PE-backed accounting firms
Private Equity (PE) firms are increasingly investing in accounting and finance firms. At first glance, it might seem like a win-win: more capital means more resources, right? But in reality, I've seen the cold truth. There’s often a trade-off between what a firm should be providing to its clients and the returns PE investors expect to harvest. So, does it really make a difference if your firm is PE-backed? The short answer: Yes, and not in a good way.
The Real Winners: PE Firms and Partners
When PE steps in, the immediate winners are the firm’s partners and the PE investors. Partners benefit from a buyout, and PE firms profit by driving higher margins. While this may seem like a healthy business move, the capital injected by PE firms rarely translates into better service for clients. Instead, it focuses on generating returns for investors—not on enhancing the core value the firm offers to you.
What Should Firms Be Providing to Clients?
A professional services firm thrives by delivering quality expertise, personalized service, and long-term support. This requires consistent investment in people—hiring the best talent, training staff, and ensuring they are well-supported. These investments allow firms to stay ahead of evolving industry needs and client expectations. But with PE involvement, this essential investment is often compromised.
The PE Trade-Off: Cost-Cutting Over Client Care
PE firms have a well-worn playbook: cut costs, increase profits. The first to go? Overhead expenses. This often includes Learning & Development (L&D) programs and back-office support—critical components that contribute to better service delivery. While these cuts may improve short-term profitability, they come at the expense of maintaining a skilled, engaged workforce capable of delivering the high-level service clients expect.
In simple terms: when PE prioritizes cutting costs to maximize their return on investment, your experience as a client may be diminished. You might face higher billing rates, while the service quality stagnates or even declines, as the firm’s ability to invest in its people and processes shrinks.
Pressure on Labor, Impact on Clients
Another common PE strategy is to keep labor costs low while pushing for higher billing rates. For instance, I've seen PE-backed firm billing rates increase by over 8% but only while raising employee wages by 3%, and not just as a single-cycle event. This disparity leads to dissatisfaction among employees, higher turnover, and, ultimately, a less consistent service experience for clients like you.
When skilled professionals leave because they aren’t adequately compensated or supported, the quality of advice and service you receive often suffers. And yet, while the firm’s internal issues mount, PE investors continue to enjoy healthy returns—at the expense of both the employees and clients.
A Difference in Management Approach
PE-managed firms often push performance expectations to an unrealistic level. They set fanciful targets, and when those targets aren’t met, they “yell at the results,” rather than addressing the root causes, reacting to industry trends, or even understanding the business that they bought in the first place. This approach leads to frantic efforts to make the financials look better—sometimes at the expense of quality and long-term relationships—rather than focusing on what really drives success: client satisfaction and delivering value.
By contrast, owner-run firms tend to take a more grounded approach. They focus on the fundamentals of client service, continually improving how they work with clients and refining the inputs that create strong, lasting partnerships. Instead of just focusing on economic results, they prioritize delivering great service, knowing that the financials will follow. This mindset fosters a healthier, more sustainable business that puts client outcomes ahead of unrealistic financial pressures.
The Bottom Line for Clients
PE firms enter the accounting and finance sector to generate returns for their investors. While they might inject capital, this rarely translates into better service or long-term value for clients. Instead, cost-cutting and labor pressure leave firms less able to invest in the very things that make them successful—people, skills, and client care. Unfortunately, this isn't a trend that's going away any time soon.
So, if you’re considering whether a PE-backed firm is right for you, remember: the trade-off is real. Higher short-term profits for investors often come at the cost of long-term value for clients. As part of your diligence when selecting an accounting firm, ask whether they are PE-owned. It will make a difference.
