The Future of Accounting is Human

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Karl Paadam: So AI is not going to replace the accountant, but it will replace the accountant who doesn't use AI and who doesn't have the right tooling.

Blake Oliver: 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.

Blake Oliver: Welcome back to the Earmark Podcast. I'm Blake Oliver. My guest today says the future of accounting [00:00:30] is human, but at the same time, he's building an AI native accounting firm. Carl Adam made partner at PwC Estonia at 26, then left to build in tech. Now he's back with a point of view every accountant needs to hear. Let's get into it. Carl, welcome to the show.

Karl Paadam: Uh, Blake, thank you so much for having me on the pod. I'm such a fan.

Blake Oliver: I'm really curious about your background. Uh, 26 is really young to make partner at a big four [00:01:00] firm. Like, how did that happen?

Karl Paadam: Um, I originally started as an entrepreneur, uh, when I was a teenager, so I originally started from tech and, uh, I'm from a really small place. So Estonia, um, is a small country in Europe. And, uh, I had built a reputation of being somebody who was able to build businesses and probably had created a reputation on the market of, uh, of being a bit of a rainmaker and earning trust of clients. So, [00:01:30] so I had this absolutely crazy opportunity, um, to, to join PwC, um, at that age. Um, and I, I guess I might have looked a little older, I was already losing my hair. So.

Blake Oliver: So they, so they, uh, they decided to make you a partner. Um, what were, what were you doing at PwC?

Karl Paadam: Yeah, so I, I, I started a practice for them, uh, in Estonia, um, with no clients and um, and nothing more than a desk. So [00:02:00] usually what you would see at PwC is, um, is you would inherit a book of business, but I needed to start that up completely from scratch.

Blake Oliver: Wow. So like, how did you do that? I mean, you're, you're in your 20s, like, you know, like you said, most of us work at a firm and we learn the ropes. Like we, we build relationships and then we get a book of business. Like, what did you do? Like?

Karl Paadam: Yeah. So it's, I, it's, it's really, it's really not rocket science. You just need to, uh, to listen to your [00:02:30] clients earn their trust and then hire the right people to do the work. Um, it's that simple.

Blake Oliver: All right, so you built up this career at PwC.

Karl Paadam: Yeah.

Blake Oliver: Most people, once they do that, they would, like, stick around for life. But you decided to leave. Why? And where did you go?

Karl Paadam: Yeah. So I was desperate to, uh, to come back to technology. Um, I, I, I had built a tiny tech business in my teenage years, and I [00:03:00] just thought that I could have an even larger impact on on more clients if I come back to tech. So I originally, like after retiring from the partnership, I decided to go into food tech and built a food tech business. And then after exiting that, I decided to kind of take my ten years in tech and combined that with my ten years at PwC. And that's the foundation of United Accountants.

Blake Oliver: Okay. United [00:03:30] accountants. Let's talk about that. It is an accounting firm, but it's not a traditional one. And your central message on the website is accounting is human, but you're also building an AI first firm. So help me understand that. How can the the future of accounting be human when here we are figuring out how to do all the work with AI.

Karl Paadam: Yeah. So [00:04:00] CPUs are the most trusted financial advisor to small businesses. And we believe that that relationship, that trusted relationship will even get stronger and stronger over time. So whereas right now, you might be spending time on getting data from clients and from, from recognizing what the, what the transactions are doing, reconciliation, all of this stuff, um, will be done faster and better, most likely by, by AI. And then CPAs can really focus [00:04:30] on their clients and what their real problems are. It's usually like way more than just compliance.

Blake Oliver: What are those? What are those real problems that we're not focusing on now?

Karl Paadam: So maybe you have, um, too much money on your bank account, which should be earning a yield. Or, uh, maybe you want to think about how to better price your products, or maybe you want to think about like how to, how to structure your, your, your finances better. So, so there are different types [00:05:00] of services which organizations don't always have the right, um, help for. And we believe CPAs are at the best possible place for giving advice, which is maybe beyond the remit of what CPAs do today.

Blake Oliver: Giving advice is, or doing advisory services is something that we've been talking about as a profession for a long time. One of the challenges is, at least in my experience, [00:05:30] that I wasn't taught how to do this in school. When I went to school for accounting, I learned technical skills, I learned GAAP, I learned debits and credits, but I didn't learn how to like talk to clients. So how do we actually learn how to do that? How are you? How are you helping your team do that? Like what's the how do you how do we how do we get there?

Karl Paadam: So I think this is the [00:06:00] power of being in a network and learning from people. So clearly you did a great job and communicating. And even if you just learned gap and, um, and how to do books at school, then, uh, I believe that this is a similar kind of progression in the profession when those who are actually interested in talking to their clients and like listening to them and learning about their problems and their opportunities, um, then having the right infrastructure, the right software and the right types of colleagues. I think [00:06:30] that's a, that's a really, really powerful way of, of learning and developing as human beings.

Blake Oliver: So we've heard a lot of hype about AI. There's a lot of talk about how it's going to automate like 80% of the work that we're doing today. And I'm wondering what productivity kind of boosts you're seeing in your firm with the AI that you're using at United accountants, can you paint a picture for me of that? Like, how much faster are your accountants able to work versus the [00:07:00] traditional methods? Like what is it? What does it actually look like?

Karl Paadam: Yeah. So, um, so I'll give you an example of a, of a bookkeeping firm who's, um, whose owner joined us as a partner. And um, the, the AI engine does literally almost everything that a bookkeeper would normally do. So everything from getting context and, and information from a client to documents, processing categorization, bank reconciliation, and, um, [00:07:30] and, and ultimately preparing for, for closing the books. So, so the way to think about this is if an accountant, uh, starts doing the books, then he sees kind of AI doing much of the same things that he would do, you know, switching between various point solutions and ultimately doing the actual work, obviously, there are things which the. The AI engine would flag where you need kind of judgment. And I think this is where where the world is going. So the, the, [00:08:00] the more mundane stuff will be done by AI. And the CPA is really there for, for judgment and, and decision making and obviously like unblocking the AI when it gets stuck.

Blake Oliver: So we're talking about categorizing transactions, getting them into the accounting system, getting documents from clients. What other kind of work is getting automated in your firm?

Karl Paadam: Yeah. So what we're really building is, is an operating system to run the entire [00:08:30] firm. So everything that you can potentially imagine. So as you know, like 30 to 50% of, of an accountant's time is spent on communicating with clients. And a lot of that is not often pleasant because you need to get materials or you need to get data that you just haven't been able to surface before. So. So it's everything from that end to ultimately, you know, billing or invoicing your, your clients. Um, so the way to think about our, [00:09:00] our firm is instead of having, you know, 20 different point solutions, you open up your computer, there's one screen and it eliminates all the context switching. So it's built on top of everything else that's already there. So you don't need to worry about being migrated from one bit of software to ours. But it's just a much easier way of running the the firm.

Blake Oliver: Okay, so you mentioned this, this United OS, that's that one screen that you're [00:09:30] talking about.

Karl Paadam: Correct.

Blake Oliver: Okay. And then that plugs into my current systems. Like if I'm on, on QuickBooks, like United OS is on top of that.

Karl Paadam: Absolutely.

Blake Oliver: And like, what else? Like, uh, you know, how else how else does this work? Like, like, let's say I log in, you know, it's 9 a.m. I'm starting work. Like, what is it? What does it look like?

Karl Paadam: Yeah. So, um, so you have your, your, your clients that you need to be working on. So let's say, [00:10:00] um, over the night, uh, the client has sent you some more data, some more documents. So depending on whether that's through a Dropbox or an email, um, that would be, that would be logged under your client's file. Then you kind of move that on to, if you want to start production work on a specific client, then you ask the, um, the, the engine to start, let's say start bookkeeping. And then it starts, uh, doing the work. And then when it gets stuck or asks you questions like, I'm [00:10:30] not sure about like what this transaction actually is, then you need to unblock it and move forward.

Blake Oliver: So when I joined United Accountants, I like how does that work actually? How is your firm structured? Is it, is it how is it different than a traditional firm. Like if if I'm an independent CPA and I decide I'm going to join another firm, I'm merging in, right. I'm, I'm, I'm becoming part of that bigger firm now. I give up my firm name. [00:11:00] I'm now part of the big firm and I have maybe my team working for me still, but now I'm my identity is gone as that independent CPA. How does it work with you guys?

Karl Paadam: Yeah. So we're, we are, um, the, the silent engine in the background. So we provide the, our, our, our future partners with all the, uh, all the tools that are going to help them run the firm more efficiently and delight their customers. But we strongly [00:11:30] believe that the CPAs need to keep their local brand and their local relevance. So, um, so that's a, that's a really key tenant there. So everything else will stay as, as it was before, but you'll probably enjoy doing your work a lot more.

Blake Oliver: What do you think about the traditional firm model? Obviously you think that you can compete with it with this this new one. Um, like where do you see it going?

Karl Paadam: I, I mean, I [00:12:00] think there's room for different models in the market. Um, we definitely see that, uh, as AI is helping to do a lot of the, the simpler work. Then there's perhaps less need for, for more junior accountants at this stage. And, and again, this is what brings us to, um, our thesis that the future of accounting is human because we, what differentiates us from maybe firms that call themselves AI [00:12:30] native, where you just talk to a robot. We strongly believe that humans want to interact with humans. And the relationship between a CPA and their client is, is really special. And it's a relationship of trust and we. While you need to have the efficiency, the tools, the intelligence that an AI engine provides, the trust between a human and human just shouldn't be replaced.

Blake Oliver: So your firm is [00:13:00] is interesting and, and kind of unique. I don't know if I've ever come across another one like this where it's small firms, local firms in their local area, they join United Accountants and they keep their brand.

Karl Paadam: Absolutely.

Blake Oliver: And so United Accountants is then the technology layer that underpins all these different firms.

Karl Paadam: Exactly.

Blake Oliver: And [00:13:30] like, do the firms continue to just serve their clients independently? Do they like refer work to each other? Because sometimes these, these, uh, these types of firms are like more like alliances. You know, there's, there's like the traditional firm. We've got like alliances like, like a bow alliance kind of situation. We've got, um, franchise models. How would you describe United Accountants? Like given the existing models that, that are out there?

Karl Paadam: Yeah. So, [00:14:00] um, uh, in the end, it's a partnership. Uh, so we, I guess the way to frame it is we are building, um, the first big, small firm. So we love that the CPAs are local. We love that they're locally relevant and have their local trusted relationships. And we just want to superpower that. So we, uh, want to help our partners grow. So most of the CPAs that we talk to say that they're at capacity and they're stuck. So we want to get them unstuck and help [00:14:30] them grow locally. But ultimately they are they are our, our partners. Should we have a partnership like a nationwide partnership of, uh, of small firms? But it's not an alliance. It's a it's a full partnership.

Blake Oliver: Okay. So it's a it's a partnership. You keep your brand and then you get the technology layer. Now, here's the big question. When if I join United Accountants as a small firm, I've got my technology stack. I've got my apps that I've picked out, you know, [00:15:00] I've got my GL, I've got my portal, I've got my tax software, I've got my, what have you, bill pay expense management, all that stuff for my clients. Do I have to switch all of that to work with you?

Karl Paadam: Not at all. So so this is why we've built the United OS on top of everything else. So, um, we strongly believe that, uh, having people change their production software is a nightmare. And again, I've experienced [00:15:30] that myself in the past a couple of times and nobody really wants to go through that. So underneath the operating system, you still have all your existing applications and point solutions running, but the one who's operating them is you as well as your AI agents. So think of us as the last employee at the firm that you will employ, who's going to be a lot faster and get smarter and smarter every by every transaction or every new client [00:16:00] that you that engages you.

Blake Oliver: How are you doing that? I mean, I'm just imagining there's so many different apps that different firms are using. I mean, we've got, you know, so many portals, not not that much tax software. A few options though. And we've got, you know, multiple GLS. We've got, you know, dozens and dozens of major accounting apps. How do you possibly support integrating your United OS with all of these different solutions? Because I think that problem [00:16:30] is why many franchises or larger firms just say, when you come on board with us, you have to move everything over to our systems.

Karl Paadam: Yeah, but that's exactly the point of why you build on top of it. So the total universe of applications that are used in the space is actually not that vast. So, um, it's about 30 different apps that cover nearly 80% of the market. So there might be some, uh, really specific, uh, things that we [00:17:00] are not connected with yet. So we'll build those connections to make sure that united works really well. But, uh, but yeah, just to, to get us off the ground, uh, we've built the, the first like necessary stuff, um, to, um, to have a well functioning operating system on, on top of the existing solutions.

Blake Oliver: Well, I guess your tech background is like critical to that, right? So you've figured out how to plug into all these major apps. And I guess that makes sense to me as well, because we see these like lists [00:17:30] every now and then of hundreds of different apps that are available to accountants, but I imagine it's a very long tail in that, like you said, it's just a few dozen that are the the big ones.

Karl Paadam: Yeah, exactly. And I think what's happening in the market is because of the advent of AI, there's more and more tools being coming to the market every month, almost. But we believe that instead of having different tools or point solutions to solve one or the other problem [00:18:00] issue in a firm, you actually need to build an end to end solution that covers all of it. So this is what really unlocks the efficiency because again, you would have maybe one software that does reconciliation and another one that communicates with clients, or you have a third AI that does billing, but ultimately they all don't talk to each other. And it's a big, big mess. And like you said, like if you add all these different firms that have different point solutions, there's so much complexity. [00:18:30] Ultimately, how we're thinking about our design is that it's intuitive and accountants speak to their AI as if they would to another colleague. So so this is kind of where the future is going.

Blake Oliver: You said something earlier about building a large, small firm or something like that. A large firm working with small clients. I'm not sure if anyone's ever done that before. Uh, why why [00:19:00] are you doing that? Like, why do you see the opportunity there? Like, and what does that, what does that mean? Really?

Karl Paadam: Yeah. So I think normally in the industry, what you would see is that if the firm grows, you also kind of move, um, move. I guess the right word is upmarket to like larger clients. But what we see is, uh, that the biggest opportunity is actually with the small firms and like the small firms, uh, small and medium business clients. Uh, so when we say that the future [00:19:30] of accounting is human, I think the question is really if compliance is done by AI, what will the CPA then really be doing for those small clients? And we see that many of them lack Treasury solutions. They lack CFO as a service type of solutions. They lack even wealth management solutions. And again, I'm talking about the backbone of the economy. So the small the florist in Milwaukee or, you know, a a timber salesman [00:20:00] in Idaho. We believe that by empowering our local, small local CPA firms, we're going to be able to delight our customers with a suite of financial products that the ultimate client can really, really take advantage of. So that's why we believe that this is the this this is the market where we want to be in and where we want to grow.

Blake Oliver: I can see that. That makes sense because if you're a small firm, you typically traditionally [00:20:30] haven't been able to offer those other services, like you said, treasury management, wealth management, insurance, all these sort of like add ons that our clients need but are difficult to offer if you're a solo CPA or just a few partners. It's the midsize firms that can do that.

Karl Paadam: But exactly.

Blake Oliver: You are going to be able to I, as a partner of United Accountants, can then offer these solutions to my clients because you're you're handling all of that on the, on the back end.

Karl Paadam: Yeah. [00:21:00] And I think for the first time ever, you're actually going to have time to think about your client. So, you know, you see, like CPAs have, I believe it's $13 trillion of small business revenue that flows through them. So they feel and understand the financial health of their clients. Um, probably more than anybody else in the market. And they're just busy helping with the compliance work. But if you take a step back, [00:21:30] Have the. Have modern tools help you with the work. You can actually think about what, how can I, what do I really need to do to help my client? So. So we believe that the this is, this is kind of the biggest opportunity that there's ever been in this market.

Blake Oliver: Okay. So we're automating the compliance work. We've traditionally billed for that by the hour. Now, granted, small firms have moved [00:22:00] quicker than large firms in getting to more fixed fees and value pricing, especially when it comes to ongoing accounting services. But it's still a lot of billable hours, right? A lot of timesheets. And I'm curious to know how you are approaching this when we are eliminating those hours that we used to charge for, how are we going to bill for what we're doing? Like, how does United accountants do that? How do you how do you escape the [00:22:30] hourly billing?

Karl Paadam: Yeah. So, um, we, we strongly believe that, uh, the future is in, um, outcomes based pricing more than anything else. Uh, there's definitely a transition towards that future, uh, on, in one of our, one of our firms, we, we do that already, which is, um, which is a bookkeeping firm. Uh, but obviously with complexity and with larger firms and with more kind of tailored services, uh, the [00:23:00] billable hours, hours are still there, but as, um, AI engines get smarter and there's more, more data available, um, outcomes will become the norm. And I guess the next question you're probably going to ask is like, how do you, how are you going to price that?

Blake Oliver: Right, right. Like it's like, how do I do it? I mean, that's the big question is like, okay, I mean, how do I figure out what that outcome is? I'm doing tax planning or tax work. I'm doing some [00:23:30] bookkeeping and accounting work and maybe a little bit of like virtual CFO kind of work for my clients. And how do I actually create these engagements and, you know, price it properly and avoid scope creep because that's the, the big risk when you fix a price is that now, you know, I've got to watch and make sure that I'm actually not going over what I promised. And if I do, I've got to charge more. And that's always hard because most accountants we are, you know, kind of like we're helpers, [00:24:00] right? We're, we want to help our clients and we don't, we struggle with that.

Karl Paadam: Yeah. So, um, I think one of the things to follow is that the market is, um, is already pricing some of those services. And I guess this goes, uh, faster on the, in, in our space, faster in kind of small business. And perhaps it will happen a little bit slower in the, at the bigger firms. But ultimately it's [00:24:30] I think it's a it's a philosophically it's a difference of thinking. So we're selling software, not consulting. And once you wrap your head around the fact that we are transitioning from billing hours and consulting your clients to actually providing a service, which is and will be ultimately delivered by software, then the market just prices that software and the complexity of what you deliver for the client will have a certain price to [00:25:00] it.

Blake Oliver: I like to think a lot about the historical technology changes that have affected the profession. I was building my firm at the very. I would say the. It was like when the when the wave of cloud computing and accounting was building. Like I wasn't the earliest adopter, but I got on that wave as it was like growing and I was very fortunate to ride it to a successful exit. [00:25:30] So I see a lot of parallels between cloud based accounting and what's happening now, although it's not exactly the same. And then I like to think back to even before that with going from paper to electronic spreadsheets. I'm curious what your point of view is on the like the historical technology changes versus what's happening now, both, you know, electronic spreadsheets and cloud, especially as a tech founder yourself.

Karl Paadam: Yeah. [00:26:00] So I think that's a great question. And, um, let's, let's kind of go back to the time when, um, when Excel, uh, came out, I don't suppose that there were many accounting firms who went to the market and said that we're the first Excel powered accounting firm on the market. Um, and perhaps there were, uh, but we, we feel very much the same about AI. So it's always going to be the trusted relationship between [00:26:30] the CPA and their client. Ai is an awesome tool. And, uh, if you think about the, the current market today, which is, let's say part of it is compliance, then the, the total addressable market of the trusted relationship is ten X larger. Uh, for those small businesses than the current compliance. So I think the Jarvis paradox totally holds, uh, for, for AI and accounting.

Blake Oliver: What's the Jarvis paradox.

Karl Paadam: Um, for [00:27:00] you to have, uh, because of the, because of the proliferation of the technology you're going to have in a way, perhaps not more accounting, but more of the, um, more through the trusted relationship that exists between, uh, an accountant and their client. So there's going to be more that accountants can actually deliver.

Blake Oliver: What kind of productivity boosts are you seeing from AI right now? Like concrete? [00:27:30] You know, not just future forward.

Karl Paadam: So it's already literally delivering work for clients. So it's, it's doing, um, it's, it's doing what, uh, what human accountants do. So again, like if you want to just go through a regular process, then, then, you know, um, it, um, it communicates with the client. It, you know, processes, documents, does categorization, reconciliation, like every single piece [00:28:00] usually gets done much faster than it would by human.

Blake Oliver: So we've started with bookkeeping and accounting. That seems to be where like the AI is really productive right now, getting transactions in categorizing them. Um, I think you also mentioned like getting documents from clients. I imagine that includes organizing them, requesting them. What do you see as like next? Like, what are you focusing [00:28:30] on next? Or where do you think technology vendors in general are going to be focusing on like AI productivity boosts, like what's the next big opportunity?

Karl Paadam: I think ultimately, the way to think about this is like how you delight your customers and how you build a really good product. So, um, so the market generally has many, many takes on this. So, so some focus on, uh, on automating the back office. Others focus on client communication only. Uh, [00:29:00] some, uh, try and make, uh, production processes more efficient. Uh, we, we think of this as, um, compliance verticals. So we've built in bookkeeping, we're building in, in tax. And then we'll move forward from there.

Blake Oliver: Bookkeeping tax and then forward from there. So Carl, I, I meet a lot of accountants who are afraid that AI is going to replace them. Or I hear a lot of thought [00:29:30] leaders out there talking about how AI is going to replace accountants, or we have CEOs of AI companies literally talking about how AI is going to replace accountants for the accountant who's afraid of this? Who's heard this doom and gloom and is worrying about it? What do you want them to take away from this conversation here?

Karl Paadam: So AI is not going to replace the accountant, but it will replace the accountant who doesn't use AI and who [00:30:00] doesn't have the right tooling. So what I would definitely recommend is, um, is, is trying to educate yourself as much as possible. And, um, and obviously choosing the right partners for, for the next step of the journey.

Blake Oliver: So choosing the right partner is key. That's one of the things to do. How about something to avoid? What is the biggest trap that you've seen accountants fall into when it comes to this new technology? [00:30:30] What it looks like progress, but it isn't.

Karl Paadam: Yeah. So what I've seen is, um, some firms have tried to build, uh, their, their own accounting stack. And if you're too small, then you just don't have the, the resources and sometimes you don't have the knowledge to do it well. So like everybody has this ChatGPT moment where it seems as if you're making a lot of progress, but actually, uh, it's imprecise or you make errors or, you know, ultimately, God [00:31:00] forbid you might be liable for something that was produced with AI and you didn't have the proper controls in place. So, so in order to do this really, really well, you need the infrastructure and you need a software build in addition to the company build. And those two things need to happen at the same time.

Blake Oliver: This makes a ton of sense to me because I was just reading an article by Donny Shimamoto, who's, you know, a really well known, [00:31:30] uh, thought leader in technology. And he was saying that every accounting firm should have an AI architect on the team. But how can a small firm hire and find an AI architect? Actually, it kind of seems like that's you, Karl. That's what United Accountants is. I mean, is it fair to call you guys an AI architect?

Karl Paadam: I really love the framing. And I think for us, it's all about [00:32:00] attracting the, uh, the top tech talent who actually builds the infrastructure. So whereas, uh, larger firms, I'm sure that are going to have a great opportunity. Yeah. Getting their AI architect on board and some of the bigger firms have teams on board. We have this this large team of AI native engineers and AI researchers was actually building this entire infrastructure. So when you, um, when [00:32:30] you when you join us, then, then you have a, a small army of really talented people helping to, to think about how to make your life easier.

Blake Oliver: So if I'm looking for an AI architect, I'm sounds like I'm a good fit for you guys. Who else is a good fit? Like how would you describe the like ideal firm for united accountants?

Karl Paadam: Yeah, we're looking for, um, people who have been fiddling around with, with Claude and ChatGPT, uh, [00:33:00] who understand that the power of the technology sometimes, you know, you might have been disappointed by not getting the results that you want by trying to do automations yourself, but then ultimately you understand that the world around us is changing really rapidly. I mean, let's face it, it's already changed. And then you believe in our future that the future of accounting is human.

Blake Oliver: Carl, thanks so much for joining me. Where can people learn more about [00:33:30] United Accountants or get in touch with you?

Karl Paadam: Yeah, it was it was a pleasure being on the podcast. So yeah, feel free to go on www.unitedaccountants.com or, or just send me an email, karl@accountants.com.

Blake Oliver: I've been talking with Carl Patton from United Accountants. I'm Blake Oliver. If this changed how you're thinking about your firm or artificial intelligence or the future of accounting. Share this episode with one CPA who needs [00:34:00] to hear it or more. Thanks for listening and I'll see you next time.