the window for deals may close down as early as 2025. "What will happen is there will be a stopping point where PE firms will say there's not enough for the M&A engine that drives the growth in EBITDA they're looking for. It's been culled over. The phrase I've used for close to a decade is it's going to be Sunday night at the produce section and everything will have been picked over."
That said, he doesn't think that means firms won't have options. "I do believe we will continue to see the journey of non-CPA ownership in forms we can't even fathom yet today. … And I think it's just going to increase and increase and increase."
Whitman agreed: "If I were to look in my crystal ball, I would say that for at least the next 10 years, we're going to see a continued entry of other strategics in addition to what we're seeing now," he said. "At least twice a month I'm seeing new people that are saying, 'This is an arena we want to get in.'"
While he sees more and different players coming into the field, though, he expects firms to settle on three basic models: "We're going to have our grandfathers' firms or the kind of tax or CPA firm that we know that has been around forever. I think we're going to see a convergence of wealth management firms partnering with tax firms … because they believe wealth management and tax planning go together hand in hand. And then I think we're going to see these other alternate practice structure models, and in that third category we're going to see other people coming in."
Wilson thinks there is a limit to the number of different models the profession can sustain over the long term.
"I don't think we're going to have a new model and I don't think we're going to have a whole bunch of diversity," she said. "I think there are going to be some failures and some things that are ruled out as not being as effective. As long as we're still in the compliance business, as long as we're providing assurance, I think that there can't be too many models that are going to work and have it make sense."
Ascend's Wurtzbacher, meanwhile, expects the options to expand for a while, and then contract: "I think in 10 years, you'll see a lot of variety and a lot of different attempts at this, and it will take that long to figure out if it works. … In 10 years there will be a lot of proliferation, and maybe some things we've never heard of before. In 20 years, though, I think it starts narrowing back down because the whole industry will have had enough time to see who the winners are and what works and what technology has done. And it'll probably condense down quite a bit."
While he wouldn't lay out a blueprint for any final model, he did cite three major characteristics that he expects it to have: "It will be corporate governance, high growth, and involve some form of institutional capital — maybe it's private equity, maybe something else, maybe it's minority, maybe it's majority, but some form of institutional capital; I think that's what it'll look like."
Getting there will require many changes on the part of firms and their leaders — and many of those changes may be painful, requiring sacrifices, arduous consensus-building, and a willingness to unlearn old habits and take on completely new ones.
For the firms that commit to those changes, though, the results will be worth it, according to Rampe: "There are going to be some great things that will come out of this disruption and these changes," she said.
