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Welcome to Best Metrics: Welcome to the Best Metrics podcast. Each episode, we meet with industry experts to discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights and processes into your own practice. Thanks for listening and enjoy this episode.

Glenn Dunlap: Hello and welcome back to the Best Metrics [00:00:30] podcast, where we take a deep dive into the metrics that mean the most to specific industries. Our guest today is Michael Horowitz, who brings an incredible depth of experience and perspective to our discussion on leadership and collaboration in the accounting profession. Michael is the National Managing Partner of BDO Alliance USA, one of the largest associations of independent accounting and advisory firms in the country. In this role, he works closely with more than 250 managing partners from the member firms, helping them grow stronger, smarter and more connected through Bdo's extensive network and resources. [00:01:00] Over the years, Michael has become a trusted voice within the profession, not only for his leadership within the Alliance, but also for his ability to build relationships with firm leaders across and beyond the ecosystem. He's known for his deep understanding of how firms succeed. His forward thinking view of where the profession is heading, and his genuine commitment to helping firms thrive in an ever changing environment. We're lucky to have him with us today to talk about these very topics. So, Michael, welcome to the show.

Michael Horwitz: Thank you Glenn. That was very eloquent and very much appreciated.

Glenn Dunlap: Yeah, absolutely. Well [00:01:30] I. Your your background writes itself. So I'm, I was like, man, as I'm going over the, you know, your history I was like, this is pretty exciting. I also I guess I didn't realize, um, um, some of some of your experience as I was looking at this, so, um, maybe so maybe we can just talk a little bit about, uh, about that before we jump into it. But, um, you know, you've you've got a really unique vantage point in the profession, and it's some of that's because of your experience, but also because exactly what you're doing right now with Alliance. So maybe you [00:02:00] can share with us just some of the things that you're doing and what you're seeing in the profession right now.

Michael Horwitz: Happy to. Glenn. And today, ironically, is my 23rd anniversary at Bebo. Uh.

Glenn Dunlap: Happy anniversary.

Michael Horwitz: Thank you. I got a number of folks reach out on LinkedIn, and you don't really remember this stuff.

Glenn Dunlap: But yeah.

Michael Horwitz: You need to be reminded. So 23 great years at Bebo. And prior to that, I was a partner at EY and actually started an alliance program there in the late 90s. That doesn't exist anymore. So, you know, [00:02:30] for 25 years or so, I've been hanging around, uh, accounting firms as clients and serving them. And so I do have a wonderfully unique perspective on what's going on in the profession. And obviously, I'm a principal at BDO. So I see what's happening within my firm, where the fifth largest firm on a global basis, um, and I, I'm not an accountant. It didn't I took one accounting class and my, you know, I was more into economics than accounting, [00:03:00] but, um, I've loved these last number of years and, and really feel privileged to be able to do what I do, especially at this time. And for those listeners that are not familiar with with what's going on in the accounting profession, it's really the heyday of the accounting profession from a profitability and growth perspective. And it's also a really interesting time. Uh, all industries are being impacted by AI. Our profession is being impacted [00:03:30] as well by private equity. And so there's new ownership structures in our profession that didn't exist five years ago. And so, uh, you know, used to think about accounting accounting firms or accountants as boring. There's there's no boredom left in our profession. And it's it's a very exciting time to be hanging out. So.

Glenn Dunlap: No. That's right. Even the, uh, conferences, the conferences are getting more exciting, too. So it's, uh. Although the funny thing, when one of my first jobs out of college, I [00:04:00] went to some parties with some accountants and and they're a lot different at parties than they are in the office, you know. So it's a it's a funny profession. Yeah. Right. I mean, it's a it's a funny profession.

Michael Horwitz: So it's also interesting, uh, you mentioned that is that who's coming into the profession is very different today than maybe, uh, several decades ago, where it was traditional, uh, accountants and CPA, uh, either CPAs or CPA wannabes, and it was all focused in on, uh, accounting [00:04:30] and auditing and tax. And that was the vast majority of the percentage of the revenues that accounting firms would generate. And fast forward to today, and there are many large accounting firms where over half of their revenues don't come from those categories. So they're advisory firms, they're doing transactions, they're wealth management. Uh, and even at our firm, we aspire to be a third, a third, a third, a third assurance, a third tax and a third advisory. So accounting firms are looking very different. And [00:05:00] the people that we're hiring look a lot different than they used to.

Glenn Dunlap: Yeah, it is very different. I was just up at my alma mater, Ball State in Muncie, Indiana, with the Harvard of the Midwest, as David Letterman refers to it. Right? You know, so, um, but the, uh, and speaking to some of the students up there, and they were asking me, uh, there were some accounting students were like, you know, what else should we what should we be studying, uh, to make ourselves, uh, you know, more valuable to the firms and and I and as I was getting ready to answer, there's a economics [00:05:30] professor said, well, I would say economics. And so, you know, you've got that background and I think economics would be excellent because it would give you both a macro and a micro perspective of kind of what's going on with, uh, within the firms. But, uh, what are you seeing with, uh, what are other firms picking up besides accounting students or accounting students that have, you know, minors or double majors and other things where or experience in other areas. What are you seeing in that?

Michael Horwitz: Yeah. So, um, for example, data analytics is huge. And [00:06:00] even I run a team of 30 people lead a team of 30 dedicated to serving our alliance members. Uh, we have a dedicated data analysts and, you know, doesn't really have any background in accounting, nor does she need to. But she's a great data manipulator. And I think that's highly valuable, uh, both internally and externally from a client perspective, serving clients and, uh, imagining that, uh, you know, we've got this amazing tool called [00:06:30] artificial intelligence and access to information, but how you use that information is really going to separate, uh, you know, those firms that truly succeed from those that just sort of muddle along. So that is a big area. Um, you know, we have a management consulting practice at BDO. So those are folks that have nothing to do with accounting. They certainly understand numbers and businesses, but they're you know, they might be business school background folks. Um, [00:07:00] I walked into I'm based in Boston, uh, in the Boston marketplace is a life sciences and healthcare marketplace. And I walked into our Boston office one day a couple of years ago, and I there was a whole classroom full of very seasoned looking professionals looking up at the screen, and they were looking at a screen that showed them how to enter their time into a timesheet, which we do at BDO. And I'm thinking to myself, wow, this is really interesting. Who are these people and [00:07:30] why are they being educated on entering their time entry? And it turns out that the BDO had just acquired a boutique consultancy, and the consultancy was focused in on the life sciences business.

Glenn Dunlap: Um.

Michael Horwitz: And helping life sciences companies maybe get their regulatory approvals for their drugs, which if you think about a life sciences company that's probably one of the most, if not the most important thing.

Glenn Dunlap: That's right. That's their pipeline. Yeah.

Michael Horwitz: So we can be [00:08:00] helpful in that area that is super impactful. Not that doing an audit or providing some tax advice isn't impactful, but thinking about the client, putting yourself in the customer's shoes and saying, how can I be of greatest value to you?

Glenn Dunlap: Right?

Michael Horwitz: That would be maybe a top 2 or 3, uh, wish list item. And so accounting firms are starting to evolve into providing that high value solution set, uh, in a nontraditional way. Right. You're seeing, uh, the the bigger [00:08:30] the firm, typically, the more willing they're, they're, they're willing to make these kinds of investments. Uh, the accounting profession is, uh, very highly, uh, based on recurring revenue. In other words, think about it. You know, most companies don't wake up in the morning thinking, God, I want to really spend a lot of money with my accounting firm and audit services. You have to do this stuff and tax compliance. And so it's not a question of if, it's a [00:09:00] question of with whom and how do I feel about that relationship. Uh, and then there's a whole bunch of other things that we can be doing to help those businesses grow, which we're starting to get comfortable doing. And our clients are willing to accept us as trusted advisors and expanding that service matrix to include those nontraditional services. So that's the pathway to the future for accounting firms. They're heavy into client accounting services. A lot of them are heading into the technology area and digital resources. So [00:09:30] helping clients become AI proficient, for example, is something that BDO does. Yeah, we weren't talking about that five years ago.

Glenn Dunlap: No, no for sure. So I pulled some numbers and I wanted to run these past you. So the AICPA publishes their their Accounting Today publishes the top 100 list every year. And they do some analytics on that. And I look back in 2015, uh, the breakdown were three big categories audit and attest tax and they call it mas, which is really uh, consulting [00:10:00] is what they labeled it 2015 audit and attest was 38% of the revenue tax was 34%, consulting was 17% in 2025 audit and attest was 29%. So down nine tax was 26, down eight. Consulting was 41% up.

Michael Horwitz: There you go.

Glenn Dunlap: Um, 24%. If I do my quick math, you know that it's only accountants that are good with math that are listening to this. So if I got that wrong, they'll let me know. So but 24 but that's that's an amazing difference [00:10:30] in ten years. Right. And let me also say over that same period, revenue went on average in the top 100 from 58 million to 131 million. So it's not like they took away. It's not like tax and audit you know got smaller. Yeah, those were all growing at the same time, but but the consulting stuff was just growing like crazy.

Michael Horwitz: Absolutely. Yeah. And if you actually look at that top 100 list and you go line by line, what you're going to find is the bigger the firms or the closer to the top four, you know, the big four, they call them, uh, the [00:11:00] higher the percentage typically of the non traditional non assurance non-tax revenue. So it scales down. And then when you get inside public accounting is another organization that I'm sure you're familiar with. And they put together a top 500 list.

Glenn Dunlap: That's right.

Michael Horwitz: And same thing is going on as you go down through those cohorts, uh, to get to that 500th largest firm, which is about 6.4 million in revenues or something like that. Um, you're going to see a smaller percentage of the revenues [00:11:30] being from the non traditional services.

Glenn Dunlap: Right. So let's talk about that a little bit because um, when you think about the accounting profession, it's really the I would say the top 500, maybe the top 1000 are going to be the ones that are. Multi-millions let's say in terms of revenue. And then it's just a really long tail of a lot of smaller firms in the.

Michael Horwitz: Like 44,000 accounting firms.

Glenn Dunlap: Accounting firms that are that are registered with the AICPA or whatever like that. But, I mean, if you think about bookkeeping and, you know, a bunch [00:12:00] of there's a ton of others, but when you think about traditional CPA firms, like where do you how do you see how long will it take the the or will it ever change to where you know that 10,000 or 25, 20,000 firm on that list is 50% of their revenue is from consulting. Will it ever be that or will it be, um, will we see that kind of change?

Michael Horwitz: Honestly, I doubt it. Yeah. And I think, uh, you know, if you're a very, [00:12:30] uh, we call them emerging firms, but if you're on the smaller end of the spectrum, uh, so maybe you're 1 or 2 people Doing accounting work have.

Glenn Dunlap: A niche of some sort.

Michael Horwitz: Yeah. You're typically that's your bread and butter and you need to do that. Uh, so I think a very few of those, uh, emerging firms beyond a couple people, uh, or, you know, below that are going to really be developing the niche services that will generate [00:13:00] more than 50% of the revenues. I just don't see it.

Glenn Dunlap: That makes sense. Well, then let's back it up then to the say the the, you know, the top 250, top 500. Top 1000. I mean because typically what's happening in the, in the big four sort of has its way of working down the stream with you on that. Yeah. So will we see. Maybe not in ten years, but will we like we did with this, but will we see, um, you know, over the next, you know, ten, 20 years more of the [00:13:30] top 1000, let's say, having closer to 40% of their revenue from the non traditional, you know, tax or audit.

Michael Horwitz: I think so. I do think so. And what's interesting. Uh, and I mentioned private equity earlier. So private equity has shone a light on the profession. And they, uh, they look at things from a total addressable market perspective. So they hypothesize that, yeah, you can do your auditing and accounting. And that's there's a certain amount of revenue potential there. And there's some tax [00:14:00] work that you can do. And then there's this, all this other stuff. And when you look at, uh, visual, uh, of the total addressable market, the majority of the space is not in those two first areas. It's not in the audit, the assurance or the tax areas. It's in the other, it's in the management consulting, it's in the technology advisory. It's in the wealth management. There's a lot of stuff that we all recognize we could be doing as [00:14:30] accounting firms. Some of us are doing a little bit more of it than others. But if you fast forward, my guess is that there's going to be a lot more of that work being done by, uh, mid-market, let's say, accounting firms, and they'll be much more of a willingness from a client perspective to consume those services. Sure. Coming from your accounting firm.

Glenn Dunlap: Yeah. Yeah. What are you what are you seeing from the big firms that's facilitating [00:15:00] that growth that maybe isn't happening in those mid-market firms yet, or the smaller firms? Is it structure? Is it an investment in technology? Is it people? What are they doing that's different?

Michael Horwitz: How about profitability.

Glenn Dunlap: Okay.

Michael Horwitz: How about profitability. So think about the, uh, you know, the core of an accounting firm typically is an audit practice. Audit practice might be uh, or attestation practice. You might be doing audits or compilations or reviews. Very competitive, very [00:15:30] price sensitive. And so the growth rate, uh, and the ability to increase revenues on those engagements, uh, are heavily impacted by the competitive landscape. And so in good markets, the you know, you can bump those fees up a little bit. Uh, in tough markets, accounting firms have traditionally competed with each other on price. And you can see a deflation in some of these fees. So the growth potential it's not [00:16:00] that it's not there but it's slower growth. And then you move to tax. And the majority of tax revenues are what we call compliance revenues helping you file your tax return business. Uh corporate individual. Right. And that's also a commoditized service. And we'll talk hopefully a little bit about technology and how that's impacting. But it's becoming less, uh, you know, it's taking less time to do some of this stuff. Right? The ability to increase your fees in that particular [00:16:30] area. From a compliance perspective, it's also getting squeezed. Then you can go move to tax consulting. There's high value in tax consulting that's being impacted by AI. And there's companies that are sprouting today that are ingesting the tax code. And you plop in a question and you can get a pretty good answer pretty quickly.

Michael Horwitz: And so maybe the value of tax consulting is maybe the degree to which that pricing can be increased over time is diminished. [00:17:00] And so the core and that's probably for a typical accounting firm maybe, you know, forget about the top 100. But that's maybe 80, 85% of their revenues are in those assurance and tax buckets. And now you've got to play with the extra 15 to 20%. The extra 15 to 20% is is is typically higher margin work. So it's more profitable. And uh, some would argue maybe more valuable to the client [00:17:30] and the ability to retain those client relationships. And we all know, uh, in any business, the more services that you provide to a client, the stickier that relationship is, and typically the more profitable that relationship is. So if you're just providing one service to a client versus two or 3 or 4, that's right. The ability to generate profits go up exponentially. Uh, and so more and more firms are going to be looking beyond the traditional assurance and tax for those opportunities. And I think they will continue to see those that growth there. And if you're [00:18:00] running a business and accounting firms are typically for profit businesses, you're going to go where the profits lie. And so you're going to probably be looking at those opportunities to a greater degree in the future than you had in the past.

Glenn Dunlap: Okay. Well so that makes makes perfect sense. Why the the big four, even the top 50, top 100 have pursued it. What's keeping the other firms from pursuing that?

Michael Horwitz: They are.

Glenn Dunlap: Uh, well, I mean, at maybe the same pace. That's why I was trying to, you [00:18:30] know.

Michael Horwitz: Some of it is capital, right? You know, you just wake up in the morning and say, I want to go into this business. And then it happens, like, you got to find the people or you got to buy the business, you know, buy a company. A lot of the bigger firms, including BDO, have done a number of acquisitions.

Glenn Dunlap: Sure.

Michael Horwitz: So you're buying and that requires the funding to to be able to do that. Most accounting firms or partnerships. The earnings from those partnerships are typically distributed for the most part every single year, you know, [00:19:00] to the partners of the firm and obviously covering compensation and other operating expenses. So it's not a lot of extra undistributed earnings that are sitting in the kitty to be able to go out and buy a new, you know, business, let's say. So I think that's hampering things for the smaller firms. Um, maybe less comfortable incurring debt. Uh, and, and so, um, and the other thing that's interesting is that firms are more profitable today than [00:19:30] they've ever been. So if you look at average partner earnings, they're the highest that they've ever been.

Glenn Dunlap: Okay.

Michael Horwitz: And so typically firm owners are doing quite well financially and maybe not uh, looking out into the future and and planning for the evolution of the profession as much as maybe they should be. So that, um, you know, this concept of sort of being happy, happy, fat and happy.

Glenn Dunlap: Right, [00:20:00] right.

Michael Horwitz: Maybe a little bit of what's going on in the in the business.

Glenn Dunlap: Yeah. Well, it's a pretty aging, um, partnership group, too. I mean, that's, that's we're seeing the a lot of the boomers that are, uh, you know, they're probably thinking about their exit more than they're thinking about the reinvesting the next couple of years on their way, on their way out the door. I mean, I've we've seen that in conversations we've had with firms, you know, just like, yeah, well, I'm going to let the next generation deal with this.

Michael Horwitz: It's not a good answer, especially since the generation is funding [00:20:30] your partner retirement.

Glenn Dunlap: Yeah, that's right. You need them to do well, by the way. Exactly.

Michael Horwitz: You need them to do very well.

Glenn Dunlap: Yeah. Yeah, that's that's interesting. Um, yeah. So in terms of the, um, that's that's so the things that you just mentioned point to the reason why so many of these firms are probably looking at the, the private equity groups and the investments that they're taking, you know, funds elsewhere because it would help them to fund that growth, change, change their, um, ownership structure, change a lot of things. I mean, [00:21:00] that seems to have changed. Uh, maybe, maybe let me pose that as a question because you're closer to this than to this than I am. Do you feel like the younger accountants have a different desire than the than maybe our generation, as we were coming into this, that we wanted to own, that we felt like that partnership piece was, was sort of the, you know, like I'm, I'm going to work until I get that. And this generation is not, as is that also driving some of this change within the profession or is that not true?

Michael Horwitz: That's a great [00:21:30] question. And I think for the most part, accounting firms have been more transparent with their team members as to the economics of the practice. Uh, a path to partnership, you know, what does that really mean? How does an accounting firm work as a business? Uh, it used to be very opaque and nontransparent. And in today's world, that really doesn't work. And so there's there's more transparency, which is good. My guess is that most non-partners don't have [00:22:00] any sense of what partners earn in their firms. And if they had that sense of what partner earnings looked like, maybe there would be more aspiration to become a partner.

Glenn Dunlap: Yeah.

Michael Horwitz: They see a lot of the negativity of long hours traditionally and those kinds of things. And that's that's changing as well, but a lot of negative connotations to being a partner, unfortunately. Um, and so the, uh, those dynamics are changing. You've got just the, the reality of, of a younger workforce and the things [00:22:30] that they are motivated by and the experiential living and the fact that they're really not, uh, just not just accounting, but it's any.

Glenn Dunlap: It's.

Michael Horwitz: Yourself out from a work perspective, because that's just not the thing. We want to have a very enjoyable lifestyle as best you can. Uh, and the, you know, maybe the aspiration is to have great experiences, life experiences. And that's the cool thing, not the cool thing is I'm a partner in my accounting firm.

Glenn Dunlap: That's [00:23:00] right. And that's not that's not so bad. I mean, it's just funny because I think, you know, uh, the the path that, that 35 years ago, uh, was, you know, uh, home ownership, automobile, all of those kinds of things, and those were all sort of status and prestige and all that kind of stuff. And and now do they not only want to not own a car, but they don't even want their driver's license. You know, it's hard to it's hard to get the kids.

Michael Horwitz: It's a liability.

Glenn Dunlap: Yeah. That's right. Get your license. You know, because, you know you'll have some freedom. And they don't really they don't they [00:23:30] don't see it that way. But it's, uh, it's definitely changed. I think that's impacted the all things across there.

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Glenn Dunlap: Let me turn to maybe some of the specifics on on some of the financials. Um, you're meeting with managing partners. You're meeting with firms who are interested in joining the alliance. So you're talking to them about a lot of things. So when you're looking at I don't know how much you evaluate their financials, but certainly there are going to be things that come up that are, that are, are top of mind for them. Like, what are the things that the financial metrics that that you find the most important for [00:25:00] CPA firms or the managing partners that you're working with or finding the most important? I mean, what are the things that you know, that you're looking at to say is, how is this firm doing?

Michael Horwitz: Yeah, a great question. And and these are all independent firms that are members of the Alliance USA. So we're not in the minutia of their financial statements by any stretch of the imagination, and we're not managing them or directing them. Um, but we do have exposure and we do a benchmark of our alliance members. So we, we have senses in terms of what's happening [00:25:30] in the infrastructures of these firms. And, and, uh, you know, big focus in on growth. So top line revenue growth.

Glenn Dunlap: Yeah.

Michael Horwitz: And it's it's interesting the the typical accounting firm is moving away from an hours based billing system, if you will, to a more quote unquote value based that has less to do with their time and more to do with the value that they're providing to a client. Not to say that there aren't continued fee [00:26:00] structures based upon the number of hours that someone spends, but you've got, uh, what they call standard rates, standard billing rates for, let's say, just use a partner as an example. Uh, and maybe as, let's say it's $500 an hour Her. And let's say when they end up billing the client, uh, they bill the client, uh, you know, $400 for that, that one hour, for whatever reason. So that's like 80% of standard realization rate. So [00:26:30] the number of partner billed hours is a big driver in terms. And the average rate per hour is a big driver of profitability for an accounting firm. The other big driver, uh, is leverage. Leverage means the number of partners that are working in conjunction with a single partner and bigger firm that you mentioned, the top 100 firms that that number could be, you know, 15, [00:27:00] 20, 30 people in the in the practice area that are not partners for every one partner.

Glenn Dunlap: Okay.

Michael Horwitz: Many of those people are also billing, doing client billable work and their Senior managers, managers, associates, staff level professionals. And so this concept of leverage drives profitability for an accounting firm. So it's it's billable rate or average rate that's realized. And then and then there's a leverage factor that tends to drive [00:27:30] profitability. Um, these are partnerships. These are businesses. They've got uh, the, the highest, uh, single number on the PNL, uh, from an expense perspective, is cost of the employees salaries and compensation. Uh, so that's the first thing that sort of comes out below the revenue number. And then you've got the operating expenses of the business. And the biggest one there is typically real estate, whatever they're paying to, you know, house themselves. [00:28:00] And with the transformation and work from home, a lot of firms have we have some firms in our alliance program that have gotten out of the real estate. They have zero real estate expense. They're a virtual firm. And that's typically a big number. And traditionally about a third of the revenues went to cover the costs of employees compensation. A third went to operating expenses, and a third was left for the partners to be distributed amongst those partners. That's the that's the whole school. That [00:28:30] third, a third, a third has really evolved over time. And we have some firms in our program where that bottom line number is well over 50%. We have some firms that have, uh, you know, the cost of, of their talent, if you will, is way above a third. It's maybe 40 to 45%. So those numbers change based upon the firm. Um, but the the more healthy the firm is from a financial perspective, [00:29:00] typically, uh, they are driving top line revenues. They, they typically have some kind of a specialization, uh, industry niche or service niche, or a number of them that are enabling them to get the billing rates up and to realize a high percentage of that rate individually. They're aggressively managing their costs, uh, and they're spending a lot more money today, for example, on technology than they've ever spent. That used to.

Glenn Dunlap: Be, I was [00:29:30] just going to say, asking for a friend. What do you see them spending on technology?

Michael Horwitz: Depending on who you ask. And, you know, they're typically, you know, they should be spending five, seven, 8% on technology, 10% on technology. I think some firms, uh, are getting way above that number because they feel like, uh, not only is it necessary, but the.

Glenn Dunlap: Offsetting labor costs.

Michael Horwitz: Yeah, exactly. Ability to leverage and and leverage your AI assistant, if you will, uh, [00:30:00] in today's environment is a real.

Glenn Dunlap: Crazy.

Michael Horwitz: Evaluation point for them is how can I get my bot to do more and how can I save my people some time? And eventually it's going to get to the point where maybe I need a few fewer people than I used to need to do the work. And so there will be some, uh, you know, investments that will produce inefficiencies, and then it'll move up that curve from an efficiency perspective. And we will start to see, uh, and this is going to [00:30:30] have an impact on who accounting firms are hiring and what their backgrounds are. Right. You know, if you were a tax partner, a senior tax partner in an accounting firm historically, you know, maybe they virtually memorized the tax code.

Glenn Dunlap: They knew what that's right.

Michael Horwitz: For that room. They had a high billing rate and there was high value in them sitting in that chair.

Glenn Dunlap: That's right.

Michael Horwitz: Position your problem. And and he or she is able to, you know, ruminate on the issue and outs, use an answer that is interpretive guidance [00:31:00] relative to all the pronouncements.

Glenn Dunlap: Of their experience. That's right.

Michael Horwitz: Yeah, that's like chump change today, right? You can you can have an experience and engage with a bot that also has memorized the tax code, and probably to a better degree than you as the smart, uh, historic partner would have. So now it's interpretation. Now it's the relationship. Uh, now it's making sure that you have the correct fact pattern that's input. There's value [00:31:30] in all of those things, obviously, but the amount of time that it might take to provide a response to someone on a generic question is shrinking. And so, uh, you know, who do you need to run your your business is going to be a different answer five years from now, uh, than it is today. And if anyone says they really understand what's happening and knows exactly where that transition is going to go and how it's going to roll out, I would just say, uh, probably not really. And so [00:32:00] the speed of this change is, uh, and the recognition and most accounting firms. When you look at accounting today and inside public accounting, they will have acknowledged in the past that they're really way, way, way underserved from an AI perspective. They're sort of they were digging into it, but not to a great degree. Now they're all jumping in. Now they're trying to figure out what their tax stack is looking like and which AI they're going to be jumping in with. And most of them would feel like they don't know where they're going in this area, but they know [00:32:30] that they have to go someplace. Whereas a couple of years ago, they were sitting on the sidelines and saying, well, you know, is this is this for real? And, uh, it's not going to supplement or supplant our, uh, our ability to provide traditional client service that's gone by the wayside.

Glenn Dunlap: Yeah. And it's real. It's here. Yeah. Uh, it's it's how you're going to use it is, uh. Yeah. For sure. But there's also there are also a lot of claims being made that you have to sort through that and sift the black pepper from the fly dung, too, because there's a lot of [00:33:00] things that are just out there that's just not. Yeah, they claim to be AI that are maybe not quite so much. Um, yeah, I think so. That's that's really interesting thinking about the that that transition for them. We talked a little bit about the kinds of people, but thinking about like, um, you know, from a data perspective, something that keeps coming up in a lot of conversations that I'm having with folks around, uh, data analytics and AI and forward looking things [00:33:30] is the ability to tell stories. Um, and, you know, to interpret things in a way that becomes very meaningful to somebody. And when I think about accountants, I think very numbers heavy, you know, and not very, um, you know, literature word. Smithy. I'm, I'm even having a hard time saying that. So, I mean, so I think that, you know, the challenge from that perspective is trying to figure like, how how does one in the profession prepare themselves to be a better forward looker, better storyteller [00:34:00] to make this transition with people, because I think that's a big difference between AI can help you in, you know, look backwards as well and do that much faster, but trying to figure out, like the nuance of, you know, here are ten things that we could ten possibilities of things that we could do going forward. What should we do? How do we do that? And how does a CPA that's maybe heavy math, not so much verbal. What's that kind of what's that look like?

Michael Horwitz: Yeah, it's a great observation. And, uh, as as our [00:34:30] firm has evolved, uh, we've recognized that, that the numbers based, traditional, uh, talented CPA doesn't have the training to do advisory work or even sell advisory work. Sometimes, you know, you need to understand what it is that you're selling. And some of these services are not contingent to the traditional services that most accountants have been providing. So you do need some training. And, you know, big [00:35:00] firms like ours do provide that kind of training to to team members. Some of it is naturally absorbed. Others have a harder time.

Glenn Dunlap: That's right.

Michael Horwitz: Like anything you're going to see some early adopters and folks that are very comfortable, uh, flipping on that advisory hat in conjunction with the traditional compliance related services that we provide. Others, not so much. And, um, you know, is it, uh, is it possible to take [00:35:30] that old school accountant that would rather just be sitting in their office and, uh, not telling the story, but looking at the financial statements and digesting those and and being numbers focused and move them to a more advisory mindset and a, a better storyteller, if you will. And some will be able to make that transition, uh, and others There's probably won't be left behind.

Glenn Dunlap: Yeah, yeah, [00:36:00] maybe. We'll see. Uh, you know, a crow position start in these firms, which would be the chief raconteur. You know, the person that can come in and be the great storyteller that, uh, that they take into all the client meetings and go, let me, let me, let me. That's interesting for you.

Michael Horwitz: I haven't seen that person yet, but.

Glenn Dunlap: That's right. Uh, there's some there's a couple of folks that come to mind when I think about the folks that can just really weave a story and but also bring things to, you know, help people understand things better. And that's just so important in this, in this, uh, [00:36:30] because it's not just about data and numbers. It's going to be the understanding and the implementation and the all that stuff. So that's that's really interesting. Are you seeing any firms that are just tracking metrics that you go, I never heard that. Tell me that. Is there something that stands out to you that you just go, you know, that's really that's really interesting and that you think more firms should be doing or is that just not?

Michael Horwitz: I haven't seen anything that comes to top of mind. That would be so unusual. Glenn, I think that, um, you [00:37:00] know, it used to, as I was alluding earlier, it was a badge of honor to put in ungodly numbers of charge hours.

Glenn Dunlap: Yeah. Right.

Michael Horwitz: That would be the, you know, the the bragging rights.

Glenn Dunlap: Right.

Michael Horwitz: That's not the case anymore. And so in many instances when I when you see firms that have just crazy charge hours from their partners, you sort of wonder, like what's going on in that firm and why is it that way?

Glenn Dunlap: Yeah.

Michael Horwitz: Um, I haven't seen too many novel statistics come out of the woodwork, but, you [00:37:30] know, every firm is unique, every business is unique, and they will have their own KPIs that they gravitate towards as a leadership team. Uh, and like I mentioned, many of them are starting to share those KPIs with the rest of their team members so that they can be fully educated and illuminated as to what is good business sense and why. Why does why is it important for for us to do a good budget of an engagement and then compare what we actually do to our budget [00:38:00] so that we can learn from that. And so the next time we go and we budget for some additional comparable work, we're better informed and that that learning experience is important. There's AI now that's helping that are helping firms keep track of their time accurately. And again, while many firms are no longer billing based upon time, they're still tracking time. Yeah. And it's important to understand how folks are spending that time and which engagements are maybe taking [00:38:30] longer to complete than they had expected, and maybe they would make adjustments to pricing going forward based upon that information. So that's great information. Um, they're starting to use all these tools that are available. And, and you know, we mentioned private equity earlier, heavy focus in on technology efficiency, maybe bringing some novel technology into a tech stack to benefit an accounting firm, which is typically using a ton of different technology to internally, [00:39:00] you know, serve them and then externally to serve their clients. Um, some would say that accounting firms of the future will be technology companies that just happen to provide audit and tax and other advisory services. So there are accounting firms that are being built in that vein today.

Glenn Dunlap: Yeah.

Michael Horwitz: Uh, which is interesting and I.

Glenn Dunlap: Think I'm sorry. Yeah. I heard somebody, um, reference this yesterday. They referenced [00:39:30] it as as the, uh, the COVID startups firm, you know, that were individuals who were kind of maybe or a group of people that were disenfranchized or disenchanted with where they were within a firm and how things happened, whatever happened, you know, either they decided I prefer working from home or the, uh, the people, the leadership. Uh, couldn't steer the ship during Covid or whatever. Uh, but there are a lot of these firms that have started up, and now they've started with their own specific niches and ideas about where they want to go with [00:40:00] the firm. And it's it's, um, there might be a different breed of firm coming up right now.

Michael Horwitz: Well, there are they exist for sure. The, the virtual firms, let's say, um, and the willingness for accounting firms to hire talent both domestically and offshore that they would pre-COVID, they would never have been willing to hire a whole bunch of folks. Bdo has thousands of people in India that work for BDO, USA, and many, if not most, of our alliance firms are using some sort of outsourcing, [00:40:30] if not offshore talent. So that's a big change. Um, the ability to hire people, uh, around the country, here in the US, they're never expecting to go to the home office is become commonplace. So that willingness to have a virtual workforce and to be flexible in terms of of who you're hiring and working with. And technology has certainly enabled that. Accounting is accounting firms have traditionally been constrained to access [00:41:00] talent, and we've had more work than we have capacity to do that work. So the offshoring solution would have been great if that was here with us 15, 20 years ago, we could have used it, but now it's here and it's a commonplace option for, uh, for most accounting firms. So they're using that offshore talent or domestic onshore, uh, but out of office talent to, uh, get the work done. Uh, and, uh, you know, so we have, there's lots of firms doing a lot of [00:41:30] digital marketing and finding clients, uh, in markets way outside of their traditional footprint. So where is your client base and where is the person in your firm that's doing the work? Two totally different areas in today's environment than five, ten years ago.

Glenn Dunlap: Yeah. All right. So two two questions that came from from that, Michael. One, do you see us from a virtual firm perspective? Sort of my old traditional [00:42:00] model brain sort of wraps around that. If you're not in the office, then they're probably limited opportunities for you in terms of upward mobility and partnership opportunities and that kind of thing, or even just management abilities of. Yes. Um, do you, do you is that true or do you are you seeing that or am I thinking of that incorrectly?

Michael Horwitz: No, I think pragmatically, you're correct, even though there are plenty of examples where, um, you know, folks that have been remote have been promoted to partner and, [00:42:30] uh, you know, managing a team remotely works well, I think pound for pound, and especially as long as the primary, uh, owners of accounting firms are, are generally, you know, people that are 50 and above that, the majority are let's say, uh, and their mindset is, you know, I don't really know what you're doing if I'm not seeing you do it.

Glenn Dunlap: That's right.

Michael Horwitz: Or or, uh, you need to huddle in a conference room a couple times a week. That's right. To [00:43:00] to establish a culture. And, uh, you know, we know those things aren't necessarily true in today's environment, but that's historically a comfort zone for many seasoned professionals. And so I do think you're at a disadvantage. Uh, generic.

Glenn Dunlap: Yeah, yeah, yeah, yeah, especially if you're being if you're being, um, measured or monitored, monitored by somebody who's of that 50 plus generation who's been around that. Right. If you're [00:43:30] around somebody that's 20 or 30, they might have a different approach to that.

Michael Horwitz: And you can mitigate that. You can have open teams calls and you could be, you know, doesn't just because you're in an office doesn't mean you're having social engagement with your peers Appears 24 over seven. In many instances, you're just you're on your laptop in your office. You just happen to be in the office.

Glenn Dunlap: That's right.

Michael Horwitz: For a little bio break or some food every once in a while.

Glenn Dunlap: That's right. And you may be more inefficient in the office, too. I mean, certainly you've got the commute that kills time [00:44:00] and all those kinds. I mean, there are a lot of arguments for it, but yes, certainly, I think from a professional standpoint, do you do you think it's also going to impact just the training and the things that we're I think any time I've had a, you know, our teams together, there's inevitably just the things that people overhear that that just sort of like, you know, just sort of helps with raise that it's the it's the, uh, the osmosis, if you will. But it's, you know, those kinds of things that you just you either have to be intentional about, [00:44:30] you know, if you're virtual or they just it just doesn't happen, but also just that informal element of it where like, hey, did you I'm working on this. Have you thought about, you know, that's just harder to facilitate. But how do from a training perspective, it seems like that would be also, you know, from a professional standpoint, that could be a real challenge as we're moving this direction, is that are you seeing that or are firms concerned about that as well? Yeah, okay.

Michael Horwitz: Are concerned about it. And everyone's talking about culture today in accounting firms and how [00:45:00] you develop, you know, what is your culture for example. And then how do you promote the culture that you want to promote? And how does someone joining your team, uh, get indoctrinated into that culture and experience it? And how does that culture evolve? Yeah, all of those things are tremendously important, and I would argue are more important to younger people today than maybe it was 15, 20, 30 years ago. And so that needs to be illuminated and you [00:45:30] need to illuminate it despite the fact that you're not huddling in the same, uh, break room. Uh, so.

Glenn Dunlap: And all the acquisitions. I'm sorry. Michael.

Michael Horwitz: Yeah. No. Go ahead.

Glenn Dunlap: With all the acquisitions that are happening, too, I think that's that's a moving target for a lot of these firms because, you know, you see some of these firms that are picking off another firm, you know, adding them to the fold every, every month, in some cases, every quarter in some cases. I mean, and that's that's no small task. I mean, to a lot of their [00:46:00] systems are different. Everything. There's a ton of things that that would be you could cause a lot of indigestion if you're trying to do that quickly.

Michael Horwitz: Right. No question. It's a it's a it's an exciting new world. Uh, and it's a fun time to be in this profession. Uh, and I'm sure for many other professions, people are feeling the same way. It's it's a it's, uh, exciting. It's unnerving. Uh, fun.

Glenn Dunlap: Uh, it's just. Yeah. [00:46:30] For somebody who enjoys change and and can embrace change, I think that's that's right, that's right. Well, uh, and speaking of fun, this has been fun. Michael, I really appreciate your time and your leadership.

Michael Horwitz: Your time.

Glenn Dunlap: It's, um, you know, it's we've been privileged to be a part of the alliance now for we're in our sixth year and, and, um, you know, learning a lot as we are a part of it. And, uh, you know, it's it's a lot of that's due to your leadership. So thank you for, for that.

Michael Horwitz: Very.

Glenn Dunlap: Much so, [00:47:00] yeah, it's, um, the, the work that you're doing for, um, the accounting profession is, is definitely felt not just by those firms, but the burns and firms outside of it as well. So thank you for your leadership in that space. So appreciate that. Thank you. Yeah. Well, uh, any any last, uh, last comments. Anything you want to share with us or we, uh.

Michael Horwitz: Well, it's a it's a Friday afternoon.

Glenn Dunlap: That's right.

Michael Horwitz: Uh, I just came back from our global leadership conference, which is [00:47:30] in Hamburg, and it was interesting. Uh, BDO operates in 167 countries. So it's with some colleagues that represented a number of those countries. And, uh, you know, we're all dealing with this. All of these issues that we talked about, uh, it's not just a US accounting firm issue. It's a global issue. And with global opportunities and global ramifications and, and, uh, so the, you know, the the world is, is sort [00:48:00] of sometimes it feels just enormous and sometimes it feels very small. Uh, it's fun to be with colleagues and experience their interpretations of what's going on in the profession. Uh, and culturally, they may have very different takes on things, but we're all in this together, just like we're all in it together with our alliance members, and we're all in it together with other accounting firms. And this profession is very willing to share best practices. That's true. We're talking about today. And so that makes it [00:48:30] a lot of fun as well.

Glenn Dunlap: Yeah. That's true. I think it's uh, It's it's encouraging when you're with groups of folks in the profession because there are there is a willingness to share. And I think that there's a desire to do the right thing for the client and, you know, to serve the clients. And ultimately that's we're all in this to do that. And that's so that's a that's definitely a great place to be.

Michael Horwitz: So we're we're better. We're a much better alliance because of your membership in it. And so.

Glenn Dunlap: Yeah. [00:49:00] Yeah. Thank you. Appreciate that. Uh um, you know, we'll I'll clip that and send that to some of my friends and family. Right. So they. Yeah. Well thank you, Michael. Looking forward to, uh, you know, some of the upcoming meetings and, uh, and, and certainly to, uh, to Vegas and in May. So we'll, uh, we'll look forward to seeing you here soon.

Michael Horwitz: Thanks, Glenn.

Glenn Dunlap: Take care. Thanks, everybody, for joining us. Yes. Thank you.