How traditional accounting firms can compete with private equity giants

The accounting industry is experiencing a seismic shift. Private equity firms are aggressively acquiring accounting practices, consolidating them into larger entities, and dramatically reducing costs by sending work offshore. This trend isn't just changing the competitive landscape, it's creating an existential challenge for traditional accounting firms that need to adapt quickly or risk being left behind.

The Private Equity Acquisition Boom

The year 2024 saw the greatest number of investment deals, and even the largest transaction thus far. Private equity firms have recognized the accounting industry as a lucrative investment opportunity, particularly as firms struggle with talent shortages and rising operational costs. The strategy is straightforward: acquire multiple smaller accounting firms, merge them into larger consolidated entities, and then dramatically improve margins through operational efficiencies – primarily offshoring.

"I am noticing significant M&A deals in the accounting world. Private equity firms aim to acquire 2 or 3 smaller accounting firms and merge them into one large firm. Once they have established the firm, they seek to enhance its value, and that's where offshoring becomes relevant." said Ganesh Ranganathan, CEO, Integra Global Solutions.

This consolidation creates formidable competitors with significant cost advantages that traditional firms simply cannot match through conventional means.

The Offshoring Revolution

The numbers tell a compelling story about the industry's rapid transformation. Of the more than 1,100 firms that participated in the AICPA's 2023 National Management of an Accounting Practice (MAP) survey, about 30% said they outsourced domestically and 25% said they outsourced to offshore teams. Another 14% said they planned to start outsourcing domestically, indicating that nearly half of all firms are either already outsourcing or planning to start.

The cost advantages are dramatic. A CPA firm in the United States might pay a local accountant around $70,000 per year, whereas hiring an accountant in India or the Philippines costs significantly less, often 60-70% lower than domestic rates. For private equity-backed firms operating at scale, this translates into substantial competitive advantages.

Over 75% of firms that used outsourced or offshore talent plan to increase or keep the amount of work sent to them the same next year. This isn't a temporary trend, it's becoming the new standard operating model for the industry.

The Perfect Storm Facing Traditional Firms

Traditional accounting firms face multiple pressures simultaneously:

Talent Shortage Crisis: The accounting profession continues to struggle with severe talent shortages. In the fall of 2024, undergraduate enrollment in accounting programs increased by 12% compared to 2023. Despite the increase last fall, there's no way that accounting firms will be able to meet the significantly increased demand for the next few years.

Increasing Competition: Private equity-supported firms having offshore facilities can provide equal services at much lower prices without compromising margins.

Scaling Issues: By and large, the bigger the firm, the higher is the chance of it outsourcing staff and tax returns, leading to a competitive disadvantage for smaller traditional firm that do not have the infrastructure to offshoring efficiently.

Why Going It Alone Isn't the Answer

Most traditional firms identify the necessity of offshoring but encounter major impediments while trying to do it themselves:

Difficulty and Risk: Establishing offshore operations involves international employment law expertise, quality control mechanisms, data protection procedures, and cultural assimilation – fields that the majority of accounting firms are not familiar with.

Quality Control Concerns: Offshoring can bring access to a worldwide pool of talent, but best practices and avoidable pitfalls should be followed by companies. Lacking systems and knowledge, however, quality may be compromised, which can destroy customer relationships.

Resource Investment: Establishing effective offshore operations requires significant upfront investment in technology, training, and management systems that many traditional firms cannot afford.

Time Sensitivity: With private equity-backed competitors already operating at scale, traditional firms don't have the luxury of a lengthy learning curve to develop offshore capabilities independently.

The Integra Solution: Leveling the Playing Field

This is where Integra becomes not just valuable, but essential for traditional accounting firms' survival. Rather than struggling to build offshore capabilities from scratch, partnering with Integra provides immediate access to the same cost advantages that private equity-backed firms enjoy.

Immediate Cost Reduction: Integra enables traditional firms to achieve 50-60% cost savings on routine accounting work without the complexity of managing international operations directly.

Quality Without Compromise: With established quality control processes, experienced offshore teams, and proven systems, Integra ensures that cost savings don't come at the expense of service quality.

Scalability: Traditional firms can scale their offshore capacity up or down based on demand without the fixed costs and commitments required for direct offshore operations.

Focus on Value-Added Services: By offshoring routine work through Integra, traditional accounting firms can redirect their domestic talent toward higher-value advisory services, business consulting, and client relationship management areas where personal relationships and local expertise provide sustainable competitive advantages.

Strategic Positioning for the Future

The accounting industry's transformation isn't slowing down. Traditional firms have a choice: adapt quickly by leveraging solutions like Integra, or risk being gradually displaced by more cost-effective competitors.

The firms that will thrive in this new environment are those that:

• Embrace offshore partnerships to achieve competitive cost structures
• Focus their domestic talent on high-value, relationship-driven services
• Use technology and partnerships to scale efficiently
• Maintain quality standards while reducing operational costs

Conclusion

The private equity wave in accounting isn't coming, it's already here. Private equity acquisitions of accounting firms have sparked a contentious debate in the industry, offering a mix of opportunities and challenges. While the challenges are real, the opportunities for traditional firms that act decisively are significant.

By partnering with Integra, traditional accounting firms can access the same cost advantages that make private equity-backed firms formidable competitors, while maintaining the personal relationships and service quality that are their greatest strengths. The question isn't whether the industry will continue to evolve toward offshore operations, the data makes clear it will. The question is whether traditional firms will proactively adapt to compete, or reactively struggle to survive.

In an industry where margins matter and efficiency determines competitiveness, Integra isn't just a vendor, it's a strategic partner that can mean the difference between thriving in the new landscape and being swept away by it.

Ready to learn how Integra can help your firm compete with private equity-backed competitors?

Contact us today to discuss your specific needs and discover how offshore partnerships can transform your practice's profitability and competitiveness.