In this 4 part series I’ll be covering in depth the differences between a typical career in accounting starting in (Big 4) public accounting, and a typical career in finance starting in investment banking. First up in the series is a long term look at the career paths of each
Accounting – Career Path
The most common and desired entry level position for an accounting student is in (Big 4) public accounting audit or tax. Public accounting gives great exposure to a wide variety of areas in a business, good training, and management experience early on. You will learn how business work and dig into the nuts and bolts of the businesses you audit. Most of those who enter the field don’t plan on staying but 3-6 years and use it as a springboard for their careers
The progression in Big 4 public accounting is based on an “up or out” model where there is a lot of turnover and some layoffs. About 1/3 of the people within each position never make it to the next promotion because they either quit and left for a better job or were laid off. The hierarchy goes as follows:
Associate: 0-2 years
Seniors Associate:3-5 years
Manager:6-10 years
Senior Manager:11 years to Partner
The goal once you’re in is to stick it out as long as you can, as the opportunities available are greater the longer you stay. It can be grueling at times but the experience really adds a lot of value to your resume over the long term. Even a 2 or 3 year period gives you an ex-Big 4 title, however valuable that may be.
The general rule is that those in public accounting advance at about 1.5-2x the rate of those in private industry. So for example, someone staying for 6 years in public accounting and has been a manager for 1 year should be able to fill a management position that may normally take 8-10 years for someone moving through the ranks of the company. The reason for the demand for those with public accounting experience is the broad exposure, assumed hard work ethic, and management training/experience. Also think about the fact that someone sitting at a position at a company will have to wait for their boss to get a promotion or leave before they can get promoted.
Some of the most common exits from public accounting are into a corporation’s functions such as:
Internal Audit: This function handles the internal controls that are in place at a company, including designing, implementing, and testing them. It is responsible for ensuring the financial reporting system is free of fraud or errors. Sounds boring and it is.
Treasury: This function handles the capital and manages liquidity of a business. Duties could include cash forecasting, working capital management, and maintaining credit lines/debt. It could possibly include more strategic areas like capital risk management or fund raising through IPO, bond issuance, or M&A.
corporate finance: This function manages the capital structure (source of funding) and allocation of cash. Investment analysis, capital budgeting, valuation, and project management are some of the responsibilities. If the company is involved in M&A, this function will lead the analysis and management of the deal. While ex-public accountants often fill some of these roles, it is more likely someone with valuation/due diligence or investment banking experience will rise through the ranks.
Financial Planning & Analysis: FP&A can mean a lot of things and can be very interesting career path, but many times positions disguised as FP&A are just glorified cost accounting. At best the role involves developing metrics for forecasting cost/revenue drivers and strategic project management planning. At worst it does budget vs. actual calculations and helps close out the monthly financial statements. This role often puts together financial reports for the C-suite and can be a great stepping stone to VP finance and CFO.
Tax: This function puts all of the profits overseas. I’m not really sure what else.
MBA/IB/Valuation/Consulting: For the ambitious accountant, it is quite possible (especially from a Big 4) to make a jump into finance or consulting. Some will go the MBA route and others will network their way straight in. Within the Big 4 firms there are services lines that do valuation, due diligence for M&A deals, and even internal middle market investment banks (called corporate finance). These are not as easy to come by as just jumping ship to work for client you’ve audited, but they are still possible.
Of course there are some who stay in PA until Senior Manger, and they either stay until partner or fill similar positions as those at manager level, with a few filling director and CFO roles at small/mid size companies.
Looking longer term, those with public accounting experience serve in management/direct positions within accounting/finance roles in corporations later in their career. It’s also no surprise that most CFOs large corporations have a background in public accounting. Those with public experience are perfectly positioned to become a CFO because they have the best understanding of what drives a business.
The tax professionals (which are underrepresented in this post because I don’t know what would make someone do tax) often rise through the ranks in a corporation’s tax department or break off and start their own CPA firm.
Investment Banking – Career Path
One of the most sought after entry level positions for a finance student is investment banking. Specifically this will focus on the Investment Banking Division (IBD) which is the M&A department of the bank. Investment banking has a much more defined career path building specialized skills in financial modeling and valuation. Standing out in the crowd and getting the job is very difficult, the hours are tough, there could be significant travel, but the compensation is incredible.
Most investment banks have a 2 year analyst position after which the new hire is expected to move on to another firm or business school. Analysts spend time preparing pitch books which will be presented to potential clients and updating financial models. The 2 year period is associated with very long hours including potential all nighters. The analyst program is a rite of passage in banking and completion of the program propels ones resume to the top of the stacks of other banks, “buy side” firms, and MBA admissions (along with a fat bonus). There are a few main areas of focus in finance including investment banking, sales and trading, private equity, and hedge funds.
Investment banking (IBD): Investment bankers act as advisors for companies who want to raise capital through debt or IPO; or buy, sell, or merge their company (M&A). You will typically be preparing to present a deal, presenting a deal, or finding people to present a deal to. There is a lot of modeling, (although much of it is updating current models), and attention to detail is critical. You’ll learn how to value companies using a variety of valuation methods that will serve will in a career in finance. You’ll also learn how to work on 4 hours of sleep.
Sales & Trading (S&T): These are the traders that you see shouting on a trading floor. They’re constantly on the phones talking to clients and making quick decisions. You’ll need an aptitude for the markets and a natural sales ability but the lifestyle is hard to beat in the finance world.
Private Equity: Similar to IBD but instead of acting as an advisor you’re putting your own money (or bonus) at stake and buying entire companies. They buy companies they think can be better, fix them up and make them profitable and then sell them to public markets or other buyers. This also encompasses venture capital and angel investors, though typical “private equity” firm buy more developed companies.
Hedge Fund: Similar to S&T but they make trades on the market using a lot of leverage to reap in profits. They invest money for institutions and individuals and take a management fee as well as a percentage of the profits (but none of any loss).
Buy Side vs. Sell Side
Investment banking and sales and trading are on the “sell side” because they are acting only as an advisor and not putting their own capital at risk. You can remember that sell side sells services while the buy side buys assets.
Private equity firms and hedge funds are known as on the “buy side” because they actually buy companies, whether they buy the whole company or just some of its stock.
Doing a stint as an analyst in investment banking (IBD) sets you up best stay in IBD or work in private equity. There are other options like working at a company in their corporate development, investor relations department, and their corporate finance department.
In finance, the buy side is usually preferred over the sell side because the hours are lower and compensation is usually higher. A career path many bankers have for their career is 2 years as an analyst, 2 years as a “pre MBA” private equity associate, MBA, then either back to the investment bank or private equity.
Another option is to switching from M&A to sales and trading within an investment bank, or joining a hedge fund. Others have done banking and then used an MBA to make a switch into consulting as well.
I think it is worth noting that these areas of finance are extremely competitive and usually require a combination of an Ivy League degree, incredible networking, and a killer resume. Within finance you will find success is of course dependent on individual merit, but a big focus is on pedigree. Where did you go to school, who did you work for after that ect. With thousands of applicants and few spots they can hand select the smartest and hardest working individuals from the top schools and firms. If you have dreams and aspirations of one day working at a top private equity firm while you went to a state school and joined a no name boutique investment bank out of school, you have an uphill battle. You’ll be competing against the Harvard and Wharton grads with Goldman Sachs on their resume. Many aspiring finance majors who don’t go to “target” schools and don’t have their networking down don’t even break into banking and are left with wealth management or accounting jobs. Hard work trumps all and there will always stories of people landing the most competitive jobs from the lowest background through networking.
Career Path Summary:
Accounting careers lead can to varied positions in corporations and are generally pretty stable. The options available are broad and with a start in public accounting one can explore to careers in both accounting and financial roles. There are a good deal of c-suite employees who followed this path as well.
Finance careers can lead to somewhat narrower but incredibly successful positions making huge sums of money. The skill set is valuable and the experience gained is viewed as top notch. Barriers to entry and fierce competition can pump the brakes for some but when it’s good, it’s great.
Next up in the 4 part series will be:
Accounting vs Investment Banking: Part 2 – Compensation
This is a syndication from Big4Bound.com the best resource for Big 4 Internships and the Big 4 Interview guide.
This is awesome man, keep it coming. Very Informative.
Thanks for sharing. You should also mention Transfer Pricing as a path especially at Big4.
Sweet info. Thanks. BP+
Hedge fund section is a little thin
Really great write up on the accounting side especially. Looking forward to the future installments!
Came here to post that IB v. Accounting is apples to oranges in terms of overall career, but really nice write-up, especially the blurb about FP&A.
You didn't really talk much about investment banking-->mba-->corp strategy/consulting too much. Is it true that almost all people go back into banking after their MBAs? I thought it was somewhat common to use the MBA to propel into non-finance areas.
Thanks for sharing...for all the props, only 2 SBs so far. show the man some love people :-)
Thanks for this, this is really useful!
Awesome post, can't wait for part 2
Overall very good post, but I'm gonna have to disagree with this section.
One, for those looking to get into Corp. Finance, or even various stepping stones into high finance, this isn't true. Staying longer means branding yourself as an accountant/auditor only. IMO and from reading a lot on here, if one is using Big 4 to get into a more Corp. Fin. position, 2-3 years would be more ideal for something like a SFA role, whereas longer than that would start to make you more limited. Managers for Big 4 aren't going to have an easy time getting into more finance-y roles.
Two, even for those going the general exit opp route, internal audit, FP&A, etc., it isn't always "the longer the better." There are sweet spots, such as first year senior and first year manager, where certain opportunities are open, but if you were to stay a bit longer, you are now over qualified. Senior Managers have this issue as well. They have all this experience, and are demanding fairly high salaries, yet have no industry experience. This can make it tricky to get an industry role that doesn't seem like a downgrade, and maybe even a role someone who only stayed in Big 4 to manager could be just as qualified for.
Also, to make this more comprehensive, you may want to include exit opps into other functions of PA, such as transferring to TS/TAS at a Big 4, or maybe moving to smaller firm. Some people do that to get a taste of the partner lifestyle, with less of the income, but also less demanding. Others do it to gain experience for their own accounting and tax practice, which you touched on (yes tax may be boring, but entrepreneurship isn't, and Accounting practices can be very lucrative while affording a ton of free time).
Just my takes on some changes you could make if you wanted to put this on your website.
A small percentage of people in public accounting are trying to get into CF or banking (outside of the people like us on WSO). But like you said, for those in the MBA/IB/Valuation/Consulting group, you want to get out quickly as to not get branded.
You do bring up a good point though. The longer you stay the better - until you get to senior manager, and then your return starts to diminish. This is why when I discussed senior manager exits, I lumped them in with the other managers. If you're not on the partner route I would think you should be looking for the door.
I would agree, banking or high finance is more rare, but I'd argue Corp. Fin. isn't all that rare. Then again, I'm but a mere college student. All I can say is from my research, going from 2-3 years at a Big 4-->FA/SFA at an F500 isnt incredibly rare, but again, I have no proof of this. I guess it depends on your definition of Corp. Fin. compared to FP&A.
Great Post! I now know which way to gear my focus to switch to ib.
Theodore, thank YOU for spelling out the lyrics from Office Space. I always thought it said Ritalin shots nonstop. Doesn't make sense - but I didn't question it.
Cool stuff, thanks for presenting information on accounting!
Probably the most informative post I have read here since I started following the site (at least for a young college kid). I really appreciate it!!!!
Great Stuff. +1
From my experience interning at a F50, there were around 6/20 people that came from Big4 (around 5 others had internal audit experience first, the rest were FLDPs) The ones that came from Big4 were all senior analysts in their thirties.
The 3/5 internal audit folks were managers, the rest senior analysts in their late thirties.
The former FLDPs were all on track to get to management by 30, the rest were directors.
Not sure if that means much, considering this was one of many operating companies.
Excellent post. In the future, I'd love to hear why anyone would even consider the move from external to internal audit. It always seemed like a raw deal to me--except for perhaps having fewer hours while maintaining a twisted love of pushing workpapers.
Very informative. Now how do i subscribe in case I miss the part 2?
I definitely agree. I think they see a salary bump and a quick exit after taking a beating from busy season and jump at the chance. It's not a bad career and I've heard it can lead to interesting travel, but for God's sake it's internal audit.
I believe there is a subscribe function within the blogs here on WSO. This series is a syndication from my site at big4bound.com, and there is a free ebook you can download that puts you into my newsletter. I'll send out an email when the new post goes up.
http://big4bound.com/free-big-4-bound-e-book/
Great post. Looking forward to the other parts of this series.
sweet. thanks a lot. i'm new to WSO (or not so active). funny how i find your posts so interesting while knowing i'm nowhere near any chance of getting anywhere near an IB
For what its worth, I currently work at a Big 4 and have done both internal audit and external audit in the past. It seems you have a very limited understanding of what internal audit is - its not just merely testing controls and making sure they function. Thats more SOX compliance. Internal audit incorporates a lot of consulting aspects actually and is WAY more interesting that external audit imo. Done both so I can attest to the shittiness of external audit, and hands down I would choose internal audit over external. Unless you think ticking and tying + footing numbers is fun, if thats your thing go external. This isn't to say internal audit is great, pure consulting and many other roles are a lot better. However, just wanted to provide a more detailed role into that function as many college kids have no idea what it is.
Btw to the OP, how long have you been working at a B4? The accounting career path sections seems like something my recruiter or a 1st year associate would say to me LOL.
there r lot of things that tax professionals do when they move over to industry. the tasks largely fall under 3 buckets: compliance, provisions, and structuring. every quarter, tax team will to provision analysis (i.e. figure out how much projected tax burden will be) and this number is used throughout the financial planning process of the firm. and of course, tax team is reponsible for making sure that the right amount of taxes are paid to the right jurisdictions. this team is also therefore responsible for initial stages of tax controversies (i.e. dealing with local tax authorities..but once things get escalated to courts, legal team may take over). lastly, tax professionals work to minize tax burdens by structuring profits, recommending transaction structures (working witn m&a teams), and establishing "positions" with extensive supporting evidence on certain tax issues before taking advantage of them.
Great job. Thanks for sharing!
Lol looks like the internal audit comment touched a nerve. Yes, it sucks, B4B is correct.
This is a great post! I think the biggest thing most people (especially on here) is that definitely for semi-targets and non-targets the Big 4 job opportunities out there are great jobs that will be six figure (albeit low six figure) jobs that we can more easily and more probably be able to land.
Also the Big 4 has the prestige and "name pop" when it comes to landing smaller regional accounting jobs where you can work easily to partner or corporate finance in big and small companies. It also carries weight with top and semi-top MBA programs.
Its another route, but great bit of information here!
Cracking effort, particularly on the accounting side. Although you did lose me at: "Hedge Fund: Similar to S&T"
So if you perform well, would you say that the FLDP program is a better path than a Big4 for a F500 corporate finance career? Only way I see B4 being better is the brand recognition you'd get when finding new jobs if you for some reason quit the company you did the FLDP at.
^ Wondering that as well
F500 FLDP vs Big 4 is very dependent on the size of the company and quality of the program. A F10 FLDP is likely going to serve you better than a start at a Big 4. FLDP are great because they put you through a rotation so you see many aspects of a company. Thats also why Big 4 experience is valuable because you see various areas of different companies.
If you're contemplating or have offers for both, I think you're in a good position regardless. FLDP will likely be more enjoyable than public accounting, there are more openings for big 4, for big 4 you may have to do a masters in accounting depending on your state, MBA placement will be similar depending on the quality of the FLDP. Just some things to consider.
Spending six months at the F50 operating company, I noticed that the B4 alumni were pigeonholed into compliance and operations. There was one person who was working in contracts, but I believe she did advisory at a B4 and not audit.
I would say that FLDP at a F50 is probably better if only because of the hours you get and overtime pay the first year.
If you're a FLDP and take advantage of the networking opportunities by taking part in championing presentation/events/etc. then you will have an easier time moving up the hierarchy.
At the end of the day, as an FLDP you have the advantage because you've spent more time networking with other employees by virtue of working at the company longer.
Good post
The username, not cool man
+1 for the Treasury info
I have been able to do an internship with a B4 firm in a major market as well as an internship with a MM IB. In my opinion, IB trumps B4 opportunities in almost every way except for work-life balance. My B4 internship was in external audit so that is where my experience came from. During my time there, I was on a F100 company to give you an idea of the size. As far as exit opportunities, the best time to leave is after being a manager for one year unless you aspire to make partner. The pay increase from senior to manager is the largest percentage increase YOY until you hit your second or third of partner (10 yrs down the road). IB exit opportunities are very good after a typical 2 yr analyst program and it allows you to move into many different career paths (stay in banking, move to consulting, PE, HF, bschool, CF, etc.). The pay bump is generally much better and the hrs decrease as well.
The amount you will learn in IB is much greater than you will learn in external audit. From my experience, external audit was a lot of mindless work and it is comprised of A TON of small minute tasks. You learn organizational skills but I did not have the opportunity to learn much other anything. I also interned during busy season. Busy season was also not nearly as much work as I anticipated. My team would work a max of 70 hrs/wk for roughly 6-8 weeks. Another con of audit was that you are working in areas with no space. For example, we will cram 4 people into a cube and it sure is crowded. Another thing that I did not enjoy was working with the Company's internal audit group who are generally not very bright or ambitious people. Internal audit directors will generally come from B4 but outside of that, it is typically people that come to work only to clock in and clock out. It can be so frustrating working with people like that all the time.
During my time at the IB, I was able to learn so much every single day. The responsibility seems to be much greater in MM roles vs. BB roles from speaking with my friends that did BB IB internships. At a BB firm, you will become very developed in a limited role of activities (modeling/pitch books) where as you get to work on almost every aspect of the deal process in a MM role. At the MM firm I was at, analysts got to go to every pitch, mgmt presentation, and got to conduct due-diligence along with modeling/pitch-books/CIMS. All the work puts you under a time crunch and the people you are working with are much brighter and more motivated than at a B4 firm. My school is a target school for MM firms and a semi-target for BB firms. During my time at the B4 firm, my school was by far the best school compared with the other kids that were there. In my opinion, it carries much more weight having an IB analyst role on your resume vs. having a B4 position on your resume. B4 always tells kids that B4 is the best place to start a career but in reality, there are 25,000 other people with your exact same role (not an exaggeration). Having an analyst role at a bank with recognition and brand equity will take you much further than B4 and it will also give you many more options to move into different industries.
The work-life balance at B4 is definitely better than in IB but that is one of the trade-offs. B4 is very concerned with people enjoying their lives/work and the hours in public accounting are getting better every year (quote from multiple partners). As more and more students enter accounting, B4 has to become more attractive in luring kids in which means that they have to make the work-life balance even better. The people starting out in public accounting are also very different from those in IB. My personality is much more suitable in the IB industry and I did not really enjoy being around a lot of the kids in public accounting.
To conclude, my experience with IB was much better than my experience in public accounting. IB was more interesting, more pressure, more responsibility, better pay, better exit opportunities, and gives you an opportunity to learn much more. Accounting is less hours, less pay, but it does give you the option to move laterally into different large companies and different geographies around the world. That is my experience in a nutshell but if anyone wants some more info, feel free to PM me because I have been able to experience both of the industries.
Great contribution, thanks for sharing.
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