Private Equity in Accounting – Testing the Waters or Permanent Competitor?

In full disclosure I have never met Jeff Bezos, the founder of mammoth e-commerce concern Amazon. I do know he makes more in two minutes than I earn in a year.

His company has a current market cap somewhere north of $1.5 trillion (yes that’s with a T) and in the interim he has purchased among others, The Washington Post, the Whole Foods supermarket chain, and online shoe retailer Zappos. He also operates a space exploration company called Blue Origin.

But that’s fodder for a future column.

No, today’s missive centers on Mr. Bezos and other private equity players wading into the accounting space via a client accounting services firm called Pilot.

Just last week the San Francisco-based Pilot, which initially launched in 2017, became the benefactor of a $100 million funding round courtesy of Bezos and a handful of other Silicon Valley investors including Whale Rock Capital and Sequoia.

Avoiding the A Word!

 

For the past 30 years, my annual tax filing routine has gone something like this: I would meet Rocco, my most trusted advisor since 1990, in front of the historic rotunda clock at Grand Central Terminal, hand him my documents and hopefully two weeks later, he would return a completed 1040.

Not this year.

Since the outbreak of COVID-19 he has been working remotely, so I was forced to make a house call – mask and all. Truth be told, it was the first time I had ever been to his house despite our three-decade relationship.

In any event, this year unlike the past five, the missus and I are getting a refund from both the federal and New York State. Despite the good fortune in a year that has had decidedly little to offer in that department, I’m always wary that a reversal like that could potentially trigger the dreaded “A” word – audit.

So, this being the height of filing season, there was hardly a shortage of articles and features on the minutiae of what can and cannot be deducted and red flags on items that could prompt the IRS to send a letter your way.

Meeting and Greeting For Real

 

Legendary actor, director and writer Woody Allen once proclaimed that “90 percent of success is just showing up.”

And truth be told, I’ve never found anything that would contradict that.

I doubt that any of you would question that “just showing up” over the past year has been, to oversimplify, a slight challenge. For many in the profession as well as in the broader spectrum of the country’s workforce, showing up at work over the past year basically meant preparing a cup of coffee, settling down in a makeshift home office. Not to mention downloading Zoom or Microsoft Teams apps to replace traditional in person meetings.

And forget about those post tax season conferences.

The majority were canceled faster than flights at O’Hare during a blizzard, or a number were forced to switch to an all-virtual format. Sadly, I knew too many people in the conference-organizing end of a business who were unemployed by October.

I have rarely been a “glass half full” person but, I’m optimistic about “showing up” in 2021.

Perhaps it’s the flurry of emails I’ve been receiving about registering for upcoming live events – emphasis on “live” as opposed to the virtual conference formats that abounded since last March. Sorry, but there is no substitute for a basic handshake and face to face sit down or group interaction.

A Pandemic Survival Guide

 

Several years ago, I was consulting with an accounting firm located in New York’s financial district. It fielded an aging and intractable ownership group and no one on its bench who even remotely resembled the key to a succession plan.

Therefore, the logical strategy for a firm in that situation was to seek an upstream merger. As I explained what was needed to the managing partner, I noticed that something was missing on his desk that normally is there. It took a moment before I realized that the absent staple in question was a computer.

Now I had to think about that for a second – the owner of the firm did not use a computer. I had never before encountered an owner or even a staff member in a CPA practice who didn’t. His aversion to technology was hardly an outlier within the practice, however. There were towering stacks of files piled up against several walls that would have earned a citation from any local fire inspector.

I thought about that practice and how long it would have remained in existence during the COVID-19 pandemic, when for thousands of firms around the country remote technology has evolved from a luxury to a Swiss Army knife for survival.

A Declining Balance

 

Henny Youngman, the aptly monikered “King of the One-Liners” used to tell this joke about his retirement savings and it went something like this...

“I just got off the phone with my accountant who assured me I have enough money to live on for the rest of my life. Provided I die by 5 pm this afternoon.”

Ba-da-bump.

While amusing, I am sure most of us and certainly a large portion of CPAs, have witnessed unfortunate cases of relatives or clients running out of their retirement savings far more rapidly than they expected. One former Wall Street old timer that I knew had saved close to $4 million by the time he traded in his 3-piece suit for a print shirt and an expensive set of golf clubs and yet less than 10 years later he was barely subsisting on Social Security.

The question that obviously many would ask is “how could that happen?”

The harsh reality is there are many unforeseen avenues that drain retirement coffers, some of which for many of us hit close to home.