Discover more from The 21 Hats Morning Report
We Need More Accountants
The shortage is forcing accounting firms to outsource overseas and small businesses to confront rising prices.
Here are today’s highlights:
One advantage of pay transparency is that you can see what competitors pay.
Wholesale prices fell more than expected in December.
Here’s how Barnes & Noble shifted its image from megastore to neighborhood store.
A daycare business shuts down, but the industry’s problems run deeper.
There’s a national shortage of accountants: “Large firms such as KPMG and PricewaterhouseCoopers have long hired international accountants to support client work. Now, with tax season poised to kick off, small and midsize accounting outfits that serve family businesses, individuals, and smaller companies say they are offshoring jobs as local recruiting pipelines dry up and accountants leave the profession in droves. Dan Geltrude, founder of an accounting firm in Nutley, N.J., hired a 10-person tax team in Ahmedabad and Bengaluru, India, last year and plans to expand to 15 workers. ‘This would have been a crazy idea for us 10 years ago. Now, this is absolutely part of our operations,’ he said. ‘There’s no other way for us to meet the demand.’”
“Some firms say they have stopped performing external audits for businesses altogether because they are unable to staff those projects, several managing partners and presidents of firms that employ fewer than 50 people said. For small organizations, the cost of a basic audit or regulatory compliance is rising fast.”
“Marty Abroms, managing shareholder of the 25-employee Abroms and Associates in Florence, Ala., said he isn’t willing to hire foreign accountants, but has had to turn down dozens of clients in recent years.”
His firm, about 100 miles northwest of Birmingham, primarily serves small and midsize private companies, and he also does those owners’ individual tax returns. He estimates that the lost business over the past three years likely cost the firm more than $430,000 in revenues, but he worries about overworking, and losing, his current staff.”
“Turning down work ‘breaks my heart,’ he said. ‘It’s all we can do to keep up with our really good clients right now.’” READ MORE
Pay transparency has had some unexpected but positive results for businesses: “When Ron Harman King, the founder of a small content-marketing firm based in Colorado, started posting salary ranges on job listings in order to comply with state law, he was surprised. The candidates who responded to his ads seemed like a better fit than those who previously applied with higher salary expectations. ‘The interviews have been easier,’ he said. ‘They knew what the position would pay, and they were already interested in applying for it at that range.’ The way that Mr. King set his rates also changed. Instead of looking at industry data nationwide, he could look at what his direct competitors were paying.”
“‘Everybody’s got to kind of, you know, show what they got,’ he said. ‘So I feel like we all are better informed as to what it takes to really be competitive as an employer.’”
“This month, laws went into effect in California and Washington State that required companies to post salary ranges on job listings. Like similar rules in New York City and Colorado, lawmakers passed them on the premise that pay transparency helped reduce wage gaps.”
“Some research suggests that when wages are more transparent, employees tend to work harder. In an experiment at a large commercial bank in Asia, Ms. Cullen and a co-author found a similar result: Workers tended to underestimate the salaries of their managers. When the bank made salaries public, they learned they would earn more than they had if they moved up the ladder and put in more effort.” READ MORE
Barnes & Noble has gone from being the megastore that bullied mom-and-pops out of business to being a hero of bookstore culture: “The chain’s new owners, Elliott Advisors, sought to turn the page by bringing in [CEO James] Daunt, the chief executive of U.K. book chain Waterstone (also owned by Elliott). Daunt, credited with pulling Waterstone back from bankruptcy’s brink, basically said he would use the same playbook, most notably giving more autonomy to individual stores to function more like local shops than cookie-cutter manifestations of a top-down corporate vision. The strategy, he said at the time, boiled down to ‘running really nice bookshops.’ And this, at least by some accounts, is exactly what Daunt has done, and exactly why Barnes & Noble is now a book-culture hero.”
“Daunt moved the entire chain away from its years of dabbling in a more gift-y and impulse-buy non-book product mix: more books, no more batteries. And it nixed deals with publishers to feature certain titles in exchange for a fee.”
“The most full-throated endorsement yet came from Ted Goia, author of the popular culture newsletter ‘The Honest Broker:’ ‘This is James Daunt’s super power,’ Goia declared. ‘He loves books.’”READ MORE
Gene Marks says in-person conferences are back to business as usual: “Lots and lots of happy business owners and managers are back to attending their industry conferences. They’re shaking hands, embracing, chatting, drinking, networking, learning, and laughing. At the conferences I attended, I noticed few masks. I’m assuming most of the attendees were vaccinated, although there’s no way to be sure. I noticed that pretty much all of the conferences have given up on the Covid-protocols like social distancing, spaced seating and other health rules that were in place in 2021. Basically, there’s little difference from before the pandemic. As far as these business groups were concerned, it was business as usual.”
“Spending on services such as travel, dining, and events has been steadily rising since January 2021. Travelers at airports have exceeded 2019 levels at various points of the year.”
“Hotel occupancy rates are still slightly below 2019 levels but have been running above the 10-year medium since the middle of the year. Las Vegas — the epicenter of conferences and conventions — has caught up to pre-Covid levels with October 2022 visitors exceeding October 2019 levels.”
“I get it if you have legitimate health risks that may preclude you from getting back on the road. But if that’s not the case then my advice is to get back to it.”
“Update your vaccinations and, if you choose to do so, wear a mask. You’ll be one of the few people at the conference (or even on a plane) doing so. But if that’s making you feel better, then go for it. Your business may depend on it.” READ MORE
Wholesale prices fell much more than expected in December: “Prices for wholesale goods and services fell sharply in December, providing another sign that inflation, while still high, is beginning to ease. The producer price index, which measures final demand prices across hundreds of categories, declined 0.5 percent for the month, the Labor Department reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.1 percent decline.”
“A sharp drop in energy prices helped bring the headline inflation reading down for the month. The PPI’s final demand energy index plunged 7.9 percent on the month. Within that category, wholesale gasoline prices fell 13.4 percent.”
“The final demand food index also fell, declining 1.2 percent.” READ MORE
Retail sales fell 1.1 percent in December: “The report shows consumers’ appetite for spending on gifts, dining out and big-ticket purchases during the final month of the holiday season. High inflation and rising borrowing costs caused some households to pull back late last year, and retailers said the recently completed holiday shopping season turned out to be weaker than expected. Macy’s warned of softer sales, and Lululemon Athletica said its profit margins were squeezed as shoppers bought more items on sale. Broadly, discounting became more commonplace. Signs of a late-year cooling in demand came after shoppers spent at a strong rate in most of 2022, powered by a robust labor market, pent-up demand for services and savings from pandemic stimulus funds. The retail sales report measures spending at stores, online, and in restaurants.” READ MORE
Shopify is going after much larger businesses: “Shopify has historically targeted owners of small and midsize businesses. Earlier in the pandemic, its business soared as it catered to these entrepreneurs, many of whom were venturing into e-commerce for the first time amid lockdowns. With a new, customizable ecommerce platform, Shopify could appeal to large enterprises that use a different software suite to run their businesses but may want to try alternative e-commerce features. The move to cater to large-scale retailers is an evolution of Shopify's identity. Shopify may see more opportunity as larger businesses look for software that offers good value amid an uncertain economic climate, Rick Watson, the CEO and founder of RMW Commerce Consulting, said. In a way, Shopify is hedging its bets.”
“The typical Shopify merchant makes about $35,000 in sales a year, Ken Wong, the managing director of e-commerce-software research at Oppenheimer, said. And the typical merchant using Shopify Plus, a more-advanced version of Shopify used by brands like Allbirds and Brooklinen, generates an estimated $7 million in sales a year.”
“With Commerce Components, Shopify could target merchants with sales that are closer to the $500 million range, Wong said. For that service, Shopify has already partnered with Mattel, which generated nearly $5.5 billion in sales in 2021.”
“‘At some point, are they going to have certain capabilities that could be useful to everyone but segment it off to just a slice of their customer base?’ Wong said. ‘That worry is definitely lingering out there. And I think it's hard for them to have this kind of product segmentation without very explicitly carving off features from their lowest-end customer.’” READ MORE
Why a Washington toymaker is moving its distribution center to Arizona: “The company, Everett, Washington-based Funko Inc., was no exception to the adverse impacts of the pandemic and supply chain strains, which resulted in delays and difficulties sourcing product and financial struggles for the toymaker. But Funko continued to grow due to e-commerce demand that boomed in the wake of the pandemic. This was why, according to the company at the time, Funko decided to consolidate five of its Washington warehouses and move to a facility that could accommodate its growth while lowering costs and improving logistics and operations.”
“Funko started a months-long search for its new warehouse at the end of 2020, about a year before it informed employees of the big relocation to a nearly 1 million-square-foot, class A building located in Buckeye, a fast-growing suburb on the outskirts of the Phoenix metro.”
“Through codename Project Sunlight, Funko's search was spread out regionally across the Inland Empire in California and Las Vegas and Reno in Nevada in addition to Arizona, according to the Greater Phoenix Economic Council, which worked with Funko to find an Arizona site.”
“Markets like the Inland Empire are significantly more costly to operate in, while Las Vegas and Reno do not have the same population growth or number of available buildings as Phoenix ...”
“What ultimately led to the win for Arizona was a number of factors, including the state's lower labor costs, availability of a workforce, foreign trade zones and readily available buildings.” READ MORE
Pattikakes, a Massachusetts daycare business, is closing down: “After 20 years in business, having survived the Covid shutdown and the stringent safety protocols that followed, the beloved daycare was beset by surging costs, plummeting revenues, and chronic staffing shortages. Owner Patti MacGillivray, 68, was working 60 hours a week covering for absent teachers, sanitizing surfaces, and doing paperwork on nights and weekends. She had raised tuition after the shutdown and knew many families couldn’t afford another rate hike, which meant she couldn’t afford to increase wages beyond $22 an hour, or offer health insurance, to attract more teachers.”
“The challenges MacGillivray faced are severely stressing a sector that was already in crisis when the pandemic hit, shining a harsh light on a dysfunctional system that provides a crucial lifeline for working parents. The cost for families is astronomical, and workers’ wages are abysmal, especially in an expensive state like Massachusetts.”
“Since the beginning of the pandemic, the state has had a net loss of more than 500 centers and home-based daycares, a reduction of nearly 2,300 licensed slots. Federal and state funds have helped stop the bleeding, but the situation remains dire.”
“At home-based daycares, more than half the owners reported earning less than $30,000 a year, after expenses, with hundreds operating at a loss or breaking even.”
“MacGillivray has spent the last few months closing out the books and selling off equipment. She can’t afford to stop working, and she misses the kids, so she’s considering becoming a substitute preschool teacher.” READ MORE
THE 21 HATS PODCAST
I’ve Always Been Afraid to Raise Prices: This week, in episode 139, Jay Goltz, Dana White, and Laura Zander have a wide-ranging conversation that starts with pricing. Do you set prices based on what you think the market will bear? Or do you set prices based on your own rising costs and what you need to charge to make a profit? And how much profit should a business expect to make? Along the way, the owners also discuss why Laura wants to keep buying businesses (don’t tell her husband, Doug), what Dana needs to do to get her new salon open at Fort Bragg, and why both Dana and Laura are going all-in on influencer marketing. Jay, on the other hand, isn’t entirely convinced that social media marketing works for his picture-framing business. Plus: Should a business owner know every employee’s name? What if you have 130 employees?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren