Why accounting practices are in demand

Mark Emney:
The value of accounting practices is actually going up. They're very attractive to acquirers. The boring old accounting profession is probably actually the hottest M&A sector in Australia today.

Elinor Kasapidis:
Welcome to With Interest, CPA Australia's podcast that explores the trends, ideas, and opportunities shaping the future of the profession. Today, we're discussing something that's becoming increasingly important for accountants across Australia and more widely, the future of accounting practices. It's a fascinating moment for the profession.

We're seeing rapid advances in AI, increasing consolidation across the market, growing interest from private equity, and a significant generational shift as many practice owners approach retirement. At the same time, we're hearing more stories of younger accountants buying firms, building businesses, and creating significant personal wealth through practice ownership.

So, what does the accounting practice of the future look like? Is AI making scale more important? Is the profession facing a succession crisis? And why aren't we talking more about accounting as one of the great entrepreneurial pathways available in Australia? To help us unpack all of that, I'm joined by Mark Emney, director and co-owner of DMY, one of Australia's leading advisors on accounting practice sales and mergers.

Mark has spent decades in senior leadership advisory and merger and acquisition roles, including at PWC and several major financial services businesses. And he today works with accounting practice owners and buyers across the country. Mark, welcome to the podcast.

Mark Emney:
Thanks, Elinor. Great to be here.

Elinor Kasapidis:
Fantastic. So, let's start with the big picture. You speak to practice owners, buyers, and investors every day. What are you seeing in the accounting practice market right now that maybe might surprise many accountants out there?

Mark Emney:
Yeah, look, that's a great question to start with. I think how diverse and dynamic the market is for buying and selling accounting practices, which is potentially at odds with some of the more negative messages around the profession in terms of the potential threat of AI and the challenge of attracting people to the industry.

So, you're right, we talk to hundreds of practice owners every year and what we're seeing is an incredibly diverse market. So, on the buy side, there's a huge demand to acquire accounting practices from a diverse range of players and the types of people buying accounting firms is increasing as well.

We're seeing new people come into the market, for example, private equity players, we're seeing consolidators, we're seeing a lot of entrepreneurial acquirers active in the market. And if you look at the sort of total demand that's out there, it's just impossible for that to be met at the moment by the number of practices coming onto the market on the other side.

Elinor Kasapidis:
So, that's a really interesting point because if you only read the headlines about technology disruption, the pipeline, financial services, you might assume accounting firms would be becoming less valuable, but what you're seeing is perhaps the opposite. The demand is actually increasing, which means the value is there.

Mark Emney:
Yes. Yeah, 100%. And we track market data and we have been doing for the last six years quite intensively. The value of accounting practices is actually going up and accounting practices, they've shown their resilience. They're very attractive to acquirers. So, we actually don't see any change in the near term in terms of those values continuing to rise.

Elinor Kasapidis:
And so, what makes them so attractive? Is it that cash flow? Is it the solid client base? What are some of the aspects of them that makes them so solid as an investment?

Mark Emney:
Yeah, it's a great question. I think there's a couple of dynamics. There's a practice level dynamic and an industry dynamic. So, if I start at a practice level, I think one thing that's unique and well-known about accounting practices is that they have that unique trusted advisor relationship that sits at the heart of what they do.

And that's very hard to replicate and you don't see that in any other industry. On top of that, accounting practices, they have recurring revenues, they have sticky client bases. They've generally got the ability to keep increasing fees each year, albeit incrementally just for providing the same level of service.

But that trusted advisor relationship means there's the scope for them to continuing to keep adding more and more value to clients. And then I think if you look at an industry level as well, the accounting industry in Australia, it's a $30 billion industry with I think over 30,000 different accounting practices out there, but there's probably only 20 firms that have more than a hundred million dollars in revenue.

And I think probably 50 to 60 if you look at the AFR 100 that have more than $20 million in revenue. So, that means there's an incredibly long tail of small firms, which means the industry's ripe for consolidation. You then add on that technology and the emergence of AI and the potential to efficiently build practices at scale.

It just creates this really exciting environment where there's lots of people out there wanting to grow and build accounting practices through acquisition.

Elinor Kasapidis:
So, let's move into the AI space. Many accountants are thinking AI will level the playing field. So, a lot of that compliance transactional work that takes up so much of their time will become easier and they can focus on their clients. But there's another argument that says AI is actually favouring larger firms or consolidation because of the resources that are required to invest. So, where do you think that balance is going to land? Do you think there are advantages for both smaller and larger firms or do you think there'll be a shift in the market?

Mark Emney:
Yeah, it's a great question. Certainly what we're seeing at the moment is there's definitely a shift towards scale far more so than there was five years ago. But I think the interesting thing is there's an interesting debate in the industry as well around what does scale actually mean? So, we've got a client at the moment, it's a $5 million firm who are selling for succession challenges, but five years ago they said they would've been at scale and they're not now.

And we've had conversations recently with firms of $15 to $20 million in revenue and they're starting to think about we actually need to find a new larger home to secure our future. So, the definition of scale is changing I think as the potential of AI becomes more and more prevalent.

Elinor Kasapidis:
So, the tail is going to perhaps shorten that long tail and then the value is actually in terms of revenue and what the target might be is going to increase. So, that's a very interesting tension. So, with the benefits of scale, those firms that perhaps thought they were at scale but they're no longer at scale, what are their choices? Is it merging, joining networks? Is it still remaining independent? What are some of the things that buyers and sellers are looking for?

Mark Emney:
Yeah. Well, I think if I start on the sell side, I think the options... So, you can decide to remain subscale. The challenge with that is it's incredibly hard to run an accounting practice today with the increased regulatory burden, increased client demands, the emergence.

AI is fantastic in terms of the efficiency gains it can bring to a practice, but you actually need the head space and the time to actually understand what does it all mean and how do I apply that to my practice? I heard a great anecdote recently where someone talked about the average practice owner in a small accounting firm has 12 balls they're trying to juggle.

So, the opportunity to put it simply, if you can achieve scale is that you leave all your core people with two balls to juggle, which is their team and their clients. And if someone else is taking care of the rest of those other challenges, that means you've got a much better chance of thriving in the future. So, I think what that means in terms of the choice around scale, being subscale is going to mean you're probably going to erode value over time compared to those firms who have achieved scale.

So, you've already got that option of do we achieve scale ourselves and go on that path ourselves or do we merge ourselves into a larger practice and go on that journey perhaps with someone who's already at scale? And that's why we're seeing in the market today there's a lot of much larger transactions than there would've been perhaps say three to five years ago.

Elinor Kasapidis:
And then on the buyer side, what are they going to be looking for when they have a range of options to choose from? So, what are buyers actually looking for at the moment in the market?

Mark Emney:
Yeah. Well, buyers are looking for good quality practices, which sounds obvious, but the fact that there's huge demand and not enough supply to satisfy that doesn't mean that buyers are just going to buy anything. And we are dealing with a market of accountants as well.

So, while the prices are healthy and continue to rise, they're still rational. So, typically what buyers are looking for are good quality clients, a well-run practice and a good team and a team ideally that continue on post the sale because they're the ones ultimately that have those existing relationships with the clients.

Elinor Kasapidis:
So, it's that healthy client book, you've got strong human capital in the firm and you've actually got the processes and structures in place already foundationally so that they can acquire it with ease.

Mark Emney:
Correct. Yes, correct.

Elinor Kasapidis:
What does it look like on the seller's side?

Mark Emney:
I think if you look back three, well, probably five years ago, the majority of people selling their practices were typically in their 60s or more selling to exit, selling to retire, and predominantly male, to be honest. What we're seeing in the market now is a much more diverse set of sellers. You get some people who obviously continuing to sell to exit, but a lot of others are selling because they actually want to merge in with a larger firm and achieve scale. You're also getting people selling at a vastly different set of ages as well.

So, probably we have as many people selling now at ages younger than 60 than older. So, we get people in their 50s, 40s, and you talk about younger people acquiring firms. We've sold a number of firms in the last 12 months of people in their 30s and 40s. They're looking for a career change, they've enjoyed what they've done, but now's the time to do something else.

Elinor Kasapidis:
Such a dynamic market.

Mark Emney:
Incredibly dynamic on both sides. Yeah.

Elinor Kasapidis:
One of the challenges we are always talking about is across the profession, attracting and retaining talent and the pipeline. But I do sometimes wonder, are we telling the wrong story? Because we talk a lot about professional careers, expertise, pathways to partnerships within a firm, but we don't talk much about entrepreneurship and business ownership.

Do you think that's an area that we really need in the accounting profession to be talking about, the young ones starting up their own business and getting excited about the future?

Mark Emney:
Yeah, I think absolutely. I think it's a great point. There are an awful lot of very successful entrepreneurial accounting practice owners across the country. So, it's not like the stories aren't there to be told. I mean, potentially you need to get back to who are the people telling the stories at the moment, the university, graduate recruitment departments, big four recruitment departments, potentially even the industry bodies.

They're generally, I would argue, more focused around offering technical expertise and career pathways rather than an entrepreneurial pathway and the benefits of being a business owner. So, I think there's definitely some opportunities to change the message there.

I actually saw there was a study... because I think there are some positive shoots here. There was a study in the UK last year of some students, accounting students, and 75% of them indicated that they're actually looking to run their own accounting business. And they actually saw the accounting qualification as a pathway to entrepreneurship. So, I'd love to see entrepreneurship studied, taught more as part of those accounting degrees and from the professional bodies too.

Elinor Kasapidis:
So, moving on from tech brothers and sisters to accounting brothers and sisters. And I guess when someone starts a tech company, they sell it, we celebrate that success. But like we've identified, many accounting practice owners intentionally build successful businesses, they move with the market, expand their scale, and they also serve their communities and generate substantial wealth.

It's very quiet though, and I think our INTHEBLACK magazine does profile some of our successful members and we do see them out there. So, you feel that accountants are becoming more ambitious about ownership compared to perhaps 10, 20, even 30 years ago?

Mark Emney:
Yeah, it's an interesting question. I think it's hard to generalise... I think one shift we've certainly seen is that there are more people preferring to have ownership in terms of owning their own practice rather than ownership in terms of being an equity partner in a large firm. And I think there's a contrast there. And I think being an owner in your own practice, it brings far more strategic autonomy, your own boss, you can make your own decisions, you make your own mistakes, and you make your own successes, and you can get there much quicker as well.

And I think particularly with where technology and AI are at today, if you are starting up a new firm yourself as a young practice owner, you can do that unencumbered for all the legacy systems and processes that perhaps some of the more traditional firms may have and can actually achieve success much quicker. But I think equally on the other hand as well, I think it's important to recognise ownership of an accounting practice isn't for everyone.

And we certainly don't see ownership as good and not being an owner is sort of the wrong answer. And actually the reason we exist and why we help practice owners is because typically they've looked within their firm to see, do I have a successor?

And for different reasons they don't have them. And there are still a lot of people who they perhaps have worked in a firm and look at the people running it and going, is that what I want to be doing with my life? Possibly not. Particularly if they're at that stage where they've got young kids, mortgages, do I want to be taken on that debt and that risk and that challenge?

Elinor Kasapidis:
That's a really great list of things when as an individual, you're thinking about your future and career path and what suits you. And there is that succession perspective that you touched on. So, what advice would you give a 30-year-old CPA say who has never considered owning a practice?

You identified some of those things. At the practical level, what are some of the elements that it would take to run an effective practice that they should be looking for when they're either building or looking to acquire a practice?

Mark Emney:
Yeah, that's an interesting question. I mean, I think first of all, they actually need to start with the why of why would they want to do that and how does that link back to their own purpose in life? What are they looking to achieve? What do they actually want to spend their time doing? Because as I said, owning your own practice isn't for everyone. But beyond that, a couple of practical things.

I mean, for me, I would go and talk to people. As I said earlier, there's an awful lot of very successful practice owners. Don't just go and talk to the younger ones, talk to some of the older ones who've been through that journey as well. Get a range of different perspectives. Go and talk to industry experts.

If they want to pick the phone up and give me a call, I'd be happy to talk to them and share a perspective too. So, there's lots of people out there who'll be able to give you a good perspective. And I think the second thing is educate yourself around the market, understand what are the values of accounting practices, how much demand is out there.

If I did decide I wanted to start up and go and acquire an accounting practice, how easy is that? Because there's an awful lot of competition, so you really need to think hard about, well, what's my proposition compared to everyone else in the market?

Elinor Kasapidis:
Which touches on professional accountants do in their early years, they're building technical capability, the experience and the knowledge. But when you're running a business, there is that mentorship element, client relationship management, understanding how business works.

Those are skill sets really that also you need to have that muscle or have the space to build the muscle when you're looking to run your own practice. Is that right?

Mark Emney:
Well, I think it's interesting. I think the client relationship part is probably the easier part of that because I think most practice owners, and certainly if you look at the more mature practice owners, they actually started, I love working with clients and I love servicing clients, and then 20 years later they've built a successful practice.

So, I think the client piece is actually the easy piece. I think probably the harder piece is actually just that whole, what does a business owner actually mean? It's managing the people, managing the cash flow, how am I going to grow? How am I going to exit the practice?

You don't want to wait until you're ready to down tools and go and do something else before you start thinking about have I set my practice up for a successful exit, for example.

Elinor Kasapidis:
And there's a bit of, I guess, an irony sometimes we hear from members, they're so busy supporting their clients to run their businesses that sometimes, they don't have enough time or space to look at their own practices and there's so much regulation and compliance and other sorts of things that they do get overwhelmed just as a general comment about what's out there in the market.

Mark Emney:
Well, yeah, that comes back to the analogy of the 12 balls.

Elinor Kasapidis:
Mm-hmm. It does, doesn't it?

Mark Emney:
Yeah, exactly. And again, the benefits of scale, because even recently we've seen examples of with AML coming in to the accounting profession from 1 July. It's not like if you're in a small accounting practice, you can just handball that to your head of compliance. That's one more piece that they have to focus on. And every little extra piece or ball that they're juggling distracts them away again from their people and their clients and it makes it tough.

Elinor Kasapidis:
And I'm very proud of our members because they do put their clients first and then they really put so many hats on. And I think that's probably where the narrative, it's around how do you build the space and the effective business? And we keep coming back to scale, don't we?

And it's around how do you position your practice or build a practice so that it can be part of a broader network or that it can be supported through some scaled investment?

Mark Emney:
Yes. Yeah, yeah. And it's interesting. I do just want to touch on one point now. When you talk about a network, I think one of the interesting dynamics we're seeing in the industry at the moment in Australia, there's a lot of networked firms, but being part of a network doesn't necessarily mean that you have scale because if that network isn't operating cohesively as one business and they've got infrastructure that can take away all those other 10 balls, for example, the scale is more what I call aesthetic rather than substantial.

So, what we're starting to see is a number of those networked firms in Australia are actually member firms leaving those and actually moving away to larger groups where they genuinely can be part of something that's at scale as a whole.

Elinor Kasapidis:
Which really reinforces those aspects before when you're looking, really understand the fundamentals, what the offer is, what you're getting from any kind of acquisition. So, that's very, very helpful. And I think in terms of acquisition or ownership, it doesn't necessarily mean starting from scratch.

Are there opportunities to buy into existing firms or acquire books of clients or become part of succession arrangements? What are some of the alternative ways rather than holus-bolus just buying a firm?

Mark Emney:
Yeah, it's a great question. So, there are definitely those options. So, if you are working in the industry today and you wanted to become an owner, I mean, I think you've identified the options there. Obviously, the firm that you're working in is probably the first port of call because presumably you've chosen to work there because you feel there's a good values alignment and you enjoy working in that culture.

So, that's probably the first place to start, have a conversation with the owners of the business there around how do I get on that ownership? Am I on that ownership journey? Do you consider me as part of the future ownership of the business?

Beyond that, yeah, I mean you can start up your own practice from scratch. I'd have to say that's hard going. It's very hard going. And if you're starting from scratch and then looking to acquire, because of the level of competition, if you are selling a practice and you've got the choice of selling to an established firm or someone who's literally got $100,000 or $50,000 of fees, you're probably going to go, but where does the execution risk lie? So, it's not as simple as it may seem just to go, well, I'm just going to go and start up and then start acquiring practices because of the level of competition.

Elinor Kasapidis:
Always good to have a plan and research the market, like you say, and understand where you can start and the best path forward. So, let's look ahead. It's 2026 now. 10 years, it's going to be a very different environment. We're yet to see the full impact of AI and consolidation. What do you think the most successful firms will look like in 10 years' time?

Mark Emney:
Yeah, that's a great question. It's a brave person who starts making forecasts 10 years out. So, I might actually start, I think, with the one thing I don't think will change, and that's that accountants will still hold that very precious and unique trusted advisor status.

I think that's certainly one thing that AI, we talk about AI being able to replace lots of things, but actually trust between an accountant and their client is something it won't take away. So, I think that will still be there, but I think firms will look like they're going to be highly automated. I think compliance is going to be highly automated as part of that.

And the successful firms, the people are going to have more time to actually forge deeper and more meaningful conversations with their clients. And the relative level of work and value they add through advisory services versus compliance, I think will increase dramatically. I think that also be, because of those relationships, there'll be better placed to identify broader opportunities.

So, I think those firms are going to be offering more services to their clients and the clients will be even stickier. But ultimately, it's still got to come down to you've got to give your clients a great service and you need to have a great team of people and build a positive culture. And AI is not going to replace any of those things. It's going to help support them, but people and clients, that's what it all comes down to for me.

Elinor Kasapidis:
What a wonderful way to close because it really reinforces the value of the profession and where the insights and the professionalism really lies. And it doesn't matter about the technology. We sort of joke about since cuneiform and tablets and the abacus accountants have always been there.

And in previous disruptions, accountants have reported back to us that, like you said, the work actually expanded. It became more interesting, it became more important. So, I think you really highlighted that. So, before we close, any advice or final thoughts about the market in Australia today and how people thinking about this journey can get started?

Mark Emney:
Look, as I said at the start, it's a very buoyant and dynamic industry. We often say in DMY that the boring old accounting profession is probably actually the hottest M&A sector in Australia today. So, I'd just like to see more people talking up the positive aspects of the industry. Yes, there are some challenges.

Some people are concerned with AI, some people are concerned with how do we get more people into the industry? But it's dynamic, it's very attractive to a lot of people. And coming back to the 2035, I think there's going to be lots of accounting firms thriving at that time, and the industry will continue to be successful and critical to the economy.

Elinor Kasapidis:
And this conversation has reflected all of those elements. So, thank you so much for taking the time to speak with us today, Mark.

Mark Emney:
Pleasure to be here. Thanks, Elinor.

Elinor Kasapidis:
That's all for this episode of With Interest. And if you've enjoyed today's discussion, subscribe wherever you get your podcasts from and visit the CPA Australia website for more insights on the trends shaping the profession. Until next time, thank you for listening.