How To Know If An App Will Survive & Big Tax Prep Sent Taxpayer Data to Facebook

Please note: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Blake Oliver: [00:00:04] And then says yes and start your own business with little to no overhead. And that is the path to not just the middle class, but to the upper middle class, is you start your own firm. And now, I mean, your earning potential is hundreds of thousands of dollars a year.

David Leary: [00:00:18] And maybe that should be played up more. But that you basically a Starbucks and a laptop and you can start an accounting firm. Yeah.

Blake Oliver: [00:00:25] You can own your own small business and be a member of the business owner community. And you could do that coming from almost Nothing.

David Leary: [00:00:33] Coming to you weekly from the OnPay Recording Studio.

Blake Oliver: [00:00:40] Welcome to the show. I'm Blake Oliver.

David Leary: [00:00:42] And I'm David Leary. Blake, I feel like we just recorded an episode a couple of days ago, but we did because we were doing a little bit of catch up, but now we're. We're just back at our normal Friday for a couple minutes late today, but we're our normal Friday live stream.

Blake Oliver: [00:00:55] Great to see you, David. What's top of mind for you?

David Leary: [00:00:59] Hasn't melted like nothing. Because I know these headlines in the news. Arizonans, man, I tweeted.

Blake Oliver: [00:01:05] I said every summer. Now, The New York Times does this big cover story about how Phenix is melting and we're having record heat and nobody can live in this desert. And I think to myself, okay, what about all these northern states where you have subzero temperatures for like months and if you didn't have heat or air conditioning or whatever you call it up there, you'd die. I mean, yeah, I feel we're better off here, honestly, But I think it's part of the the whole like global warming story. So they got a they got to hit it up.

David Leary: [00:01:39] I've always said it's easier to do the heat. You just take clothes off, you get a margarita, you can kind of deal with it. You go in the shade, you go to the lazy river. It's very hard to get away from cold. Even if you build a big fire, you can't get in the fire like you're always going to be a little cold.

Blake Oliver: [00:01:53] The city of Scottsdale, where I live, they have like a public lazy river that operates on Saturdays and Sundays. Ignore what I just said, because we don't want any more people moving here. We don't have enough water, so just stay where you are.

David Leary: [00:02:07] Well, I think saw Arizona now flipped to one of the most expensive states. It went from like one of the cheapest places to move. Californians like you, Blake, have came in and messed up the whole entire economy of Arizona.

Blake Oliver: [00:02:17] Don't California, My Arizona. That's what those bumper stickers say. And I apologize. I'm so sorry. I can't move. The interest rates are too low on my mortgage.

David Leary: [00:02:26] I've thought about that. A lot of people are gonna be locked in forever, but we should jump in.

Blake Oliver: [00:02:30] Let's talk about the news. Yeah.

David Leary: [00:02:31] So, you know, we talked about the whole big tax prep sharing data with Meta and Google. Well, Elizabeth Warren released a big report this week, so I want to talk about that.

Blake Oliver: [00:02:40] I have been blessed with another Wall Street Journal story about the dearth of accountants, but I guess before that, I have some good news. The startup that I was most recently working for, Giraffe, the startup, they just raised $20 million in a Series B round. The reason I am so excited about that is because once a startup raises their series B, your odds of survival go way up to I think it's two thirds. So there's a two thirds chance now that my stock options, which I exercised. So my stock will actually be worth something. So it worked out for Floqast because Floqast did their series C in draft, did their series B, so now I might get lucky and have a twofer where the two tech companies that I worked for are going to pay out. Not a guarantee.

David Leary: [00:03:34] No, because options are the options to not pay you. Yeah, that's the way to think about this. So. So what you're basically saying so if I'm on I'm an accountant at my firm, I'm going to go pick tech for my clients. I need to be checking. Hey, did you get the series B yet? Because I don't feel comfortable putting my clients on you.

Blake Oliver: [00:03:49] And that's why I brought this up. It's not to brag, it's because. You want to know as an accountant when you're buying software or when you know when you're subscribing to an app for your clients, What is the odds that this will be around in a year and two years, in three years, maybe in ten years, because it's that.

David Leary: [00:04:05] Long game, right? It's a long.

Blake Oliver: [00:04:06] Game. It's a it's a lot of time and effort to implement software and you don't want to have to switch if you don't have to. So everybody has that mindset.

David Leary: [00:04:14] Yeah, new apps will never get past A.

Blake Oliver: [00:04:17] Exactly. Well, and this is why it's it's challenging as a developer to get accountants to buy into your new startup because that's a natural question, right? So I wanted to give our listeners some perspective on this and, and share some stats about survival rates of startups so that when you are looking at new tech for your firm, you can decide whether or not it's worth the risk and there's this risk reward to it. So we should be aware of it as accountants, right? That's our job is to analyze and assess risk in many ways, at least if you're a CPA that is drilled into your head over and over again. It sure was for me. So let's look at these stats. This is from Louisa Jo and she has a blog post on her site called Startup Failure Statistics. What Percentage of Startups Fail? So this is the scary part. Nine out of ten startups fail. Okay. 90% of startups do not survive.

David Leary: [00:05:15] That is even higher than that.

Blake Oliver: [00:05:16] But well, this is over the long run. Yeah. And you think about it, this is this is not just tech companies. This is in all startups. There's a pretty high failure rate in tech. It can be high. This is specifically for tech, right? Nine out of ten fail. All businesses have a 70% failure rate. So startups tend to fail more than most businesses. Startups often take a lot longer to validate their place in the market than founders expect. They run out of cash, and that's typically why they fail. Not dissimilar to Main Street businesses, which tend to fail because they run out of cash. They don't have enough capital. They they underestimated how long it would take for them to break even and they go out of business. One out of 12 entrepreneurs succeeds in building a successful business. That's 8.3%, just 1 in 12. So most entrepreneurs who are successful typically had more than one stab at it. More than 50% of startups fail in their first five years. And like we said, most of those fail. Well, it's a plurality of those fail because they run out of cash. 38% run out of cash, 35% never find market fit. They build a product that nobody wants to buy and then 20% fail because they get out competed.

David Leary: [00:06:36] I'm surprised that a 39% is what it is. I think it's much higher. I think people build products that nobody wants all the time.

Blake Oliver: [00:06:43] Yeah, definitely. And that's why in startup circles, the advice you always hear is get to a product that people will pay for as soon as you possibly can. That's all about building that minimum viable product. Yeah. And I think when you're doing an accounting firm and trying to run it like a startup, that's also super important. If you're productizing services, you got to get somebody to buy it and that's how you validate it.

David Leary: [00:07:08] That was Merrill's story in last week's episode that she started her new firm and within 14 days had a paying client. That was the focus. One paying client.

Blake Oliver: [00:07:16] She was running it like a startup, like a tech startup. I'm going to skip through a few of these stats here to get to the one that is related to this fundraising amount. Oh, here's one. It's interesting. First time to profitability on average is four years. Okay, now let's get to the failure rate by years in business. Okay? So in year one, 20% fail year two, 30% fail year 550% fail. Year ten, 70% fail. But we were talking about the stage of funding. So. The chart here that shows based on series, what is the failure rate? So if you are pre-seed or series A, your failure rate is 60%. So most startups fail before they get to a series B, 60% are going to fail. Once a startup has reached series B, they only have a 35% failure rate. So that's why I'm really happy about the giraffe fundraise. And once they reach series C, it's just 1%. So that's the thing I want everyone to remember. When you're looking at tech for your firm, if that company has gotten to Series C. They're going to be around.

David Leary: [00:08:32] Yeah. I also think even if they don't, yeah, they won't go out of business. But then there's so many investors involved and there's so much money involved that they'll figure out how to do a deal with private equity, get bought or acquired, like the investors are going to not lose all that money. The just the discipline of their investment is different. Yeah.

Blake Oliver: [00:08:51] Thanks to Edgar David, Ulysses Christopher for joining and chatting with us. We got a few questions about this, of course, coming in. Ulysses says, How does this define a successful business? Businesses that merely break even. I believe if I'm reading this right, that success just means surviving, not running out of cash, not going out of business. And that could also mean an acquisition. So when you fail, that means like you shut down, bankrupt, that sort of thing. So anyway, I thought that was an interesting stat, you know.

David Leary: [00:09:26] And that's what I love about our show. Like you bring some story in this angle and I already had two stories are related. So my first one, this is my comment I put on my story. So the article title is Bury a Tech Firm Relocating to Europe lays off most of staff, and it's about Evernote and the note I moved to myself, Is this the end of Evernote? And I've been using Evernote. It was one of the the first like cloud products that you could just pick up any device and any screen you have and your notes would be there, right? Oh, yeah.

Blake Oliver: [00:09:54] It was groundbreaking when it came out. It's been around for a while.

David Leary: [00:09:57] And now, like Google, everybody's like sliced and diced all their features. Like if you if you have one note from Microsoft, you basically don't need Evernote. If you have Google, if you're a Google Drive person, you don't need Evernote. And it's kind of this sad erosion that's happened to that company over time. Now they've been sold to an Italian app maker called Maker called Bending Spoons, and they say that they intend to keep it growing. They're going to invest in it. They have a 400 plus workflow workforce at bending spoons, and some of them have been working on Evernote full time since the acquisition. But it's still a little like, you know, here here's a company that never I think they've had series A, series B, Series C type funding, but now maybe they're not going to go away. But it's been a rough ride and I'm a little worried, like, should I be making a backup plan, which Evernote was my backup of everything?

Blake Oliver: [00:10:46] Well, I did use Evernote at one point, but my concern was exactly what your concern is now, David, is that they have this proprietary format for the notes and it's not really easy to export your stuff from Evernote into like an open format that you can easily use. There are apps that will plug into it and like pull your notes out. I think notion does that you can plug notion into Evernote and pull your stuff out into.

David Leary: [00:11:11] Notion or through Zapier or something. Yeah, it's like it's like.

Blake Oliver: [00:11:15] But it's a huge.

David Leary: [00:11:16] House of notes. But just burn it all.

Blake Oliver: [00:11:19] Here's my question is how often do you go back and look at those notes?

David Leary: [00:11:23] It's like it's not as frequent as I want, but it's always like oddball, like PDFs of, like, you know, some appraisal on a house or like there's always these things you have to go and find eventually. So I could put them in a Google Drive though, like there's no reason they can't live somewhere else but.

Blake Oliver: [00:11:37] Just archive it all. I've got some of that.

David Leary: [00:11:40] And another example is shutting down Kodak, and we've talked about Kodak in the past. Kodak essentially is a middleman app that if I'm a developer, if I'm giraffe and I don't want to write an integration to QuickBooks and Xero and NetSuite and QuickBooks Desktop and all these things, I could just write to Kodak. And Kodak has an API that connects to all the other accounting jails. It's a great promise, right? And we try to build that at Intuit 12 years ago one one API for QuickBooks Online and QuickBooks desktop at the same time. Well, apparently Kodak is learning what Intuit learned a decade ago, that it's almost impossible to do and it's a little tough. So they're shutting down. They're not going to let any more developers build desktop integrations. So this is going to be platforms like Dynamics 365 QuickBooks Desktop, NetSuite, Sage 50, Sage Intacct They're actually even adding those in the list. And if you buy their enterprise plan, they'll let you integrate with those. But they're it's very clear that you do not want people to do that and they're raising prices, right? So they're realizing that this was it was impossible for Intuit to to do it with two APIs. So imagine trying to do it for lots of d40 GLS. It's it's really an impossible task. So that's that's being shut down.

Blake Oliver: [00:12:49] Going back to your Evernote issue, David Geek in the live chat said, I moved meeting notes to Rocketbook now then I scan it to a PDF and save that in my files. Then Keeper is my portal slash task management for ongoing tasks. Et cetera. I think that's.

David Leary: [00:13:05] In Keeper the accounting process.

Blake Oliver: [00:13:08] App. I think there's there's like a note taking keeper, isn't there as well.

David Leary: [00:13:13] That's that's why if you could clarify quickly in the chat here.

Blake Oliver: [00:13:16] But I think that's an interesting distinction is there's the archival purposes type notes and then there's the current projects you're working on type notes. And I've taken the approach of for my archive, I actually have just Google Drive folders. I use Google Drive file stream on my Mac, so it's not taking up space on my local computer, it's just all streaming from the server. So anytime I need something to save, something that I'm not working on, that's for reference purposes I use. I use the Getting Things Done methodology. And once you're done with something, you're just supposed to put it in the file cabinet. And so that's my file cabinet and I use PDF for as much stuff as I can because I know that'll be around forever. Well, we say that, but.

David Leary: [00:14:02] It's PDFs for all of.

Blake Oliver: [00:14:03] Us. But the most likely thing to be around forever because right, everything's saved as a PDF.

David Leary: [00:14:08] And arguably now like OneDrive, like any device I pick up, I can access my docs and like, Yeah, well, but you couldn't do that before. Like that's the beauty of Evernote. But now it's like Evernote is pointless.

Blake Oliver: [00:14:18] And I would say like when you saved a PDF and you save it in like a OneDrive or a Google Drive, you're actually future proofing in the sense because now I can go in and like read the text of all those PDFs and find everything you're looking for. So very soon that search function that never seems to work right in any of these apps will work really good with Google and with Microsoft because the I can do that. It can basically create an of your personal notes. And I have a story that we'll talk about later that about Google is working on that. So finally we'll be able to find all that stuff that we have filed away that we can never seem to find. I've got a layoff story, David. This is a bit of schadenfreude for some of our listeners. I actually got emails from listeners letting me know that pilot has laid off 13% of their workforce, its 45 employees. And I want to say I'm very sorry for these employees. I don't mean to minimize the disruption that they're having from getting laid off and that it's never a good situation. I'm sorry for that. I'm sure they'll find jobs because every accountant can get a job if you know what you're doing these days. But it is amusing. From a company perspective to see pilot, which got venture funding from Jeff Bezos's personal VC fund laying off people.

David Leary: [00:15:38] Well, it's probably the typical tech story. You take VC money, what do they make you do? Hire sales people? Do you hire too many sales people and you over grow too fast and too many contacts, more hoodies. That's more lunches. And you just start burning cash too fast. Now, when they.

Blake Oliver: [00:15:53] Got this round of funding, you and I calculated how much they had spent to acquire each client. You know, they had like a thousand clients at the time. And we took the valuation and divided it by the number of clients. And we thought, this is impossible. Like they they basically really overpaid.

David Leary: [00:16:08] Well, and we keep seeing this, right. We saw it first with scale factor. We realized it's harder than you think. It's harder to do now. It might be maybe pilots at Iraqi, we don't know. But now people just don't learn. There's another company. I think we've talked about them on the show before, Collective. So Collective is going after the freelancers, and it's the full book incorporation and book keeping and tax that they do. You know, it's a similar models, right? They just got a $50 million raise. So now they're going to hire a bunch of salespeople and try this whole thing over. And now they're trying to say that their raise is going to really help invest in AI, like they're betting that large language models are going to help them scale this this time.

Blake Oliver: [00:16:47] So all pro in the chat said, Did you all hear about the KPMG, KPMG layoff? Very weird that they lay off auditors and tax while also talking about talent shortages. Probably short term profit increase by making staff work more hours. And that's my bet too, is if they're laying off anyone in audit or in tax. It's short term thinking. But also, like those firms, you know, the big firms have the Jack Welch philosophy of laying off your bottom performers every year. You rank everybody and you lay off the bottom performers and it lights a fire under everybody else to get their hours up. Right? So that's also sort of a, I think, a performance management tool. The yearly.

David Leary: [00:17:31] Cycle, they just do it every year.

Blake Oliver: [00:17:33] And then they go and hire hire new people to fill in. And it's the trial by fire kind of thing. And hey, you know, I'm not a big fan of that type of incentivizing workers. I think it's kind of dehumanizing. But if it works for you, then, you know, great. And, you know, if you want to work in a place like that, great. Any more stories of layoffs or companies going under?

David Leary: [00:17:57] No more AP news stories. Yeah. Okay. Thank you.

Blake Oliver: [00:17:59] Well, you teased this story about tax prep companies sharing data with Meta. I saw that in the headlines, too, when.

David Leary: [00:18:08] It was mainstream headlines like CNN, NBC level. These headlines and the way it's presented in general is this. It's really presented as big tax prep. Bad big tax prep is in bed with big tech and they're sharing data, taxpayer data. Like that's really how it's presented. Essentially the way it's framed up. You know, for years, the largest tax prep companies have been sharing America's sensitive financial data with Meta and Google. Right. And, you know, and they're saying possibly it's potentially being used, misused for targeted advertising, even though there's no real. Proof of that out there at this point. But legal experts described to CNN this is a five alarm fire on a scale of 1 to 10. This is a 15, said David Vladeck, a law professor at Georgetown University and former consumer protection chief at the Federal Trade Commission, the country's top privacy watchdog. So so what.

Blake Oliver: [00:19:07] Kind of data were so first of all, which which tax prep companies are involved in this?

David Leary: [00:19:12] Yeah. So we will we'll talk about that as well. So you have TurboTax who originally so we've talked about this story about eight months, seven, eight months ago, maybe six months ago when this first broke. So TurboTax, Taxslayer, TaxACT and H&R Block. So all of them. And at that time I kind of explained what's happening. So a lot of you will use cookies and trackers on your websites, right? And you'll create a you'll put the little, the most famous ones, Google Analytics. So you'll track that so you can see what web pages people are going to.

Blake Oliver: [00:19:44] And not just what pages, but like what they clicked on.

David Leary: [00:19:48] And yes, you can track the action and their behaviors, what they've clicked on. They tab to a field. You could track all this stuff about your users. And a lot of people use Google Analytics. And even then it was discovered that Intuit was using trackers up to the sign in page, and then they were using trackers. So even though they were in this this game, they in this these accusations, because it's the name to drop, they weren't involved as much. And there's a new report that Elizabeth Warren just dropped this week that really goes into the details. But essentially, okay, so what happens?

Blake Oliver: [00:20:20] Sorry. I just want to be clear. It wasn't TurboTax in this case. That's the target. It's it's taxed.

David Leary: [00:20:25] In the not when it comes to the report that was just released. And we're going to get into that report.

Blake Oliver: [00:20:30] So essentially, H&R Block and Tax Act are the ones called Act.

David Leary: [00:20:34] Right. And the way to think of and it's all the big tax prep companies. Right. And but from a technology standpoint, the way to think about this is like every website you have has kind of a header and a footer. And usually you put these trackers kind of in either the header or the footer a lot of times, right? And then every time you load the web page, these trackers get loaded. So if you're a company building websites, a lot of times you take your previous page and you just keep moving forward and that header just keeps moving along. So if I put something in a header, it's going to keep being on every other page I make, right? It's just there, it's turned on, it's on. Unless you consciously go out of your way to not use it, right? Once you put that pixel in, if you have sloppy code, sloppy procedures, bad QA, it can move forward. So that's the gist of it. It's just being being tracked. And but now there's an entire slide deck. So Elizabeth Warren and her her cronies up there in Washington, they they investigated and they came out with a 54 page report. And I sent you the report. So if you want to open that up, do a screen share of that. You sent.

Blake Oliver: [00:21:36] Me the link here.

David Leary: [00:21:37] And she talks about how they recklessly share personal and financial data of millions of taxpayers with big tech for years. Regulators need to fully investigate and prosecute those who violated the law. It's very, very scary, right?

Blake Oliver: [00:21:50] Yeah. I mean, she makes it sound like there's this big conspiracy going on.

David Leary: [00:21:54] Yes. Like they're in bed together, purposely sharing data. Right. That's the way it's framed. And if you look at the the PDF and if we bring this up, just look at the title of this pdf.

Blake Oliver: [00:22:03] Attacks on Tax Privacy How the tax.

David Leary: [00:22:06] Industry like a hacker looking dude like yeah.

Blake Oliver: [00:22:09] They used a stock photo of a hacker wearing the the hoodie with the hood up and you can't see his face.

David Leary: [00:22:17] Yeah. Or the subtitles. How the tax prep industry enabled Mehta to Harvest millions of taxpayer sensitive data. That's right. That's the table of contents. So it's got the executive summary right. And essentially it talks about kind of what I kind of covered, right? You know, and they in the summary, it also talks about how Tax Act tax planner and H&R Block admitted to using the pixel for a few years. They admitted they used Google Analytics for even longer. One company said they used 11 different pixels. Right. It's very, very common practice to some extent. Right. And anybody can do this. You clear your browser cache and open a website and you'll see it right. And then essentially, like tax acts exposed filing status, approximate AGI, approximate refund amount, names of dependents, fed tax owed, what buttons they clicked on, you know, which could indicate more data. And so the way to think about this, if I'm tracking and I've done this before, where I've taken data and sent it to Google Analytics, that was privacy data. Like, if I have a website and it says, Blake, do you have any dependents? And I say, type it in and I'm tracking that you hit the button. Number five, I now know Blake has five dependents. If I'm tracking and that's kind of what's happening here, it's not a I'm going to give data. I'm going to roll up a report of data and hand it over to Google. It's not really that kind of a thing happening. But their play in this whole report is they're playing on the whole concept of you as a tax preparer have to disclose where your tax data goes.

Blake Oliver: [00:23:44] Well, yeah, that's that's something that it's a big deal. Like firms talk about this all the time. Like I have to really be careful what I do with taxpayer information.

David Leary: [00:23:54] Exactly. Like under the law, a tax preparer may not disclose or use taxpayer's tax return information prior to obtaining written consent from the taxpayer.

Blake Oliver: [00:24:01] And especially for marketing and selling additional services to them. So like if you partner as a CPA with, say, a financial planner, you have to get express consent from your clients to share any tax information with that other firm.

David Leary: [00:24:16] Exactly. And so. I start to read this report, I'm like, Hey, I want to read this report. I get to page four. So if you scroll down to page four, okay, this is when the bell started going off and off that this is a complete bullshit story. Because they start out immediately saying how citizens can't file their own taxes on the IRS website. That's this is a total setup to to basically it's her agenda to be anti-big tax prep.

Blake Oliver: [00:24:44] And anti-big tech.

David Leary: [00:24:46] And anti-big tech. So this immediately just even get into the details of this yet she immediately targets the that the fact that there's not a return free system that are cheaper and easier and she talks about other countries that can do it, etcetera, etcetera. Right. And just on a related news story, if we don't get to it, the IRS today basically came out and said that. Congress people should create or yesterday that Congress people should create a simpler tax system instead of the IRS building a tax filing system.

Blake Oliver: [00:25:12] Tax Foundation did a story on that. And there was a story. Oh, that was the story. Yeah. So it's it's it's too complicated. Like we need tax simplification. That is the way that you solve this problem and make it possible for people to just file directly with the IRS is you got to have tax simplification.

David Leary: [00:25:33] Yeah. And so if you go down to page nine. The key here is there's a sentence at the bottom of page nine that says potentially illegal use of sensitive taxpayer information. That's everything here is potential. They don't have any stories of like, oh, look, they handed this over and it was used for X. It's just all potential. Potential potential. Now, if you jump to 11, there's just incompetence happening at these companies. Apparently, you know, they've worked with they've spoken to all these companies. And H&R Block admitted to using the Facebook pixel, but apparently H&R Block didn't know that they were also using the Google Analytics. I'm like, how do you not know this? Right at a high level, right. So somebody installs.

Blake Oliver: [00:26:12] It's really I can tell you as a marketing guy who has installed these pixels and this code, you do it one time in like a global setting in your website builder, whatever platform you're on, HubSpot or WordPress or whatever it is. And then it just automatically is sending all this data back to these platforms unless you tell it not to. So, so basically what you're saying, David, is that this was happening and they were sending information about like income and deductions and whatnot back to meta, but it wasn't intentional and there's no evidence that Meta ever did anything with it.

David Leary: [00:26:46] Right now to to to to their credit as an investigation, Meta is kind of being a jerk about it. They're not wanting to respond. They're not opening conversations. They're reluctant to to engage about this. They're just not silent treatment because they also know that she's coming after them and a bunch of other things. Yeah, but again, they argue that they didn't get consent and they have a bunch of examples on slides 26 to 34 where they show the terms of service when this was discovered and how they changed the terms of service and the websites and the products. And then if you get down to page 39, their conclusion, again, they use that word potentially, but then they demand they want investigations by four government agencies the DOJ, IRS, Tigta and FTC. Yeah, right. And but from the whole document, from what I can tell, there is no known like agreement or a bizdev deal or marketing deal with big tax and meta and Google to share this data. Like it's just not in this doc. But the headlines though, make it seem like 15 out of ten fire, right? Like they made this just seem so bad. Now my thing where I really think it's bullshit is we can go and we're going to switch screens and screen share here. I can go to the website after I'm logged in and see that it's sending data to Google about my clicks on the website. Okay, so.

Blake Oliver: [00:28:03] Here's your screen.

David Leary: [00:28:04] Over. All right. So I'm going to I'm signed in right now. I'm not signed in. I'm signed out. So I'm going to I'm in the this is basically a debugger. And if you look so I have Firefox and Firefox blocks trackers. Okay. So all these reds are when tracking is happening in Firefox blocking the send. So if you see like these are post, that means right here it's when I load this page, it's posting to Google Analytics. Now you can't really read that fully, so I'm going to sign in to my account. So it's chugging along, It's hitting lots of different trackers. It it actually Qualtrics You're familiar with that company. They're a big tracking on me. It hits them. So I'm going to sign in with my ID dot me. And if you see all these reds flashed by on the screen, these are trackers. Google Analytics. Zendesk Right. Because I'm using It's touching Zendesk for some reason. Oh, and I have to type in my OAuth code here. Doo doo doo doo doo.

Blake Oliver: [00:28:53] So now you are. You are signing into the IRS using three and you're putting in your multifactor authentication code like a like a good citizen.

David Leary: [00:29:03] There we go. Well, I thought it was going to trust that. And you can see these things fly by. Those are the red things. All these trackers are happening. Okay. So now are you saying.

Blake Oliver: [00:29:13] The IRS website is sending.

David Leary: [00:29:15] This? I am on the logged in to my account. And if you see analytics data is being sent about what page I'm on, what I'm clicking on, I'm going to go to make a payment.

Blake Oliver: [00:29:28] So like if you make a payment, is the amount sent back to some sort of tracker didn't.

David Leary: [00:29:32] Go that deep, right? Like because that had 40 hours of work being a somebody that came in from a background, I would not be surprised if the IRS sends personal tax payer data back. So they're sending data that says, I clicked, make a payment. It's right there. So this is complete bullshit. Like you're criticizing these big tax companies for doing exactly what the IRS is doing.

Blake Oliver: [00:29:55] Well, we don't know that for sure. You need to do some more investigation to figure out if it's sending personal information, like information about your payment. That would be something that would be a big no no. I think how much you're paying.

David Leary: [00:30:07] And but but this is a QA issue, right? This is a did somebody test all the data that's being sent now? Maybe somebody at the IRS did, but I'm willing to bet they did. And they're super confident.

Blake Oliver: [00:30:16] Yeah, I'm willing to bet they didn't. They probably have a similar problem, but we don't know for sure.

David Leary: [00:30:20] But so now let's step back to the logic of this whole thing. They didn't purposely send data over, but they want to prosecute them on this. It's a it's a it's a fine of $1,000 per instance. There's a one year jail time. But going by the logic of this, if you have a firm and you have Google Analytics set up and your clients are accessing that thing, you basically they they the same argument could be made about every tax preparer out there who has a website that their clients use or sign into. If the.

Blake Oliver: [00:30:49] Clients are using that portal and submitting personal information and your portal is sending that back to a tracker.

David Leary: [00:30:55] And hundred percent guarantee you every app you're using is sending data to Google Analytics.

Blake Oliver: [00:31:00] Well, the question is, are they sending that kind of data?

David Leary: [00:31:03] Well, that's one thing.

Blake Oliver: [00:31:04] To talk about a button.

David Leary: [00:31:05] Not purposely, not purposely. Again, like I've done this on accident. Right. Like.

Blake Oliver: [00:31:10] So it's easy to do an accident. We don't know this for sure.

David Leary: [00:31:13] It's easy to do on accident. They would do it for a decade before they noticed they were doing it basically. Right. But it's there's no way to accuse all these other people of doing it when you're doing it yourself. Stop using Google Analytics then to IRS. I'm sure if I go to Elizabeth Warren's website, there's 50 trackers.

Blake Oliver: [00:31:31] Well, David.

David Leary: [00:31:32] That's it really has me bothered because it's just this. They're scary. It's political fodder. Right. Like she should be making tax code simpler.

Blake Oliver: [00:31:41] She be doing I agree with you on that. Like this is this is not what to focus on. This is not going to make our lives better. Well, David, it's exciting to see you get up on your soapbox and get passionate about something.

David Leary: [00:31:52] It's been a little while because.

Blake Oliver: [00:31:53] Normally it's me. Normally it's me. I'm the one yelling through the mic. And you're you're you're turning the volume down because it's too loud.

David Leary: [00:31:59] I'm waiting for the EPA to issue a warning to tax preparers like, Hey, Elizabeth Warren could be coming after you if you're using Google Analytics or a meta Facebook pixel or any of these trackers.

Blake Oliver: [00:32:09] Well, hey, I got a red meat story for myself. Red meat this week. Yeah, red meat like this is, you know, I've grabbed on to this with my teeth. And the Wall Street Journal just keeps on delivering these juicy stories. And this one is headline is The Accountant shortage is showing Up in Financial Statements. Advance auto parts and others have cited a lack of skilled accounting personnel for material weaknesses in their financial reporting controls as a key predictor of restatements. It's an article by Mark Maurer in the CFO Journal. Us listed companies such as car parts provider Advanced Auto Parts, electric air taxi firm Joby Aviation and German biotech company Evotec in recent months have disclosed efforts to address material weaknesses due at least in part to a lack of accounting staff. The disclosures come as fewer people are pursuing degrees in accounting and entering the field, resulting in more positions open and for longer periods of time. What's more, academics say the shortage will likely be compounded as more accountants retire without a robust pipeline of replacements. So we're starting to see the accounting talent shortage result in real risks to our capitalist system. If we don't have reliable financial statements, then how can investors and the stock market work? It doesn't work.

David Leary: [00:33:29] They disclose this, right? Yeah, but how many companies right now are maybe falling behind on some stuff and aren't disclosing? That is the reason.

Blake Oliver: [00:33:36] Yeah, right. So this could be the tip of the iceberg, right. And if you.

David Leary: [00:33:41] Go back to the article the image. Yeah. Like I see that they auto parts they sponsor like some NASCAR it's all branded up. Maybe the should sponsor a NASCAR like that and say like we need accountants like come be an accountant like it could be a it could be one of the pipe. Now there could be 13 things in the pipeline plan to to fill the pipeline. They sponsor NASCAR. Yeah.

Blake Oliver: [00:34:02] So yesterday was it yesterday? No, the day before I got to meet somebody who you and I have met online, but I have not met in person. Jerry McGinnis, who was the office managing partner at KPMG Philadelphia. He was previously the head of the Pennsylvania Institute of CPAs and really influential guy audit partner running.

David Leary: [00:34:28] He's great. I've met him face to face as well.

Blake Oliver: [00:34:29] Yeah, Yeah. And he has written a book about how to succeed in the accounting profession for students. And he goes around and he talks to students at colleges and universities. He is working. He is in the trenches trying to recruit accountants, and he's very passionate about the profession. It was so great talking to him about all of this stuff, the talent shortage and all that. And, you know, he agrees like this is a big problem and we are not doing enough about it as a profession. The state societies and AICPA are not doing enough. You know, we've got this 150 hour problem that that is deterring people from becoming accountants because they've got to do an extra year of education. So I want to get him on the show sometime to kind of give that big firm partner perspective because we don't hear enough from them about this. And I feel like part of the reason is because bigger firms discourage anyone other than the CEO from being out there in public. You don't hear about it. You know, you don't see them talking.

David Leary: [00:35:28] And I guess at a at a stage of his life cycle and career where there's not a risk for him to he can afford to have a dissenting opinion because he's kind of haven't seen he's made it in life. But he's at he's at a different phase. Like if you're if you're mid-career, it's hard for you to, you know, buck the system a little bit. You could risk career promotions. You could risk a lot. Right. And I think he's probably past that phase. And then you want to say the title of his book because it's very, very long.

Blake Oliver: [00:35:56] Yes. Let me pull that up.

David Leary: [00:35:59] Yeah. And for those of you listeners that want to hear a book review or a book club, if you want to get the book and participate, the Accounting Twins have done a book club of every chapter of this book. And you can listen and read along and listen along.

Blake Oliver: [00:36:11] Yeah, this is called Advice for a Successful Career in the accounting profession How to make your assets greatly exceed your liabilities. You can get it on Amazon, either Kindle audiobook or hardcover. So check it out.

David Leary: [00:36:24] And it's an easy read. He really breaks it down in small chunks, depending on where you're at, if you're what you should do to finish up your schooling as a student, what you should do. You know each little phases of your career as an early accountant.

Blake Oliver: [00:36:37] All-pro says, I don't think they can fix the hours since the work has to be done. I think what one of you suggested having a partner show off a really nice car to college kids is the best way to recruit. Lol That was your suggestion David. Is it more partners buy nice cars? Well, the problem is that that they need they need to pay the the senior staff and the managers a little more so they can have the nice cars. Right? Then the staff will want to get those promotions. They don't want to wait to be partner. They don't want to wait ten years. And that's how long it takes. On average, it's like 10 to 15 years to become partner. And just people aren't willing to do that anymore, Kira says. As an accounting major and aspiring CPA still early in her education, I feel like a hero with what I'm getting myself into. Kira, you are a hero. Yes. Thank you for joining the profession. It's a great profession if you find the right place for yourself. And there are many, many awesome firms, and especially the really progressive, small remote firms like Merrill's firm Merrill Johnson, who we spoke to in our last episode, which actually hasn't come out on the podcast feed yet as we record this, but will be out on the podcast feed and on YouTube very shortly. Or if you're listening to this right now on the podcast, it's already released, So go listen to the episode with Merrill in whatever timeline you are in right now.

David Leary: [00:37:57] And the thing to remember, I think if you're young, get in this space. You can go to work for the Big four. That's fine. Go work for them for two years, burn out. But just remember, you don't have to leave the accounting industry like you could go there, get grind it out, get the experience, be able to have that badge, just as did the two years at a big four firm. But don't leave the accounting industry. There's plenty of other things to do and there's lots of options as a career beyond that. But just if you do go down that path, just make sure you keep that in your mind that, Oh, this is just a teeny, a big piece of the whole accounting industry, but you don't have to work. You know, it's not the only piece of this industry, you know.

Blake Oliver: [00:38:31] Tim says in the chat, Jerry never had an issue with the 150 credit rule when he implemented it in Pennsylvania as president. Ouch. I mean, here's what I'll give to him on that is I'll say he admits it was a mistake. Well, he didn't expressly say that to me, but he thinks that it needs to change. And I feel like part of the problem in the profession right now is that a lot of the people leading the societies and leading AICPA and Nasba were part of that move to make it happen and will not admit it was a mistake. Romeo says. Do software engineers show off their wealth? You know what I see them doing a lot is showing off their travel and going to crazy places like Bali and working there for a month. I see that on social media. I don't see a.

David Leary: [00:39:19] Lot of BMW in the Bay Area. They buy a lot of BMW for sure. Yeah, there's a lot of a lot of that.

Blake Oliver: [00:39:26] K says Yes. Can we talk more about career paths that are not Big Four related? I think that's also another way to solve the talent crisis is we have a retention problem, right? People go into big firms, they leave after a couple of years and they leave accounting entirely because they get burned out. And I feel like we need to destigmatize going to smaller firms. These accounting professors at these colleges are stuck in this mindset that, oh, you got to go work for KPMG or PwC or Deloitte or E.y because that's what I did, and that was the career path. And you can't be successful unless you do that. I think that's totally false. Now, I think you can go work for a small firm, you can go work directly for a tech startup. I've interviewed people on my earmark podcast who did that and are now CFOs. If you were willing to learn, you do not have to follow a traditional path. That was what people did 20, 30, 40 years ago. Like the world has changed and it's changed really rapidly.

David Leary: [00:40:23] I saw somebody I don't know if it's Twitter, LinkedIn, I don't know TikTok. Who knows? Something flew by in my feed somewhere. And essentially the argument was, if you're young, because everybody the reason people try to go to the Big four is they want that experience. Oh, you're going to expose you're going to get such great experience. And I think this person's argument was to go take a job at a company that's kind of growing fast. And you'll have to wear so many hats. The learning you'll get in that type of environment is probably just good, if not equal.

Blake Oliver: [00:40:50] And you know, but I have a question about that. That argument that, oh, you learned so much in your years at the Big Four. Because I rarely get a detailed description of what exactly did you learn when you spent a year auditing cash? You know, like, I don't think you actually really learn that much. And it might be survivor bias that the people who did it speak fondly of it because they survived it and they have to justify it in their minds. I'm not saying that's true, but it could be possible. And how do you know? How do you know that you wouldn't have gotten just as valuable experience somewhere else because you didn't go somewhere else? You only had one experience. Right.

David Leary: [00:41:26] And I suspect if you take somebody out of that through your third year in, you pull them out and drop them into some form. They don't know QuickBooks. They don't know the apps. They don't know how to do bookkeeping. No, I've.

Blake Oliver: [00:41:36] Heard I've actually heard bad stories about like people who come out of Big Four and go to work for a small firm and don't know how to do anything. Oh, that reminds me. They've never booked a journal entry.

David Leary: [00:41:47] It reminds me of when you're articles about account test because account test will test people before you hire them. But didn't they do something? You wrote a blog post or something.

Blake Oliver: [00:41:54] Oh, yeah, I love this. I just want to get to some of the chat because we got a lot of chatter going on and then we can talk about that. So Kira said, my main incentive for getting into accounting was simply to get out of poverty. That was enough of a pull factor for me. And I think this is something that is a problem where like we have a talent shortage, but we create all these barriers to entry in our profession that really discourage people who don't have a lot of money. Right? The extra year of education is is expensive. And it's really expensive when you consider the opportunity cost of not working. And, you know, you're asking people to basically spend 50 to $100,000 in actual hard costs and opportunity costs to do that. And you think that's that's not going to discourage people? I mean, maybe if you're a CPA society leader who's making, you know, half 1 million to $1 million a year, then yeah, to you that's not a lot of money. But to somebody who came up and doesn't have a lot of money and whose parents don't make a lot of money and who had to take on a lot of loans, that is a lot of money. And you're just totally out of touch if you don't see that.

David Leary: [00:42:55] Yeah, and that's the psychology part, right? Because you already you just dropped $50,000 a year for the last four years. Now someone wants you to do it one more time.

Blake Oliver: [00:43:03] And this is what's sad is that accounting is, I think, possibly the most reliable way to get in and stick in the middle class in this country. Right. Good job security, decent pay. You know, we talk about how the pay is low compared to tech salaries and whatnot, but like the pay for, you know, staff, accountants compared to most jobs in this country is good and the benefits are good and the job is good. And as long as you don't screw up really bad, you are going to have a good career. And yet we put up these barriers that discourage people who would love to have that kind of job from getting into it, and especially the career changers. It's really hard to become a career changer because there's all these specific courses you got to take. You got to take that fifth year. The prep for the CPA exam is expensive. If you don't have a firm paying for it, it's time consuming. It's difficult trying to book this stuff just like get through the whole process to get your CPA exam. It's a bureaucratic nightmare and then the transcript submission and all that. I mean, to navigate that is really hard and I don't think it adds value, so. Oh, and then K says yes and start your own business with little to no overhead. And that is the path to not just the middle class but to the upper middle class, is you start your own firm. And now I mean your earning potential is hundreds of thousands of dollars a year.

David Leary: [00:44:25] And maybe that should be played up more. But that you basically a Starbucks and a laptop and you can start an accounting firm. Yeah.

Blake Oliver: [00:44:31] You can own your own small business and be a member of the business owner community. And you could do that coming from almost nothing. But we put all these barriers in place, you know, and we stop people from doing that. All right. I love every I love all the chatter going on in on YouTube. I would love to address it all. But we got to move on to another story here, which is. The account tests ChatGPT challenge. So we have had chat. We have had Giles Pierson on the show. He is the CEO of Accounts. Former PwC tax partner in New Zealand and account test. If you haven't heard of it, it's a skills test platform specifically for accountants. If you want to hire somebody and you want to make sure they know their debits and credits or you want to make sure they're a good personality fit or you want to make sure you know all this stuff, you can give them an online test from account test and check it out and account test. Didn't experiment. They gave ChatGPT the account test, debits and credits test. This is a 20 question test where it's designed to evaluate Do you know your debits and credits? Given a particular situation, could you book the journal entry? And ChatGPT ChatGPT for scored an 18 out of 20 on the test, which is better than the cutoff score of 15 out of 20. So in order to demonstrate competency, you're supposed to score 15 out of 20. And ChatGPT got 18 out of 20. 90%. I think that's pretty spectacular.

David Leary: [00:46:13] Especially if you compare it to probably the people applying for the jobs. In general. I remember the one summer I took a moonlighted at an accounting firm for a summer when I was still working at Intuit and doing QuickBooks Tech support stuff. And I got they gave me a little quiz on debits and credits in accounting equation and they were shocked, like shocked that I was. I got them all right. Right. And because apparently the rest of other people applying just couldn't get half of them right or a third of them right. And it's and so you're right. So ChatGPT is knocking out 19 out of 20.

Blake Oliver: [00:46:46] 18 out of.

David Leary: [00:46:46] 20. 18 out of 20. It's it's impressive, right?

Blake Oliver: [00:46:49] Well, and what it indicates is that Chad could be utilized in combination with software to book a lot of journal entries, to categorize transactions, not just categorize them, but actually like do something more complex, like a loan payment. What did it get wrong, though? That's what everyone really wants to know, right? What are the two problems it missed? So the first question it got wrong was related to a bank overdraft, while correctly identifying that a bank overdraft would be a liability and insisted it would have a debit balance. The second question related to a journal entry Debit vehicle expenses credit owner's draw ChatGPT correctly identified that a debit to vehicle expense was an increase in an expense, but seems stuck on a credit to draw as being a withdrawal of cash from the business. After going back twice to point out the error in its logic, ChatGPT got the answer right and gave a nice apology for getting it wrong. So it learned also because when when Giles asked the same question a week later, it got it right. So what this indicates to me is that.

David Leary: [00:47:52] It actually stuck.

Blake Oliver: [00:47:53] Yeah, So? So remember, ChatGPT is not trained specifically on accounting knowledge. It was just trained on a giant database that may include some of that. And so imagine how good it can get if it's trained specifically on journal entries. Like if you gave it 10,000 journal entries that are correct, that are known to be correct, and then you gave it more journal entries, I bet you it could get to very close to 100%.

David Leary: [00:48:20] Or how you last week you demoed the Avalara plugin for tax information like there should be a plugin for accounting transactions.

Blake Oliver: [00:48:30] Yeah. Like how would like a journal entry plugin? That would be cool if somebody made that.

David Leary: [00:48:35] I'm surprised he's making that for all and we're getting pitched a lot for all of you companies that are out there. Everybody's making their own like version of an AI product with accounting stuff in it of some type. And it's like, why not just make a plug in and have everybody it's like, don't want ten different chat programs. Like you need to use this one for tax and this other chat program for revenue rec and this other like I just want just offer plug ins to chat GPT maybe Yeah, it's probably better out.

Blake Oliver: [00:49:02] There's also a new app that people should check out if you want to try a different option other than ChatGPT. It's called Claude AI spelled Claude I. One thing that makes it really neat is that you can copy paste text that is a lot longer than what ChatGPT can handle. So for instance, I could paste this entire transcript from this episode into Claude and start asking it questions about the episode where I couldn't do that before with ChatGPT because it was limited. So it can also ingest PDFs. So you could take like a pdf. I don't know how big a PDF it can handle, but you could take a PDF of like a particular section of the tax code, drop it in and start querying it. Or maybe a like a gap rule, like something like that. That's where we're going to get is, is the ability to reference your own material and ask questions specifically about that. And that will minimize hallucinations and maximize accuracy. The other thing that I've been doing with GPT that's really exciting, David, is I took a set of financial statements now that it can handle more text and. I did this with ChatGPT. I took a set of financials and I exported to PDF from zero and then I converted the PDF into just plain text. So, you know, it turns the the columns into tabs. So it's kind of roughly like you can you can see where the alignment happens. And GPT is smart enough where it can actually reassemble the tables, the financial statements. And so I just copied and pasted the text of the financial statements into ChatGPT and I asked it, give me five bullet points to give to my client. The most important things they need to know about their June financials, because I still have one client, by the way, I got permission to do this. Okay. So I'm not I'm not doing this. I'm not going rogue with their data.

David Leary: [00:51:01] But you can use our company if you want. Yeah.

Blake Oliver: [00:51:03] Yeah. So anyway, it gave me the best analysis that was better than what I would have ever given them in an email because it would have taken me forever to write it. And it gave me these five bullet points explaining, Here's the things you need to worry about, here's your cash flow thing, here's your assets liabilities thing, like your upside down on this. And it was it was fantastic. And then I could go. I could look at the financials and validate that information and then send that to my client. So think about this. There's a future now where you could add a ton of value to your client accounting services by running the financials through GPT, asking it to create that bullet point summary for your client and emailing that along with the financials to your client.

David Leary: [00:51:44] Yeah, that's instant difference. One of our sponsors, fin daily, like we'll pull data and send an email every day. But you're right, that would be the next step. Like. Like take the data, pass it to Zapier, pull it back in and, and send that little paragraph with the five bullets of today or whatever, you know, because you.

Blake Oliver: [00:52:00] Watch your clients aren't going to open up that PDF and look at the financials like vast majority of them will not do it. At best 50%. Far fewer, though, is my guess. But they will read the bullet points in the email and that will stimulate conversations and that's the way to get into advisory. So I'm really excited about that. But David. I'm sorry if you had more to share, but I got to go. I've got a call, and we just have.

David Leary: [00:52:22] To plug one thing. What's that? For everybody. Well, Blake and I use TurboTax Live full service business to do our business return. And it was a three, four week process, and we turned it into one sweet video. And by the time you listen to this podcast, it should be available. But Blake, you're you're more of a YouTuber. You're younger than me. Can you explain, like where they're going to find this video?

Blake Oliver: [00:52:43] Well, search for the accounting podcast on YouTube. Subscribe to our channel. You can join us live and get notified on your phone when we go live and chat with us and hang out with us. You can see our screens. We're also going to drop that video into the podcast as an audio episode. So I don't know who's going to listen to this. Honestly, David, like it was an experiment. Will our listeners actually want to spend 45 minutes listening to us do our taxes? It's the big question.

David Leary: [00:53:13] Well, I honestly believe this to be a truth. Most tax Twitter and I just picked a fight with tax Twitter. But most of the tax Twitter, most tax preparers, a lot of them bag on into. They bag on TurboTax. They bag on this. But nobody's ever done the experience. And that's what we've done. We've done the experience. You can come watch it.

Blake Oliver: [00:53:30] So that's the reason to watch. It is is look at what TurboTax Live is doing and compare it to how your firm is operating. And I would say the.

David Leary: [00:53:39] Price.

Blake Oliver: [00:53:40] And look at the price because you know, and see what they're charging for, what they're giving and see how you line up. Maybe you're doing better. Maybe you're doing worse. You got to know, right, if you want to be competitive. So, David, great to see you. Follow David @DavidLeary on all the socials. I'm @BlakeTOliver. We'll see you here next week.

David Leary: [00:54:00] Hi, everybody.

Creators and Guests

David Leary
David Leary
President and Founder, Sombrero Apps Company
How To Know If An App Will Survive & Big Tax Prep Sent Taxpayer Data to Facebook
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