If you listen to my #1 accounting podcast, the Cloud Accounting Podcast, you’ve probably heard about Pilot.
In case you haven’t, here’s the gist:
Pilot is yet another Silicon Valley-style startup aimed squarely at disrupting the accounting profession, offering bookkeeping, tax, and CFO services for a flat monthly fee. In March, Pilot achieved a crazy high $1.2 billion valuation after a new $60 million funding round that included Jeff Bezos’ personal venture capital firm Bezos Expeditions. That’s right — the founder of Amazon has invested in what is essentially an accounting firm.
You might think that with all that money, Pilot would be delivering an amazing Amazon-like level of customer service. However, I’ve heard from multiple sources in the accounting community that their quality and support sometimes leave something to be desired.
So I thought it would make sense to compile an up-to-date list of alternatives to Pilot that small business owners and startup founders might want to consider.
To be clear, I don’t have anything against Pilot.
For years, I’ve been shouting from the rooftops (well, more like from behind my podcast microphone) that bookkeepers and accounting firms need to adopt cloud accounting technologies. So Pilot’s mission to use technology to drive down the cost of delivering bookkeeping and tax services resonates.
But I do think that fast-growing startups like Pilot will encounter difficulty delivering the quality of service that clients expect from accountants.
The big question for small businesses considering outsourcing their books is: Who do you trust to crunch your numbers and how much work do you want to do to get your numbers right?
How far can technology go in delivering accurate financials and numbers?
We know that Botkeeper, an outsourced bookkeeping technology vendor, has claimed that they can automatically categorize 60% or more of transactions using their proprietary artificial intelligence (AI) algorithm. I know of at least one more traditional cloud accounting firm that has built in-house technology to automate coding of close to 80% of transactions.
So who does the rest?
In a “fully” automated solution, the business owner gets stuck fixing errors and figuring out what went wrong.
I’ve heard from Pilot’s competitors that one of the top reasons Pilot customers jump ship is that the client gets tired of fixing errors and babysitting the bookkeeping.
But, of course, that’s assuming that the client knows enough about accounting to realize that their books aren’t right.
And this gets to one of the major points I’ve tried to make to accounting firm owners:
Accounting firms provide a mostly intangible service. Most of it is behind the scenes.
When you provide a service that is difficult for clients to see or understand, how do you help your clients understand the value of what you give them? Your team may be spending lots of valuable resources and time to get the numbers right, but can your client even tell? And do they even care if their books are correct?
That’s why accounting firms need to go beyond bookkeeping and all that behind-the-scenes work and provide value to clients through advice around cash flows, tax planning, etc. They need to be proactively providing information and advice to help business owners understand and run their business better (and save money at tax time).
In other words, accountants need to be talking with their clients as much as possible. And that means picking up the phone or returning calls quickly when the client has a question.
This is the second area where I’ve heard Pilot competitors say that they steal customers: slow customer service response times and lack of sound financial advice.
For example, this particular CEO is featured on the Pilot website as a case study/testimonial. But, they are also asking for basic accounting advice on Twitter.
If this CEO were with a more traditional firm, would she have gotten the advice she’s looking for from her accountants? I certainly hope so! I’m certain that I would have noticed that she needed some help when I ran my own firm, because my team and I took the time to have conversations with our clients.
That’s probably why Pilot emphasizes the “people” part of their solution in their funding press release. The “fully automated” messaging isn’t resonating. The VC-backed startups that use Pilot periodically need intense amounts of advice and help when they run through VC due diligence or when they are trying to make tax planning decisions.
This new “people + automation” marketing messaging is a chance to reposition the company to try to overcome what has been a historical weakness of their offering.
Can Pilot’s business model match their valuation?
The last accounting services startup to raise $100 million in VC funding, ScaleFactor, went belly up in a rather spectacular fashion. Forbes has a scathing teardown, alleging that accounting mistakes cost clients tens of thousands of dollars — and that the company itself potentially had accounting irregularities (essentially hiding the fact that most of the bookkeeping work was done by humans instead of automated technology).
I’m going to assume that Pilot is on the up-and-up. But I do wonder about the $1.2 billion valuation.
It must have something to do with their growth rate, meaning how quickly they are able to attract and sign new clients.
The thing is, growing sales and marketing in the accounting space is easy because accounting firms in general are terrible at sales and marketing!
(I’ve written previously about how accountants suck at marketing.)
With a professional sales and marketing team and millions in venture capital dollars to blow through, ScaleFactor grew very quickly. Pilot is just as slick at sales and marketing, and is likely growing just as fast, if not faster. That fast growth is probably the number one contributor to their ability to raise so much money at such a high valuation.
But accounting is not just about software. In fact, it’s mostly not about software. It’s about people.
Clients require the careful attention of trained professionals who have the time to develop relationships with specific clients (and time to understand their actual numbers and business in detail).
If traditional mom-and-pop accounting firms are to survive, this is where they must continue to shine. And if Pilot is going to retain their clients (and avoid the dreaded death by “churn”), they’ll also need to invest in highly compensated staff to maintain those relationships and get to know the customers’ numbers. All it takes is one miserable tax filing experience, one messed-up loan application, or one due diligence mistake for a client to drop their accounting firm.
Pilot has been valued as if it were an incredibly high gross margin SaaS startup. When you compare their valuation to the typical metrics used in the accounting space, it starts to look pretty insane.
To put their valuation into perspective, Accounting Today lists the top 100 accounting firms by revenue. Accounting firms are traditionally valued at around 1x annual revenue (perhaps a little more or less).
If you look at the top 10 accounting firms, the 8th firm on the list (CLA) has $1.1 billion in revenue in 2020. CLA employs 848 partners and 4,412 professionals in over 100 offices.
Meanwhile, Pilot’s valuation is $1.2 billion. That’s higher than CLA’s with fewer than 200 employees connected to their LinkedIn company page as of July 2021.
To justify that valuation, Pilot needs to keep growing exponentially while achieving a SaaS-level gross margin of 80-90%. That means keeping people costs low. Even with the best automation, I don’t see how they can possibly provide good enough customer service to keep their clients happy and the churn low.
Good business owners demand live accounting and tax advice — and usually want a competent answer quickly. Unless, of course, Pilot has discovered a cache of perfect clients who just don’t need to talk to anyone!
What should a small business or startup look for in an accounting firm?
Having started one of the first cloud accounting firms, I’m a big believer in the value that a quality accounting partner can bring to a small business.
While every startup founder or small business owner will have a particular set of needs, I’ve put together a list of the top considerations I’d have if I were looking to hire a bookkeeping/tax firm. And I’m not going to list “accuracy” — any bookkeeping firm that has to lead with a statement about producing accurate books makes me worried that they are trying to cover up for something. Accurate bookkeeping is table stakes!
What startups should look for in an accounting firm
Use of cloud technologies. Small business owners and startup founders should look for automation and cloud technologies that save them time and money. Look for a bookkeeper or accounting firm that uses cloud accounting services like Xero or QuickBooks Online, not desktop solutions. You don’t want them having to come to your office every month to close the books. You also want them to recommend (or even insist) that you use other cloud services in the finance stack like automated payroll, expense reporting, management, forecasting, and bill pay. The purpose of automation is to save YOU, the client, time and money. Ask the firm how they use technology to help you as the client.
Quality control. I’m not talking about how many hours the accounting firm bills you. What I mean is: How much time will it take YOU, the business owner, to deal with accounting every month? Do you get GAAP financial statements with minimal work on your part? Who is inspecting your financial statements before they are delivered to you, and what quality level can you expect? And if your quality expectations are not met, what happens?
Price. One of the best things Pilot does is charge a fixed fee for their services. This is wonderful as a business owner since you can know with certainty how hiring someone to help with your books will impact your cash flow. You should ask how the firm bills, and I recommend trying to get a fixed monthly fee that you can pay every month (as opposed to Pilot, where I believe they try to get you to pay for the whole year all at once). You definitely don’t want to be stuck in an annual contract if you’re not getting the level of service you deserve. And if you run a fast-growing business or a startup, ask how your fees will change as you grow and your accounting becomes more complex.
Experience. While I don’t think small businesses need to insist on outsourced bookkeepers and accountants with decades of experience, I do believe that experience matters. A big problem I have with the technology disruptors who are “innovating” in the accounting space is that they are often learning at their clients’ expense. The Silicon Valley motto of “move fast and break things” worries me when a small business is trying to figure out their cash flow or dealing with the IRS. I’m sure mistakes are being made that cost clients money and create errors that could easily have been avoided if experienced accountants were making the decisions. See the ScaleFactor article, where former clients complained about how mistakes cost their businesses tens of thousands of dollars.
Specialization in your industry. For some businesses, this may not matter. However, for others, such as companies that seek VC funding, businesses with government grants, or highly regulated industries, a specialized accounting firm may be the best bet. Not only will your bookkeeping and taxes go more quickly and smoothly if you work with a specialized player, but you will likely get very valuable advice that you can’t get from a generalist firm.
In-house tax teams. Many businesses can successfully use a separate tax preparer from their bookkeeper, so you may not need tax specialists in-house at the bookkeeping firm you choose. However, if you manage a business with a complicated tax situation, having one firm handle your books and taxes in-house is a good idea. If you are highly profitable or running a pass-through business, then you’ll want your bookkeeper helping you make tax decisions through the year. And if you are going to go through complicated due diligence, such as raising VC funding or being acquired by a sophisticated company, keeping tax and books in one place will de-risk your due diligence AND give you only one accounting team to coordinate with. I know some firms say they do the tax work in-house but then secretly farm it out to another company or contractors. So if taxes matter to you, I’d ask if the tax team consists of W-2 employees or not.
So, in summary, here’s what to look for in an accounting or bookkeeping service:
Cloud technology
Quality control
Price
Experience
Specialization
In-house tax team
Now that I’ve listed out what I think small businesses and startups should look for in an outsourced accounting provider, let’s dig into the top alternatives to Pilot right now.
Alternatives to Pilot
There are some very solid alternatives to Pilot, both for bookkeeping and taxes. Here are my top five leading alternatives, each of which I know personally:
Kruze Consulting
Acuity
Aprio Cloud
Bench
Botkeeper
Here are the details about each firm:
Kruze Consulting. Pilot initially sold to startups that had raised venture capital, and Kruze is one of the market leaders serving this space. Kruze is a real CPA firm, and in addition to monthly bookkeeping, they handle tax returns, tax credits, outsourced CFO work, and other finance consulting — all designed for tech startups that raise venture funding. I know the team there well, and they take a lot of pride in helping clients be prepared for extensive due diligence processes. (Listen to my interview with their COO on the Cloud Accounting Podcast.) They’ve built a lot of their own automation, which makes their prices surprisingly competitive with Pilot. For companies that want to raise VC funding and eventually go public or get acquired by a massive tech company, Kruze is a great alternative to Pilot. Learn more at https://kruzeconsulting.com/.
Acuity. For more traditional small businesses looking for an alternative to Pilot, Acuity is a great option. From their headquarters in Atlanta, they serve small and mid-sized businesses all over the United States, offering bookkeeping, taxes, CFO advisory, and AR support. I’m close with the founders of Acuity, and they have built an amazing accounting team. Acuity has a strong CFO group that can provide strategic advice around forecasting, fundraising, and other financial advice. (Listen to my podcast interview with the team at Acuity on the Cloud Accounting Podcast). Like Kruze, Acuity publishes their monthly bookkeeping prices on their website — and their pricing is very competitive with what Pilot offers. For traditional businesses looking for an alternative to Pilot, Acuity is a good option to check out. Learn more at https://acuity.co/.
Aprio Cloud. Aprio is a full-service accounting and financial advisory firm, offering everything from monthly bookkeeping to succession planning. If you are a small to mid-sized business owner looking to understand your financial situation and make smart tax planning decisions, they are one of the best choices in the U.S. For example, during the COVID crisis, they put together a team of CPAs who helped clients understand the PPP loan process (listen to my podcast interview with them about it). Unlike Kruze and Acuity, Aprio doesn’t publish their pricing, so you’ll have to reach out to learn more about how much they might cost to serve your business. For businesses that want to make the most out of tax planning and their finances, Aprio is one of the best competitors to Pilot. Learn more at https://www.aprio.com/services/outsourcing/outsourced-accounting.
Bench. Bench is one of the original “automated” accounting tech startups. Small businesses looking for a low-touch alternative to Pilot might want to consider them — although Bench is likely to come with many of the same issues that Pilot clients face. While Bench says that they do tax, it’s unclear what level of tax planning they offer, if it’s done in-house, etc. That being said, a small business that cares less about GAAP accuracy and that is looking for simple books that can be used at tax time might find them useful, especially with their low pricing. One potential downside is that Bench has built their own accounting software. This might make it harder to port your data to another bookkeeper; the other companies mentioned in this article use third-party software like QuickBooks, which means that the data is in a very portable format. Learn more at https://bench.co/.
Botkeeper. Botkeeper is another one of the original automated bookkeeping startups. They don’t do tax or other CFO advisory services. They may have pivoted to handling the books for CPA firms, which then actually serve the clients. There was a bit of controversy a couple of years ago, where Botkeeper was somehow using a team in the Philippines to do some of the “automated” bookkeeping. You can listen to my interview with Botkeeper’s CEO as he explains what was going on. Again, if you are looking for fully automated, like Pilot, and aren’t looking for financial advice and possibly care less about the accuracy, they are another contender to consider. Learn more at https://www.botkeeper.com/.
So there you have it — the top five alternatives to Pilot. If you are looking for low-cost, fully automated bookkeeping and don’t mind the potential headaches and extra work that comes with it, consider Bench or Botkeeper. If you are looking for a high-quality, high-touch experience, and have complicated needs like succession planning, consider Aprio. Acuity offers a solid combination of fixed prices, automation, and advice. And Kruze has deep experience with VC-backed startups and uses automation to drive down costs and save startup founders time.
