The CPA Staffing Crisis: How AI and Succession Planning Can Save Your Firm

The secret has been out for a while. Actually, it’s more of an impending nightmare. You know, the one where the accounting profession is approaching the cliff’s edge of a significant talent crisis. But it’s not just a nightmare—it’s set to become a reality…and soon.

Not only are CPAs from the baby boomer generation approaching—or already at—retirement age (about 70%, according to the AICPA), but the number of students sitting for the CPA exam has also dwindled. To rub more salt in the wound, fewer students are completing bachelor’s degrees in accounting, shown by an alarmingly steady decline of 1-3% each year since the 2015-2016 school year. Although each of these factors may not seem too daunting on their own, together, they’re creating a “perfect storm.”

What does this mean for accounting firms?

It means that it’s time to rethink your succession planning and recruiting strategies. Let’s dive into this imminent reality and explore actionable solutions that can help firms address these issues.

The CPA Staffing Crisis

Let’s paint a picture of the looming staffing crisis. Back in 2018, the AICPA predicted that 75% of CPAs would be at or near retirement by 2019. And now they’re predicting that 70% of accountants are set to retire in 10 years. That doesn’t seem too terrible, right? People retire; it’s a part of life.

Throw in the fact that fewer students are graduating with a bachelor’s in accounting, much less a master’s of accountancy, and our picture is starting to look a little more dire. The number of combined graduates in 2022 dropped to 65,305 from 70,515 in 2021. That’s a scary 7.4% drop in just one year.

And don’t forget—not as many accounting graduates are sitting for the CPA exam, either. In 2021, 72,271 CPA candidates sat for the exam. That sounds like a decent number, doesn’t it? Well, only 67,336 took the exam in 2022. That’s a 6.8% year-over-year decrease. And when you consider the fact that there are only about 52,200 CPA firms operating in the United States, that boils down to just over one new CPA per firm. That’s not nearly enough new talent to cover the CPA pipeline shortage.

It’s a pretty stark picture when you look at it as a whole. And this shortage doesn’t affect just large firms; small and mid-sized firms are hit harder because they don’t always have the resources they need to compete for top talent. What will the staffing crisis look like in your CPA firm? We’ll tell you.

Increased Workloads and Burnout

As CPAs begin to retire and the number of CPA graduates shrinks, the staff left behind have to shoulder the burden. This means an increase in workloads, especially during busy times like tax season. Firms are forced to stretch their staff thin, which leads to two challenges:

Burnout. CPAs are known to work long hours, particularly in tax and audit services. But with fewer staff to share the workload, staff members are pushed beyond their limits…and often into burnout. Burnout doesn’t just affect morale; it kills your firm’s culture and can lead to high turnover. And that just exacerbates the staffing crisis.

Decline in work quality. As workloads increase, the quality of work tends to suffer. Overworked CPAs may struggle to maintain the attention to detail they’re known for, which is a veritable requirement in tax and accounting. This increases the risk of errors, which leads to financial penalties for clients and can damage a firm’s reputation.

Reduced Ability to Scale

If burnout and declining work quality weren’t enough, the staffing shortage poses a real threat to a firm’s ability to grow and retain clients. Firms that are understaffed face limitations when it comes to scaling their business, including:

Turning down new clients. When your firm doesn’t have the staff available, you’re forced to turn away potential new clients because there’s no one to handle the workload. This has a huge impact on revenue and growth potential because firms are unable to expand their client base or take on new projects.

Losing clients. CPAs form established relationships with long-standing clients. And when the CPA retires or leaves the firm without a succession plan in place, clients can feel abandoned or underserved. This puts client relationships at risk, and firms can lose clients to competitors who may be able to offer more stability.

Increased Compensation Costs

It’s clear there’s a shrinking pool of qualified CPAs available. And this means firms have to ante up and provide competitive compensation packages to attract and retain CPAs. Good for individuals, sure. But for smaller firms operating with tighter margins, it’s a struggle to compete with larger firms or corporations that can offer higher salaries and better benefits. This can lead to:

Wage inflation. Firms have to attract and retain talent during this shortage, and that means increasing CPA salaries to be competitive. In 2023 alone, entry-level pay increased 21% over the year before. For smaller firms, this is a lot of financial pressure, and the reality is that they may not be able to offer the same compensation as larger firms.

Higher benefits expectations. Higher salaries aren’t the only change firms are having to make; they’re also being pushed to offer better benefits, like flexible work arrangements, remote work options, and more professional development opportunities. While these perks help attract younger professionals, they’ll increase the overall cost of hiring and retaining staff.

The staffing crisis has far-reaching implications across the entire accounting profession. With fewer licensed CPAs and an aging workforce, firms may have to rely on increased outsourcing or adopt automation strategies to make up for the shortfall in talent. And this is forcing firms to rethink how they manage their workforce and plan for the future.

Challenges in Attracting and Retaining New Talent

It’s clear that firms are struggling to attract the next generation of CPAs. And it’s mainly due to a combination of factors: outdated perceptions of the profession, intense competition from other industries, and the lack of work-life balance. The rapidly shrinking number of CPA exam-takers only makes these challenges worse, leaving firms with fewer options for replenishing their talent pool. Let’s talk about these challenges in a bit more detail.

Perpetuating outdated perceptions. Younger generations tend to view CPAs as more rigid and traditional, meaning they work long hours, have tedious, manual processes, and stare at spreadsheets all day. While accounting is a stable and respected career path (especially during busy season!), some younger generations are more drawn to the tech or finance sectors that may not appear as “boring.”

Turning to other industries. Another major challenge facing the CPA profession is the increasing competition for talent from different fields, especially technology and finance. Both offer lucrative salaries and exciting career prospects, and no CPA exam is required.

Adhering to the 150-hour rule. The requirement of hours to become a CPA is a turnoff. The 150 credit hours of education often surpasses the standard bachelor’s degree, which is a large time commitment and monetary investment that’s deterring younger generations.

Lacking work-life balance. Younger generations want flexible work environments, the ability to work remotely, and overall life satisfaction. Unfortunately, many firms struggle to provide these benefits because the long hours, tight deadlines, and seasonal workload spikes remain common throughout the profession.

Leveraging AI for Recruitment and Retention

With the CPA pipeline shortage top of mind, firms have to find new ways to attract and retain talent. And that means turning to modern tech stacks, especially AI and automation, to help improve operational efficiency and workplace culture. AI not only helps firms manage their current workloads, but it has become an attractive option to the tech-savvy professionals looking to enter the workforce. They’re drawn to firms that embrace innovation, efficiency, and modern tools. Here’s how an optimized tech stack that includes AI helps create a more appealing work environment to attract younger CPAs:

It automates routine tasks. Tools like tax preparation software and accounting automation systems can handle repetitive tasks like data entry and filing, freeing up time for more strategic work (e.g., advisory services).

It uses data analytics to inform decisions. AI-powered analytics quickly analyze large amounts of financial data (in seconds), providing CPAs with valuable insights. No more time-consuming manual calculations!

It improves operational efficiency. Automation reduces the margin for human error and helps increase productivity, which helps firms handle more clients with fewer resources.

It enhances work-life balance. When tedious tasks are automated, CPAs can work more reasonable hours—even during busy season—which helps lead to better job satisfaction and retention.

It shifts the focus to advisory services. When AI handles the mundane tasks, CPAs can spend more time providing advisory services, leading to increased recurring revenue (and long-term client relationships).

Younger CPAs want to work for firms that use a modern tech stack and leverage AI, because they expect their workplaces to offer the same level of technological sophistication they experience in their everyday lives. Firms that embrace innovation improve their efficiency and make themselves more attractive to younger CPAs.

The Importance of Succession Planning

Given the staffing crisis and the changing expectations of the workforce, succession planning has never been more critical for CPA firms. Firms that fail to plan for the future are at risk of losing valuable client relationships, experiencing operational disruptions, and suffering reputational damage. Having a succession plan in place is critical for the following reasons:

CPA pipeline shortage. The profession is aging, and many CPAs who have built long-term relationships with clients are approaching retirement age. Without a structured succession plan, the loss of retired individuals can lead to client service disruptions and lost business.

Continuity of client relationships. It’s no secret that client relationships are paramount in the accounting profession. Many clients have relied on their CPA’s expertise for years, and trust can quickly erode when there’s a sudden transition without a proper plan. A well-executed succession plan ensures that client relationships transition smoothly when the time comes for a handover.

Operational disruption prevention. To maintain operational efficiency during a transition, a succession plan must be in place. If a key partner or CPA departs without a replacement ready to step in, it creates significant gaps in leadership and expertise. This can slow down operations and impact your firm’s ability to meet client needs.

Talent retention and motivation. A succession plan can be a big motivator to CPAs who are in the middle of their careers by giving them a clear path within the firm. It shows you’re committed to investing in their future and provides a goal for them to work toward.

Financial stability and growth. If there’s no succession plan, chances are you’ll run into financial instability. When partners or CPAs retire, the firm can be financially vulnerable.

If you don’t have a succession plan for your firm, you’ll want to get on that right away. Luckily, we’ve outlined five strategic tips for creating an effective succession plan below.

5 Tips to Create an Effective Succession Plan

Identify future leaders. Start your succession plan by recognizing who in your firm has the potential to take on a leadership role. This is someone who has technical expertise and strong interpersonal and management skills.
Provide mentorship programs. Create a structured mentorship program where senior CPAs can mentor mid-level staff to gradually transition their knowledge, skills, and client relationships. This provides continuity and ensures future leaders are well-prepared.
Implement phased retirement plans. If possible, allow senior CPAs and key partners to gradually transition out of the firm. This helps transfer knowledge and relationships without leaving a sudden leadership gap.
Ensure document knowledge transfer. Succession planning isn’t just about identifying successors; it’s also about ensuring that critical knowledge is passed along. Create documentation and systems that capture processes, key insights, and client preferences so the firm operates seamlessly, even during transition.
Communicate with clients. Keep your clients in the loop about any upcoming transitions. They’re more likely to stick around when they know there’s a solid plan to maintain their service quality and continuity, even when their long-term CPA retires.

Your Role in Averting the Staffing Crisis

The CPA staffing crisis isn’t just looming—it’s already here. And succession planning is no longer optional. You need a plan to ensure your firm’s survival. And when you invest in AI, embrace flexible work environments, and take a proactive approach to succession planning, your firm will be well-positioned to face this crisis head-on.

Don’t wait until the staffing crisis hits your doorstep—take steps now to build a firm that’s ready for whatever the profession throws at you next.