How the Accountant Shortage Is Rippling Through the Startup World

By Ali Donaldson, Inc. (TNS)

Where have all the accountants gone?

Between 1990 and 2021, the number of people sitting for the Certified Public Accountant exam plunged by almost 50 percent, according to the Association of International Certified Professional Accountants. With fewer young people entering the profession and an increasing number of baby boomers, who account for three-quarters of CPAs, heading for retirement, a Bloomberg analysis of data from the Bureau of Labor Statistics found that there are 340,000 fewer accountants than there were five years ago. The drought of talent has prompted a crisis in the industry, which has put the blame on stiff education requirements, sluggish pay, and tough competition from glitzier business school paths like investment banking and management consulting.

This specialized labor shortage is not just a problem for the accounting firms struggling to fill out their entry-level recruiting classes. This dearth of number crunchers is having a downstream impact on the clients they serve—namely businesses.

For many early-stage and smaller companies, accountants serve as de-facto financial advisors in place of a CFO, and right now, in a tricky environment of higher interest rates, elevated costs, and tighter margins, entrepreneurs could really use some professional guidance. But with depleted ranks, accounting firms are struggling to keep up with demand, and founders say they are struggling to get the answers they need.

“Small businesses are out there going: I need this help. It’s a tougher economy today,” says Ben Richmond, a certified public accountant who manages the U.S. client base for the small business accounting software platform Xero. “The challenge is a lot of the firms aren’t either resourced with the right technology or enough people to get to that.”

For founders, regardless of whether they use a Big Four auditor, an independent firm, or an automated DIY solution, this headache will not affect tax season, says Richmond. “You’ll have no issue finding someone to do your tax return,” he explains. “But if you want the help of a true business partner or an advisor, that’s where there’s not as many firms out there,” he adds. “Firms are struggling to get through just the basic workload they have.”

When entrepreneurs do not have somewhere to turn for insights into their books, that poses a real risk, says Richmond. “It is scary in the U.S. when you look at how many people don’t actually know what their cash flow looks like 30, 60, 90 days out,” he says. “You’ve got all these businesses out there that are operating blind.”

Filling the CPA Gap

A new generation of startups has made this problem their business. Dozens of companies have come to market in the past few years with software solutions designed to fill the accountant gap with artificial intelligence. Investors are latching onto the idea. The venture capital giant Andreessen Horowitz is betting on it, declaring the talent-strapped industry ripe for technological disruption.

“This shouldn’t come as a surprise to anyone,” wrote firm partners Marc Andrusko and Seema Amble in a report, which was published in June. “Bookkeeping, accounting, tax preparation, and auditing are fields full of largely formulaic and repetitive exercises that would immensely benefit from generative AI’s gift of efficiency and time savings.”

Other VCs would seem to agree. Last November, San Francisco-based Puzzle secured $30 million for its AI-powered accounting platform, bringing its total funding to $50 million. In March, Fundguard, a New York-based AI accounting startup designed for asset managers, raked in $100 million. In June, Klarity, a Bay Area startup that automates tasks like document review and data extraction, closed a $70 million Series B round.

One of the newer companies capitalizing on this opportunity is JustPaid. The Bay Area startup, which launched in 2023, uses AI to automate bill pay and invoicing, the sort of manual, tedious tasks that typically require small businesses to beef up their internal accounting teams or find outside help. In January, the company, which has raised more than $4 million from blue-chip investors including Y Combinator, Rebel Fund, and Kleiner Perkins partner Mamoon Hamid, introduced its GPT app. The GenAI tool connects to founders’ banking, Stripe, and Quickbooks accounts and can answer financial questions about topics such as burn rate, top revenue sources, and revenue changes.

For co-founders Daniel Kivatinos, Anelya Grant, and Vinay Pinnaka, the idea for the company was born out of their own experience dealing with the accountant shortage in Silicon Valley. “We saw the problem ourselves. All of us have been in the startup industry for a long time,” says Kivatinos, who also serves as CEO. “I’ve seen a lot of startups struggle to find the appropriate people, where they’re just basically running some of the finance operations themselves.”

Rather than fully replacing CPAs, the co-founders say their tool will help accountants shoulder a heavier workload with a smaller team, freeing people up from repetitive tasks so they can take on higher-level and more creative assignments. “As the shortage gets worse and worse, AI is going to be picking up some of the slack,” says Kivatinos.

Even with the amount of capital behind these startups, they have more than just each other to compete with. The established industry players are also looking to leverage the recent advances in GenAI and are deploying their own tools to their sizable customer bases. Grant Thornton, the seventh-largest accounting firm in the U.S. by revenue, is looking to AI to increase its scale and bring more specialized services to customers. In February, the Chicago-based firm unveiled its own GenAI tool, which was built using Microsoft technology.

As Grant Thornton’s Chicago market managing partner Arla Lach told Inc., “We’ve seen this coming for a long time.”

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