Earmark Podcast | Earn Free Accounting CPE

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Richard Lynch: [00:00:00] I think that the reality is real. Change is coming. Those who adopt have the opportunity for real progression in the profession. But as we talked about, those who don't have a real opportunity for extinction, and I think the question isn't whether those two events will occur. I think there's the will be progression and there will be extinction. The question is at what pace. And and that, I think, is what everybody is trying to figure out.

Blake Oliver: [00:00:27] Are you an accountant with a continuing education requirement? You can earn free Nasba approved CPE for listening to this episode, just visit earmarked.app in your web browser, take a short quiz and get your certificate. Hello everyone, and welcome back to the Earmark Podcast. I'm Blake Oliver. If you've spent any time in an accounting firm, you know the deal. You start at the bottom, the reconciliations, the data entry, the prep work, and eventually over years, you build up enough experience to move up The theory is that the repetition teaches you the craft. The reality is that for a lot of people, it burns them out before they ever get there. My guest today thinks AI is about to change that entirely. He calls it the era of the Super Accountant, a new kind of professional who uses AI not just as a productivity tool, but as a way to accelerate the journey to the high value strategic client facing work that makes this career worth having. Richard Lynch is a managing principal at Sikich, one of the largest CPA firms in the United States. He's been in public accounting for over 25 years, and he's written extensively about why the profession's current crisis, the talent shortage, the burnout, the attrition is actually a structural opportunity in disguise. Richard, welcome to the show.

Richard Lynch: [00:01:46] Thanks, Blake. Great to be here.

Blake Oliver: [00:01:48] So you've written about this idea of the super accountant. I love this term. For our listeners who are new to this, how would you describe it and why does it matter?

Richard Lynch: [00:01:59] You know, I think it's.

Richard Lynch: [00:02:00] Um, it's, it's where work is enhanced by AI and not replaced by our industry. And you alluded to it. Blake. Our industry has long valued this concept of the hours, the routine, the grind that you have to go through to provide, um, maybe the background as well as the backbone to be someone of good judgment and sound consultative skills. I think technology is changing the way we look at and that's not just AI, that's certainly AI, but all technology is changing how work gets done. The super accountant possesses, um, AI fluency, strong analytic judgment, a filter for accuracy, an understanding of compliance, but not a need to do it. Uh, they spend more time advising, less time gathering and manipulating data. They're not a tech person, um, doing accounting work. They are a technical person, maybe a CPA that specifically knows how to leverage technology. Why this is important, you know, and we'll talk more about the pyramid structure and the change and what that looks like, but that model is breaking up. There are just less entry level accountants coming into the pipeline. And we have to recognize that AI is collapsing that first rung of the pyramid. It's not disappearing, but it is pushing that first rung up to where their capabilities and skills are increasing. Um, so the super accountant becomes that center of the diamond, if you will, that in both capability as well as structural integrity. So I think our future CPAs will reach a higher level of intellect, capability and advisory skills at a much earlier age without decreasing the standards. They will learn to interpret data quicker, and they will get to analyzing the information without the grind of creating the inputs.

Blake Oliver: [00:03:51] You mentioned the pyramid, so we've got in a traditional firm. Lots of the entry level staff, accountants doing routine work, reconciliations, putting together work papers, rolling forward whatever was done last year, collecting documents, organizing them, checking boxes. But like, how does this change that? I mean, I'm using AI right now and I'm automating stuff that a staff accountant would have been doing, like is doing now. And I'm successfully automating it. Like just doing a bank rec, for instance, I've got Claude Cowork doing bank recs now for my company. So how, how do you get to these super accountants if there's no work for the staff to do? Like what do they do?

Richard Lynch: [00:04:42] So that's a, that's a great concept to think about. So I think it's, it's first, you have to explore that while you take this idea of the pyramid shifting to a diamond. And that is very structural in nature, thinking of a shift from one shape to another. Um, but the true implication is capability. The true, the true movement is the capability of what those rungs look like. So we're, we're moving that bottom layer up, but we're not just moving it in terms of capacity. We're moving it in terms of capability. So a historical model, um, the pyramid would suggest that a greater percentage of your workforce has the least amount of experience. And the diamond, a greater percentage of your workforce has a higher level of capability. So it's shifting that capability, level up, eliminating the need to do those reconciliations or those routine tasks. So it's certainly something that we have to consider from that standpoint. Um, I think we also have to understand that the, the industry in of itself will force the diamond to take place. The adoption of technology by many firms will, will push those capabilities up and will eliminate that first level.

Richard Lynch: [00:05:49] Um, that comes with a heavy burden of training of, of really investing in what that training platform looks like, making sure there's tight controls about how AI influences the workforce, and having an understanding of the inputs and outputs, and also balance the needs of, of the work life balance that we continue to, to have a struggle with in the profession. I also believe there'll be a pushback from our traditional educational platforms where people coming out of, of the new graduation and, and they'll have a better foundation for the changes going on in the platform. They'll, they'll spend more time in tech education. They'll spend more time in learning how to manage agents more, more time in analyzing the information. So I think this is a complete shift in how, um, how we train, how we educate and what that looks like to where we start to understand that we need to understand, we need to comprehend what AI is doing, but we don't need to understand or do it from a physical standpoint.

Blake Oliver: [00:06:49] So you you're saying that this pyramid structure that we've had in accounting firms for a long time, this upper out model where we start with a lot of people at the entry level, and then each promotion level, like people leave, some stay. So we start out with a bunch of staff accountants. We have fewer seniors, we have fewer managers, we have fewer directors. And we have, you know, 1% of the people who start become partners overall. And that's the that's the traditional pyramid structure. And you're saying it's going to become a diamond. I've heard this from, you know, Barry Melanson at the AICPA. I went to a conference. He put this up on the on the screen and like, I just don't understand how it actually works because if you have fewer people at the bottom, how do you end up with more people? Midway through the funnel?

Richard Lynch: [00:07:40] Sure, sure. So, um, if you can envision the profession, uh, 25, 30 years ago, and let's, let's break it down and think of the concept of, of an intern. Um, you know, 30, 40 years ago, you'd have an intern, that intern largely would go and, uh, get, get coffee. Um, they would make copies. They would be an errand boy. Um, that has evolved over time to where, um, coffee is at every corner. We don't really make copies anymore. Everything's electronic. So how do we use interns in today's profession? Well, those interns are actually providing technical work. They're actually doing client work. So the capability of the intern has moved up. Um, and so what that means is intern programs have started earlier and they've gotten more grassroots education. So they're more prepared for the workforce. They've gotten more exposure. Um, the same thing will happen here. Um, the understanding of what it means to be a first year accountant will shift and change. I think they'll be part of that, uh, weight will be carried by our traditional educational system. And I think part of that weight will be carried by firms having to develop more concentrated and intensive training programs. There's been the thought process of of kind of the first 6 to 8 months of someone's career being intensively educational as opposed to them doing any client work. They're, they're learning the craft for eight months of intensive, not even really touching a billable project as opposed to just learning how to get to that next layer. Um, to say that we have all the answers would, would be certainly untrue.

Richard Lynch: [00:09:13] Um, but to understand that, um, I think the, the capabilities of the people, the capabilities of, of the graduates is certainly, um, well within their, the confines of understanding for them to move up that chain at a much faster pace. I see, um, intensive training courses, I see, um, evolution in the educational platform and I see kind of the perspectives of what the profession looks like shifting and changing. And I do actually think that's a really exciting endeavor because like you said, we lose a lot of people in those first couple years and we lose them because a lot of what they're doing, I don't hear I do hear complaints about the hours, but it's usually the hour. You don't hear about it when it's engaging work, when there's a, a complex client issue or a matter, something that has to step up. You have to work a long weekend to meet a client deadline. That's when our people get excited. Um, when they're, when their burnout is, when they're stuck in the office at 9:00 at night because they're dealing with software issues and plugging numbers into, into spreadsheets and reconciling information. That's when you feel like, boy, I'd rather be doing anything but this right now. But when you've really interacted with that side of the brain that excites people, I think you have retention. So you add in advanced education with higher retention, and you create that middle part of the diamond.

Blake Oliver: [00:10:32] So you're saying that it's going to be some some of the training that needs to happen is going to be done by the firms. You mentioned something like 6 to 8 month intensive program and then some will be done by the universities. I'm. I got to say, I'm a little skeptical of the traditional education system adapting to this because accounting education has been the same for decades and decades. Right?

Richard Lynch: [00:10:57] Well, you know, I think you could you could argue that. I do think it's certainly slow from that standpoint. But if you start to think of how they may pepper in different types of training programs, so you do see movement within what, um, what the makeup of the traditional accounting education looks like. Um, that, that started back when I was in school where you saw a lot more technology being put into the educational platform. Now, it wasn't necessarily a requirement, but a lot of people were coming out with a little bit more tech a little bit. Now this was this was grassroots coding type stuff, nothing near what we're looking at today. But I do think, um, our educational system will respond probably not by, uh, in the manner in which, and that's why I think the firms will have to share that. I think they'll have to be a share will have to bridge that gap. But I do. And and I guess we'll also have to understand that just by the way our people are being raised in today's culture, they'll come out more tech savvy than what history has. So, so there may not necessarily be as much of a need to, to bridge that gap just because they understand the influence and what AI can do, because they use it in their daily lives of, of looking up recipes as well as how they interact in their profession.

Blake Oliver: [00:12:10] Or writing their term papers.

Richard Lynch: [00:12:11] Or writing.

Blake Oliver: [00:12:11] Their term.

Richard Lynch: [00:12:12] Papers.

Blake Oliver: [00:12:13] But, but see, there's the issue. It's like they may be tech, tech savvy, but we're talking about skipping the doer phase of the accountant education professionally, the professional, you know, few years at the beginning in a firm when you actually learn how to do the work, because most accounting education programs do not teach you anything about how to do a tax return or how to complete an audit work paper or really anything practical. It's almost exclusively theoretical in most of these education institutions, which is fine, right? You know, like.

Richard Lynch: [00:12:47] 100% agree, right. It lays a foundation, but certainly doesn't give you anything that that is pretty or accessible to a client. But I think we also have to understand that, um, you know, do we put in the basket of things that are valuable and invaluable? And what percentage of the first few years are actually valuable educational processes? Um, and so, you know, is it, is it really valuable for someone to, to be able to put a work paper? Is it really valuable for someone to be able to, to reconcile an account? Are those valuable tools that someone needs to be able to advance? And sometimes I, I wonder if those are actually obstacles to development, because we spend so much time on things that we're going to that are more production oriented, that will likely be replaced. And if you, if you take those things out of, out of the mindset of what they have to do with the hours, what can you replace it with? And that is where that super accountant mentality starts to blossom. If you remove this concept of I get work papers and I get this information, I'm not spending time importing it. I'm not spending time manipulating. I'm not spending time footing it. I'm not spending time tying it out. All those things that just take time and time and time. And what do you replace it with? Now, if you replace it with more of the same, you're not really, you're not creating that super accountant type mentality. But if you replace it with interactions with more capable resources, more, more face time with clients, more face time with, with, uh, mentors, uh, depth understanding, um, analysis, you start to elevate that person's potential at a much faster pace.

Blake Oliver: [00:14:18] One of the criticisms I hear often about automating all the staff work is that this is how doing the staff work is, how accountants learn to do review because you have your work papers, you send your work papers up the chain, They go to a senior, they go to a manager, they come back with all the feedback. And that's how you learn how to do the work properly. And then once you've learned how to do it, that's when you can now review the work of others. And if we have AI automating all of the doing, how do you actually learn how to be a good reviewer? So putting the numbers into the tax return is a big learning experience. And getting the feedback when you do it wrong is how you learn. And that's how you know when it's wrong in the future, when somebody else does it and what to fix. So if, if AI is putting all the numbers into the returns and organizing all the documents from the client and just staging the return for review. How am I going to learn how to review it?

Richard Lynch: [00:15:22] A real concern and can't underestimate or understate the value of experience. Um, the exposure to how a return flows, how an audit flows. Um, all those pieces are certainly challenges that we'll have to embark upon. Um, but I also believe that the reality of it is that there are some pieces that we, they may not learn, not because they didn't an exposure to, but because they don't have to. And this concept of knowing something, and this is where it gets really interesting, like as, as as you start to think through, there may be just some things that we don't have to know. Um, that, that, you know, uh, if I were to, to, to try to explain the concept to my kids of an encyclopedia, it would just seem so archaic to them understanding, you know, going to a book, reading information that is consistently outdated, you know, this, this concept of why wouldn't you just go to this platform that has this most updated information that's at your fingertips? So, so it quickly erased this idea of knowing how to use an encyclopedia, going through and looking up work. And, and, and so that idea that, that research reality for them is no longer relevant. And so why do they need to learn that? And I think that that evolves into the review context as well, is that there are just certain pieces that we value today because this is how we we learned it.

Richard Lynch: [00:16:47] And this is the box we grew up in. And we believe this is how you learn and this is how you know how to do that are going to be eradicated by the use of technology and how we fill in the gaps. Um, is very interesting because again, back to that same example. Now you go out to the internet and you do research and you don't know what's accurate and what's not. You know, when you go to the encyclopedia, it was almost a guaranteed factual context of information. Now, when you do research, you have to have a filter of knowing what is accurate, what is reliable, and how do I determine that. And I think that's going to be a much more important context. It's not necessarily what numbers go in what box. It's interpreting that information and making sure you have the filter to determine the accuracy as opposed to is it in the proper box? Technology will take care of putting in the proper box. Your objective is to have the filter of understanding how to interpret the outcome.

Richard Lynch: [00:17:40] And that's a completely different mindset. And so again, this goes back to that concept of trying to layer on AI into our existing process, trying to make AI fit into how we do review now, how we process a tax return now. Oh, well, how is this going to look if AI, if we do this, this, this and this, how is AI going to do this if we take out this? The reality is I think AI breaks that whole process. So the concept of review may look entirely different. What they're supposed to be reviewing, what they're supposed to be looking at. I don't think that we're at a place now where ourselves or our clients are ready for that. Um, they're not ready for that reliance on AI just yet, but we're evolving to it. We're evolving to where it's a reliable tool. And once we get to that stage where we can rely upon it, um, I think our entire cycle of, of what we review and how we review has to change. There may there may be a benefit to actually not having that anchor of how we used to do business and looking at review completely different.

Blake Oliver: [00:18:41] Two companies claim now to have completely automated tax return preparation with AI agents tax. Gpt says they've done it for ten 40s and basis says they've done it for 1065 partnership returns. What do you think about that?

Richard Lynch: [00:18:55] Um, you know, talk to both of those vendors. Um, impressed with what they've gotten. Um, you know, there is, I will tell you the, the rapid pace of accuracy is impressive. Um, if you, if we had had this discussion 12, even 24 months ago, it would tell you that we are not at a place where I feel comfortable with that reliance. Um, we are, we are quickly approaching, uh, where it is right more than it's wrong. Um, and a very pervasive basis. So the pace of accuracy, the pace of understanding is they're, uh, they, they're, it's inevitable that technology AI specifically will replace routine tasks, will replace, um, some of the, the automation, some of the things that we currently do. It's inevitable. Um, so how you put that on to where we're at in the linear phase of implementation and adoption? I think it goes firm by firm. Um, we at stitch are heavily invested in finding those solutions because, uh, not only one, again, there's this, this reality of, of less accountants entering the workforce. There's also the pressure of clients not being willing, really willing to pay for, you know, process and hours. Um, they want value. And so if, if you, you know, try to charge them for production when they know it can be replaced by AI they want to pay for consultation.

Richard Lynch: [00:20:28] They want to pay for value. So the pressures of of the workforce, the pressures of the client are going to you know, we all know technology solves problems. That's, that's um, sometimes it's the problems we all see. Sometimes it's problems we don't see. In this case, I think it's a problem that we see in. So there is dollars being put behind it. And when there's dollars there's development, there's capital. And I believe those things are going to spur massive change in the industry. So I think we're on the cusp of of major change to where we will see, uh, full scale capable end to end completion of tax return utilizing AI. The reality, though, is in the piece that we have to understand is completion of the tax return is a compliance orientation. Once the consultation occurs after, um, how do you, how do you advise people how to move forward from that compliance orientation to something that they want to achieve from their strategy, their business model or something beyond that.

Blake Oliver: [00:21:28] You mentioned billing by the hour. I want to talk about that time sheets. We've talked about like the pyramid model. Changing that aspect of the business model is shifting to more of a diamond when it comes to hourly billing. That has been the default billing model for especially big accounting firms for 100 years. And even though small firms have moved towards fixed fees and value based pricing, it seems like the big firms are all still doing hourly billing. Like, I haven't talked to a single large accounting firm that has moved away more than a tiny fraction of their billings to something other than hourly. I'm curious what's going on at psychic with that? Because if AI makes your team twice as fast, that means the client pays half as much.

Richard Lynch: [00:22:23] From an hours based perspective. Absolutely. So I think there's, from a perspective, um, we've made movements to get away from the concept of, of, um, hourly billing. Um, those movements have been, uh, probably a little bit more fundamental. Uh, so truth be told, we are still full based on capturing the hours of our people, the billable hour. Um, I think there's, there's some real anchors in how we do operations that cause that, uh, so everything that we do in terms of utilization of our people, productivity margin, all those come down to this hourly basis, this hourly analysis. So, so breaking away from that's not just on the billable side, not just billing clients. It's also how we manage the business. And that makes it twofold is difficult to get away from. Um, but the truth of the matter is, and you alluded to it is that if you tell clients that you're, you're basically buying hours of our people. Well, if it takes less time, then I should pay less. And the truth of the matter is, that's been a problem in our profession long before AI is that when someone says, oh, it only took me an hour to solve that problem, to provide that consultation, to provide that complex idea. It's it's more because they probably had 30 years of experience that they they brought that answer forth from as opposed to. That's all it really took. And so if you build that just that one hour, you're really undervaluing the fact that you have 30, 30 years of experience that allowed you to answer that question, that duration of time.

Richard Lynch: [00:23:59] So that, that compression of this hourly reality, um, it has been, has been there long before. Ai. Now, the measures that we had to go through is how do we convey value in this conversation? How do we, how do clients understand what that value looks like? How do they get comfortable with it? And I think that goes back to this concept of understanding that compliance isn't the output us us delivering you a tax return is not really the, the objective. Um, that's, that's part of what we do, but the product is really evaluating what we identify within that compliance orientation and providing consultation to move forward in our best relationships with our clients. When we go into those conversations, they very rarely talk about what is the tax return, what goes in, what box is. They want to say, how do I pay less in taxes? How do I structure this differently? Is the structure I have good for succession? Um, what if I sell my business? Those are the things what when fees don't really come up when you're when you're answering those types of questions for a client, fees don't come up. And so if you're engaged with your clients at beyond this idea of delivering that compliance service, that's when you really, truly evolve this value based proposition. So I think it goes in a couple of, of realities.

Richard Lynch: [00:25:16] We have to we have to break our operational tie. This ours based mentality. We have to be more engaged with our clients to where the value isn't about the compliance, but about the consultation. And they'll see that and and they'll respect that. If somebody if somebody comes to paint your house and they paint it beautifully, it doesn't matter how long they took, it matters what the product looks like. It matters that it looks really good. And so you don't, you don't ask them to take eight hours, ten hours, 20 hours or two weeks. You look at your house and says, does it look really good? And we have to get we have to have that understanding of how long did it take to do the tax return? And we don't care. It's it's what is the consultation? What's the value they received? And once we kind of answer those questions, I think we start to drip away from this billable hour concept. But I will tell you, we are heavily rooted in the billable hour. And it is not something that anybody enjoys, um, from from top to bottom. Our people hate entering their time. It's, there's no, uh, operational, there's no value to that, that, that time they spend entering their time that is capturing that momentum and it undervalues us. You know, oftentimes our most experienced people can do things quicker, and they're undervaluing the fact that they built that capability over years of experience and exposure, and it undervalues them.

Blake Oliver: [00:26:33] And yet you're telling me all these negative things about timesheets, right? But you're still doing it.

Richard Lynch: [00:26:40] Still doing it, still doing it.

Blake Oliver: [00:26:42] Why? You said you said operational demands.

Richard Lynch: [00:26:45] You get operationally tied to it so that the the thought process of breaking away from it becomes, um, so many iterations of change to think through how you would, how you would do that and what that would look like. It, it is, um, quintessentially the, the, the, the mount Everest of, of how, if you know, can you climb it in stages? Can you get to a place where you. But, but the reality is every stage of removing this hourly concept has this this massive down, so you can't really erase billable hours without erasing all of it, right?

Blake Oliver: [00:27:20] Well, you lose your, you lose realization. You, you, you lose utilization. You lose like independent individual job costing to some extent. But like, we know those are kind of use, those are useless metrics in my view.

Richard Lynch: [00:27:36] I would, I would 100% agree the concept of utilization and realization is an output that probably isn't relevant if it didn't get tied to, um, individual performance as well as capacity. So, so when you build your team based upon how many hours is that person going to be able to work and how many hours does this take? If you don't want your people to work excessive hours, you try and meet demand with supply. And so then you have this hours modulation, right? If it takes you this long to do it, then I want to have this many people to do it. So it's, it's built into your culture. I don't want to overwork my people. I want to have enough people to get the projects done. So you build in this manifestation of it's not just about output, it's also about work life balance and culture and not overworking people. And so so you, it just hits you at so many different angles to say, letting loose of it becomes, um, a reset of kind of almost everything that you do from an operational or daily management perspective. But, but the truth of it is, and this is, this is the hard part, and you alluded to it, if we kind of ignore those obstacles, the vision beyond that is certainly what we all want to get to is not having our people have to be tied to this concept of, how many hours did I work today or work this week? It's the value of what they contributed. Um, unfortunately, we're so rooted in this, this hourly concept that it is, um, it is kind of like a, it is, it is the support beam of, of the firm.

Blake Oliver: [00:29:05] Yeah. I guess it's existed forever because it works, not because it's the best. Right? It works. It works. Well. I would argue that it works for it works well enough to make a decent profit for the partners. I would say it does not work well for the staff. Like it's it's not a system that we would design if we were designing a business model for our employees, because like we all agree that nobody likes to fill out time sheets. It leads to overwork, causes people to eat hours, creates perverse incentives to be inefficient. I mean, it's not something that if I were designing a business to make my employees happy, that I would implement. Right?

Richard Lynch: [00:29:52] Right. I mean, no one really wants to I mean, literally, you know, if you enter in time on an hourly basis, um, no one wants to feel that kind of big brother type mentality where, um, you know, it erodes that kind of concept of, of trust of you're going to work hard and I trust you to do so. On the flip side of that, though, is this it does create expectation and it does allow us to control those expectations. So if you think of yourself in the mind of of a CPA that likes to understand what is expected of me, how can I, how can I gauge am I, am I being, am I doing what they're asking me to do that our understanding of this is what the hours they expect me to work does set that expectation of success and fulfillment. So. So there is the other side of that, of that if you have these and and if you if you if you eradicate the concept of hours entirely and you put people and let them say, you know, hey, just work really hard. We trust you, you will find people that will work so hard, they'll burn yourself out really quickly because they're ambitious, aggressive, and want to propel themselves up their career quickly.

Blake Oliver: [00:30:53] So can I just stop you there for a second? So you're saying that, like, timesheets actually help prevent burnout? Because I had never thought of them that way. Like in my experience.

Richard Lynch: [00:31:03] We do spend a lot of time at psychic evaluating people that are well over their hours of expectation. And that's a that's an indication that we have capacity issues that we need to hire, that we might need to go and evaluate what those things look like. So absolutely, we look at both sides of that pendulum of people that aren't meeting those expectations, but also people that are overachieving in the objective of setting that expectation is not for people to go hundreds of hours over it. It's to people that meet it. And if you meet these things, you should expect to have a solid progression through the career, through it. And those are the expectations that we've laid out. So I absolutely believe that allows people to say, I don't, I don't have to, to grind to to such an extent because I've, I've met the expectations. We also, you know, break it up into a couple of, of different categorizations where we limit the number of busy seasons our people have. Um, so unfortunately, this profession requires a busy season depending upon industry, depending, depending upon service line. And so we, we gauge ours and say, hey, we expect you to work a higher than normal number of hours in this period of time. But in this period of time, we expect you to to, to drift back down to a more normal balance from that perspective. And we monitor that as well. So if you if you kind of achieve those results, then, then you should, you should come to the end of the year feeling very, uh, very confident with what the expectations and what your, your ability to receive reward for that.

Blake Oliver: [00:32:31] In the past. So much of what we do in terms of our outputs has been linked to our inputs. The time that we put in there was a, you know, pretty reliable correlation between how many hours it would take to, you know, and the return output, right? Like the tax return, the audit, whatever. Ai has basically destroyed that link, right? This is why time is a measure of productivity is falling apart. Absolutely. So, I mean, I see this as like I'm imagining basically in a few years, every single accounting firm in this country will have to abandon hourly billing or they will go extinct.

Richard Lynch: [00:33:18] Mhm.

Blake Oliver: [00:33:19] And none of them are moving in that direction.

Richard Lynch: [00:33:22] Well, I think there's the pace of change is slow. Um, there's no doubt about it. That and, um.

Blake Oliver: [00:33:30] But not with AI. I mean, we're seeing three, four years.

Richard Lynch: [00:33:33] Out with other industries. Absolutely. The pace you see much quicker movement. I think that's there's a foundation of regulation and trust in the CPA world that causes us to, to adopt change at a slower pace. Um, you see, you see the invested dollars within the CPA industry, within the accounting industry as being, uh, very high. In fact, I don't think you can go a day without reading an article about the billions that are being invested in AI from, from larger firms. Um, so you see the willingness to invest in those dollars. Um, but I don't think our training, our education, our career pathing, um, even our operations have caught up to that investment. And I think that's one of the dangers of AI is that we're, we're, we're playing with it, but we're not really implementing it. Um, we're, we're, we're purchasing it, but we're not really relying on it. And I do see we're coming to that, that pinnacle point where that shift is going to have to take place to, to your absolute point, in order to avoid an extinction event, there's going to have to be this movement from kind of using it as a toy, a really cool, shiny new object to, to really it's foundational in what we do.

Blake Oliver: [00:34:40] So what do we replace our performance metrics with, right? If we're no longer motivating, incentivizing, evaluating our team based on hours on a time sheet, what do we like? What do we do instead? Like if you could change, if you could change how psychic operates today, if you could wave a wand and, you know, with all the other partners into line, what would you do?

Richard Lynch: [00:35:07] It's a it's a shift from exactly what you alluded to earlier. It's a shift from production to value. Um, it's a movement away from trying to find. And, you know, if I could, if, if we could wave a wand today, it would be the understanding that all the things that we do from a production type mentality has the potential to be replaced in the future. So, um, and that is a, that is a very difficult thing to digest. And I think back to my times in college where I had a flip phone, I had the, the, you know, unbreakable Nokia. Um, and, and you look at it as this device that does so, so few things, it's hard to look at that and understand what it's going to be capable of and what is a relatively short period of time. And so opening up your mind to be creative, to understand that all the things that we do from a production mentality have the potential of being replaced by AI that doesn't erase our value. That just elevates it. And so if we start today on this platform of of investing in the value we provide and not the production, we're going to be better for it and our clients are going to be better for it.

Richard Lynch: [00:36:16] And quite frankly, our people will be better for it because as I alluded to, our people don't get burnt out from working on engaging complex areas. They get burnt out from entering their time. They get burnt out from reconciling and footing. They get burnt out from the things that aren't exciting to their minds. If we use AI to eliminate this production mentality and have more engaging conversations with our clients and prospects, have more engaging and mentoring opportunities with our people. If we start that journey of looking at everything that we do on a daily basis and asking ourselves is, is this something that is foundational to what we do? Or is this something that has high probability of being automated and replaced in the future? What can I start to move my mind towards that as a value proposition to the people that work for me and the people that I work for?

Blake Oliver: [00:37:02] So when it comes specifically to the like the way we measure our staff though, like, you know, you said that a barrier to ending timesheets is that we have these performance metrics that we track operationally, and we don't know what to replace them with. Mhm. So like, what would you replace them with? Like how, how would you measure the contribution of a staff person to like that value that you talked about? Like what? Because we can't move away from the hourly model until.

Richard Lynch: [00:37:34] We.

Blake Oliver: [00:37:35] Have some other way of measuring their performance. Right?

Richard Lynch: [00:37:38] I think I think a lot of that candidly, is one reason why we're still stuck in this billable mentality is a better alternative hasn't necessarily been identified, because you are dealing with a group of people that like to be able to tie to data, and that hours provides a lot of data. How many hours did I work? What was my realization? How effective, how quick did I do that project? What was the budget? Was I under budget? All those questions could be asked because we enter time. And when you're dealing with the accounting mentality, they like to be able to reconcile those realities even though it's a burden to them. They like to be able to reconcile them. Anything that you start to replace that with becomes more subjective. Um, what type of value to provide? How many questions did we answer? How engaged did we get with the clients? What those are more subjective and much more difficult questions to answer in terms of performance and productivity. I do think it shifts away from this idea of production into client satisfaction, into how happy is the client with the work that we've done. That's the measure of what we do. Um, so, so that's.

Blake Oliver: [00:38:43] Something we can measure.

Richard Lynch: [00:38:45] That's something that we'll have to measure. And that's probably where we start to engage in that performance mentality about it's less about how many hours did we work and more about how happy do we make our clients. And even in my seat, it's probably more about how happy do we make our people, not how many hours do they work, how happy are people? How engaged are our people? Um, and those are things that will have to shift from a measurement standpoint to how we engage and that that creates better connectivity with our clients and better connectivity with our people.

Blake Oliver: [00:39:14] We can measure stuff other than ours, though that's linked to value. Like, um, just brainstorming here for a second, right? Like revenue.

Richard Lynch: [00:39:26] Sure.

Blake Oliver: [00:39:27] Okay. Revenue is value.

Richard Lynch: [00:39:29] Absolutely.

Blake Oliver: [00:39:30] Economic theory says that when a client pays us money, they are exchanging value for value. The value of our services for the value of their money. So one thing that I've seen firms do is link employee incentives to revenue instead of hours. If, if if we're not using ours anymore to derive revenue like ours, revenue is not a function of ours anymore. Then why are we measuring ours for performance purposes? Let's measure the employees contribution to revenue.

Richard Lynch: [00:40:08] Mhm.

Blake Oliver: [00:40:09] And I know that one of the reasons we wouldn't do this is because, oh that's difficult. So many people worked on a project. How do we decide how much how many dollars to attribute to each employee? But I feel like we could do that now. Like, especially with AI, we could actually like give an AI agent all the details about a project and everybody who worked on it and what they did, like literally all the emails, all the project files, every single piece of data about it. And you could probably have it estimate an employee's contribution margin On a project basis. I mean, I just feel like as a profession, we are not thinking creatively in the slightest.

Richard Lynch: [00:41:00] Uh, and I would so I don't think any accountants ever been accused of being overly creative in a lot of ways. Right. So it is a limitation within our industry. So if you think about let's, let's think about like, um, I'm a big, I was a big Chicago Bulls fan in the 90s. And you think about, um, obviously the names that come to your, to the tip of tongue, Michael Jordan and Scottie Pippen, uh, big scores, guys that put numbers up on the stat sheet. Um, you know, uh, and if you, if you, if you correlate kind of points to revenue, you would, you would, you would certainly say, oh, you know, Scottie Pippen and Michael Jordan are the most key players on that team. But but there can be an argument made for, for the Dennis Rodman of the world that didn't put up points that that was the just the rebounder, the defensive player that he did all the the really difficult tasks. That's not going to show up as as highlighted on the stat sheet absent the rebounds. So. So the revenue metric, I think if you if you create a team environment where everybody understands the roles that they play, um, it comes becomes less important to assign a revenue value to each team member as opposed to understanding that the team produced together this revenue. So I think you can eradicate this idea of trying to assign now the risk, I think, with using revenue. And we've thought about this revenue metric a lot. The risk of using revenue is that then you begin to incentivize people to burn out because, um, it's this idea that, well, if I work more, I can generate more revenue. And so if we work harder, more revenue, and then you start to chew into, okay, my.

Blake Oliver: [00:42:35] That's only in a timesheet based, hourly based model where you work more, you make more money in a model where you've delinked time from, like how much we charge the client, you can make like I make $1,000 an hour right now. You know, like me personally, I could not do that in an accounting firm because accounting firms just don't charge that much per hour.

Richard Lynch: [00:42:57] Don't charge that much per hour because the value the clients would pay. I mean, there's that that correlation. Absolutely. The trade for trade. But I guess that if you if you take that to an individual project basis, I, I see what you're saying, but if you expand that to multiple projects, you would incentivize people to take on more projects to balance more of those pieces. So, so in your example, let's say, yeah, this job over here, I can get a thousand bucks an hour, or I could do two jobs at 500 bucks an hour, or four jobs at 250 bucks an hour. And you can keep slicing and slicing. And inevitably, the more projects you take on to reach that revenue capability is, the more drain you have, the more burnout that you have. And so if you can, if you can model it to where everybody's earning at that high end and that high level, that's, that's great. But if you have these projects that don't just contribute at that level, you'll take on more. And then you have industry differences, you have geographic differences that create some of those different revenue patterns that causes that kind of, um, uh, I guess, break in that chain of how that might work. Now I do, I do love the thought process of, of making it more of, of, of a value proposition, which revenue is a absolutely a delineation of, of, of value. So there is something there. It's just the matter of how do you actually put the metrics behind it to capture it?

Blake Oliver: [00:44:24] You know, I really liked your analogy of the basketball team. It's bouncing around in my head. Okay, so let's, let's, can we just go with that for a second?

Richard Lynch: [00:44:31] Sure. Absolutely.

Blake Oliver: [00:44:32] Okay. So so like you said, you have to look at a team as a collection of the players, not individuals. If you just look at individual scores like or totals, right? Like you said. What? Scottie Pippen and who else? Like high scorers.

Richard Lynch: [00:44:49] Michael Jordan.

Blake Oliver: [00:44:49] Michael Jordan, high scorers right. But they were supported by a team. Absolutely. Like Dennis Rodman not a high scorer but enabled others to be high scorers. So I think the problem we have in accounting is that our performance metrics, our whole way that we measure the firm and measure the people we drill down so far down to the individual hour that we're basically only looking at. We're not even looking at points. We are looking at time on the court. Yep. You know, like, and, and so, I mean, one way that you could solve this problem is just for like firms could just stop drilling down so far. Like most, most firms are, I imagine like this, they're organized into basically like small practices, right? That all grouped together to be a large firm and they're led by one partner generally. So you have a partner and then anywhere from like 10 to 20 staff and managers and directors. Right. Well, why not just look at them as a team? Why do we have to look at every single individual on an hourly basis? And why do we have to look at every single project and figure out the profitability of every job that we do when everybody's on salary anyway? You know, like it doesn't like if we go over on the job, we didn't actually lose money. You know what I mean? Right. Like these are imaginary job costs.

Richard Lynch: [00:46:23] Unless we were to have given up work that we could have done. But you're absolutely right. In most cases, it is the salaries of sunk cost. It's we're paying that one way or the other.

Blake Oliver: [00:46:32] Yeah.

Richard Lynch: [00:46:33] You know, so I think you hit on a couple really interesting pieces there. Um, the first is we don't really even measure the, The. We measure the hour, assuming that hour is of equivalent value to everybody else's hour, and that is baseline. Categorically false. Um, every person's hour is at a different level of value creation. And that doesn't mean that someone there are people inherently that come to decisions quicker and therefore are able to get through information quicker. There are people's minds that work faster. That doesn't necessarily mean that they're they're more valuable to the the firm. However, measuring hours would would necessitate that if you can think quicker, you can digest quicker, you can get through more work and therefore you are more valuable. Um, so I, I, I really resonate with the concept that hours are not always a measure of value creation or capability. It is some people are slower, some people are faster. I think everybody finds their way through it. And there's value to both of those pieces. And so inherently, at the very baseline of measuring an hour of a person makes person two homogeneous when that's just not the case. Every individual is different. And, and so not respecting that is breaks that chain almost immediately. But let's just assume that that's some level of measurement.

Richard Lynch: [00:48:00] That's a, that's a, a number that we've chosen. Um, when you start to, to, to kind of block those things on top of each other, adding hours on top of hours and hours on top of hours, I think you have this, this situation where, um, the, the, the, the connotation of the employee becomes, I am an hours based person. All I am is hours and, and that's a cultural issue, right? Because it's not about what I contribute. It's about how many hours I give. And so that becomes a cultural issue. Where am I just a number and am I just contributing at these, these hours? So, so the concept of of measuring hours is not only a problem in terms of does it really necessitate value, but there is just cultural context to it. And we are actually applying a heavy layer of, of assumption that really we know not to be true. Um, but again, I say all these things and yet we track hours on, on a religious basis at psychic. Um, and, and how do we break from that is, is the question and what does that look like? It, I think you have to answer so many questions along the way, which, which candidly, I don't think our industry is prepared for yet.

Richard Lynch: [00:49:19] Um, it's of letting go of this concept and I do really, I can appreciate the idea of, of the team orientation. Um, almost everything we do at SickKids is in a team. Um, you know, even the individual tax preparation is in a team. There's administrative components, there's review components, there's production components. It's all in a team environment. So so we are functioning in a team world. And I have a background in sports. So I believe in the team mentality. And I believe that that the best team is made up of people with multiple disciplines and multiple backgrounds and multiple perspectives. In fact, that's where our clients really see value. When you bring a team that can look at things just differently. Um, and so, so the, the idea of a diverse group of people coming together is, is a value proposition. I truly believe in the challenge of that is every team member within that group has to perform at some level of a standard deviation of the other. Because if, if we go back to that, that mid 90s basketball, if if Dennis Rodman doesn't get his his, his complete effort, that breaks the idea of him not being a scorer. He can't find playing time on that team because the people that are doing the scoring No longer look at what he's doing is valuable.

Richard Lynch: [00:50:38] He may have been brought to the team to be a rebounder, but if he's not giving his best effort, if he's not going out there and hustling, not doing his part of the project, the other two will look at that and say, well, why am I killing myself when this guy is just not getting it done? Why am I doing this when they're not? Or even conversely, if he's going out there and doing the rebounds and he finds, you know, the Scottie Pippen's of the world just taking a game off, he starts to say, well, why am I sacrificing my body? Why am I going out there and getting bumps and bruises to get rebounds, to get this guy the ball when he's just given half his effort? And so you have to have this culture where the team performs all within kind of a standard deviation of each other. And that's that to me, I think is where you start to get this snowball of how do you measure that? How do you make sure they're contributing? How do you make sure the team is functioning appropriately so that you have this high efficiency, high effectiveness that's generating the value you're looking for?

Blake Oliver: [00:51:35] Richard, I have had such a great time chatting with you. I've got one more question that I'd like to leave you with. And this is this is something that basically something that you would like to say to all the other firm leaders out there. So so here it is, right? What is one thing that you wish more firm leaders understood about where the profession is headed that they are currently getting wrong?

Richard Lynch: [00:52:02] So, you know, I guess to be clear, I, I still have a lot to learn and understand. So, um, you know, my statements would come from a place of, of any sort of judgment, um, and certainly not sort of any elevation of my understanding. Um, but once you, and maybe that's the best journey to be on is to understand you don't know everything and, and, um, trying to let loose of, of the history that you bring in the profession, the 25 years I bring here, and then you telling me that, that the processes need to break and these things, these billable that I've grown up in that I've grassroots grown up in for 25 years. I've entered my time and we're starting to talk about how do we get away from it? That's like the energy. The excitement for me is how do we fix some of these things as profession has has built its foundation on, but now we reflect back may not be the right way. And how do we how do we make those evolutions? And that is really exciting, engaging and, um, a little bit of, of maybe urgency around it. Um, I think that the reality is real change is coming. Um, those who adopt have the opportunity for, for real progression in the profession, but as we talked about those who don't have a real opportunity for extinction, and I think the question isn't whether those two events will occur. I think there's, there will be progression and there will be extinction. The question is at what pace. And, and that, I think, is what everybody is trying to figure out.

Richard Lynch: [00:53:28] Um, we also have to understand the idea of, working harder to compensate for the failure to adopt is no longer sustainable. It's, it's, it's, uh, we have to start measuring things differently. We've talked a great deal about that. We have to look at things differently. We can't just work harder, ask for more, work deeper into the night. The profession has to change beyond that. And that's that's imperative. I also think investing does not equate to implementation. Um, so buying a product does not mean that you're adopting AI. Um, so there has to be this concept and willingness to be agile and to break the processes that we have and to not hold on to the history of how things once were. Um, and understand that we may have gotten it wrong, it may have been wrong all along. And now finally, technology is exposing us that and giving it a better opportunity to do something different. Um, let's not let the past be an anchor. Um, let's certainly not ignore our past experiences, but let's not let the past be an anchor. And probably finally, um, you know, it's, uh, don't let fear rule the day. Uh, this is, it is, it is, um, interesting to jump into movements within our industry that are a little uncomfortable. And, um, if, if you consistently try and find a place of complacency, a place of comfort, you will not adopt at the pace necessary. And you, you put yourself on the pendulum of, are you on the side of extinction or progression? And, um, I'll tell you, I have every desire to be on the side of progression.

Blake Oliver: [00:55:05] I've been speaking with Richard Lynch, managing principal at Sikich, one of the largest CPA firms in the US. Richard, thank you so much for sharing your perspective with me and our listeners.

Richard Lynch: [00:55:17] Absolutely a great time. I appreciate you having me.