I think the prospects for solos and small CPA firms are very bright. I've written about this frequently, but I keep getting calls with concerns about the future. Recently two sole practitioners expressed a concern that I haven't written about before.
First off, solos are different from very small partnerships in that they have no one to share running the practice with or who could cover for them if they cannot handle something or are away. Many solos I speak with have some staff. Some have maybe just one or two including an admin person, while others have 25 employees, and of course there are many in between. Those with the larger number of staff certainly have different issues and concerns than those with none or just one or two staff, but there are also many similarities.
Many solos want to remain that way and are very happy in that position with no interest in growing. I have found that those who want to "build an empire" try to and they grow. They are limited in how much they can grow because they are usually trying to do too much. However, this does not seem to be a problem for any of the people I spoke with. Neither is marketing or what they are earning, although they would all like to earn more. Systems and processes are helter-skelter, but everyone has a system that works for them. Except for those who really want to grow, very little effort is put into improvements. While that is ill advised, in my opinion, none of this is fatal to their future.
Staff recruitment is a problem since larger firms seem more attractive to people out of school. This is where a problem develops since many solos do not like to hire staff out of school that they need to take time to train. I think this is a mistake, but it's also common in many smaller practices. Staff retention is important, but it's more of an operational issue than existential. Keeping current, spending time well, dealing with clients, pricing, collecting bills, and many other issues are also major concerns, but these are all things that are dealt with one way or another. Some of this might affect the quality of their lives, but do not threaten their continuity or exit strategies.
My callers brought up a trend that could be devastating to them at some point when they want to retire — being able to sell their practices — so I want to address this in a little more depth right now. More so to raise the issue and create some thought rather than to present a thorough solution.
The concern is that there will not be a pipeline of buyers of small practices when they can no longer sharpen their pencils. I am talking about really small practices and primarily sole practitioners. Presently there seem to be as many buyers as there are sellers. For larger practices there appears to be more buyers than sellers and with private equity entering the fray, this could continue for a while. Rollups can be done with firms as small as with two partners, but not with solos since there might be no one to carry on.
Many of the current buyers of small practices are accountants who have been employed and who want to own their own businesses. These people tend to moonlight and build a book of business on the side. They usually are great employees since they are eager to learn as much as they can and do a lot of that learning on their own time. They want to get involved in as many new things as they are able to, develop poise talking with clients, are sensitive to the issues of managing a practice, and in many cases act like it is their business. I was one of them and had many people like that work for me. Over the years I have spoken to hundreds of these people. They are "alive" and take "ownership" and when they feel the time is ripe, they look to buy a practice as their ticket into business.
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Another problem is the current group of young accountants will not be generalists, but specialists. That's great for firms that need people with a deep specialized knowledge, but the smaller clients and CEOs and CFOs of the larger clients will not have the people they need to advise, consult and interact with on the myriad business issues that develop where we have been their primary trusted advisors. Solos and partners need to provide these services, and the future solos and partners to do this are not being developed. This is no one's fault. The problem today with being a generalist — which I was and so were most of the solos and partners in small firms that I know — is it's becoming a thing of the past. The work today is too broad; tax, accounting, technology and advisory changes are too many and too frequent; and acquiring the overall knowledge is becoming unwieldy and unreasonably complicated. The training ground for generalists is disappearing.
In that lies the concern of the solos I have been speaking with recently.
This ended up being a complicated issue. Let me have your comments, pro and con, and if enough reply, I'll do a follow-up.
Do not hesitate to contact me at
Edward Mendlowitz, CPA, is partner at
