State of the Long Island Nonprofit Industry
Louis Grassi //January 23, 2025//
Lou Grassi
Grassi : Choosing your accounting firm: why ownership matters
Lou Grassi
Louis Grassi //January 23, 2025//
The accounting industry is currently at a crucial crossroads. As consolidation reshapes the landscape, firms face a significant decision between seeking private equity (PE) investment and exploring alternative ownership structures. While PE-backed acquisitions frequently make headlines, this trend raises critical questions about service quality, client relationships and the industry’s long-term health.
The increasing influence of PE in accounting reflects broader market dynamics, but its impact on service delivery warrants closer scrutiny. PE firms typically seek returns within three to five years when they invest. This timeline can create pressure to maximize short-term profits, often at the expense of client service quality and staff development. Partners may find themselves balancing investor demands with their professional commitments, which could compromise the personalized attention clients expect and deserve.
According to an article by the Wall Street Journal (https://www.wsj.com/articles/private-equity-has-closer-ties-to-companies-auditors-than-ever-before-ccc8e76f), by the end of 2025, more than half of the largest 30 U.S. accounting firms will have either sold an ownership stake or part of their business to private equity investors, up from zero in 2020. The industry is already grappling with significant challenges. According to the AICPA, accounting graduates dropped by 7.4% in 2021-2022—the steepest decline since the mid-1990s. This talent shortage becomes more pressing when firms prioritize rapid growth and cost-cutting over professional development and culture building.
Employee Stock Ownership Plans (ESOPs) present a compelling alternative that addresses these challenges while preserving independence, and employee ownership remains relatively uncommon in accounting. Unlike PE investments—which can lead to frequent ownership changes since they need to flip their investments—ESOPs provide stability by gradually transferring ownership to employees. This structure naturally aligns individual and organizational success, resulting in improved client service and stronger staff retention. Clients benefit from enhanced service delivery and deeper engagement at all organizational levels when every employee has an ownership stake.
The benefits of ESOPs extend beyond operational stability. They offer significant tax advantages, including capital gains, tax deferrals for selling owners and tax-deductible contributions for debt repayment. These incentives enable firms to invest in talent development and technology while maintaining competitive pricing for clients.
Critics may argue that ESOPs limit access to capital for growth compared to PE backing. However, this perspective often overlooks the hidden costs of external investment, including reduced autonomy and pressure to cut corners for quarterly results. Employee ownership empowers firms to pursue strategic growth while upholding their professional values and service standards. Focusing on short-term metrics can decrease partner engagement and diminish service quality. In contrast, employee ownership enables firms to maintain high service standards while pursuing strategic growth that benefits the firm and its clients.
The future of the accounting profession hinges on maintaining high standards while adapting to market changes. As more firms consider succession options, they must carefully evaluate the long-term implications of ownership structure on service quality, talent retention, and professional independence.
These ownership structures have far-reaching implications for businesses seeking services. ESOP firms typically report higher client engagement and retention rates because every employee directly invests in client satisfaction. When selecting a firm, companies should consider how ownership structure might impact service quality and continuity. Employee-owned firms work exclusively for their clients without pressure from outside investors seeking quick returns.
The accounting profession faces unprecedented challenges in talent retention, service quality and succession planning. As firms evaluate their futures, and businesses hire their accounting firm, they should consider how their ownership choices align with their professional obligations and long-term sustainability goals.
The path forward requires balancing growth ambitions and the enduring principles that have long-defined successful accounting practices.
Louis Grassi is the CEO and managing partner of Grassi Advisory Group, an ESOP-owned advisory, tax and accounting firm with offices throughout the U.S. and on Long Island.
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