Hitting the Target: National Survey Looks at How CPA Firms of All Sizes Stack Up
Practitioners have put their business management skills to the test within their own firms during the past two years to minimize potential damage from the economic downturn, according to a biennial survey conducted by the AICPA’s Private Companies Practice Section in conjunction with the Texas Society of CPAs. The results of the survey can help firms make business decisions by comparing themselves to peers based on firm size and region.
After a long period of steady demand for CPA services, the previous PCPS/TSCPA National MAP Survey, conducted in 2008, indicated that continued expansion was no longer guaranteed. So CPAs needed to make adjustments to prevent losses and preserve the bottom line.
“Firms really seemed to sharpen the pencil quite a bit. They really got down and managed their expenses to the bare bones to try and get through the recession,” said Mark Koziel, AICPA director–Specialized Communities & Firm Practice Management.
When evaluating numbers from both years as outlined in this article, it is important to note that the 2010 survey attracted a greater number of large firm participants than in 2008, and thus certain overall results from year to year cannot be seen as an apples-to-apples comparison. It is more appropriate to evaluate results based on firm size, according to Koziel. Therefore, a majority of the information in this article follows this comparison model.
In 2010, firms experienced turnover rates for all staff of 12.8% compared with 13.5% in 2008, and partner billing rates increased by an average of 4.7% from 2008, according to the survey results.
In comparing firms of like sizes, one highlight can be found among firms in the $5 million to $10 million revenue range. In this group, more than one-third reported a drop in gross fees from FY 2008, while another 36% of those firms reported modest growth of no more than 5%. However, revenue per partner in this segment was up.
“By applying some basic math, it would seem the number of partners has likely declined (in general),” Koziel said. “If that’s the case, it’s apparent that firms are raising their expectations for partner productivity, and either more partners are choosing to retire or fewer are being added to the ownership ranks.”
Overall, between fiscal 2008 and fiscal 2009, 55% of firms experienced at least some growth (see Exhibit 1): 22% had growth in gross fees of between 1% and 5%; 13% had growth of between 6% and 9%; and 12% had growth of between 10% and 19%, according to the survey. A total of 30% had a decline in gross fees, while another 15% had no change at all. Smaller firms generally were more likely to have modestly higher gains or no change.
These numbers may reflect growth in the number of startups that might have come about because of mergers or other developments, but the creation of new practices is a healthy sign for the profession, especially in an uncertain economic environment, Koziel said.
EARNINGS
Net remaining per owner represents the amount that partners can take out of the firm. It is not net income per owner, since it may include outlays for benefits, retirement or other items that would vary from firm to firm. However, it does indicate what is available to partners once other expenses have been paid, Koziel said.
Net remaining per owner in 2010 averaged $273,140, up from $245,103 in the last survey (see Exhibit 2, which also breaks down the change by firm size). However, analysis of the survey data shows this is a reflection of changes in the mix of responding firms rather than a real jump in partner nets. Larger firms, those with revenue between $500,000 and $10 million, did see a jump in this number, but those above and below these ranges experienced a decline. The steepest decline in net remaining per owner in any category was about 5%.
Average net client fees per partner jumped, from $659,375 in 2008 to $798,951 in 2010, with the greatest strength once again apparent in firms with between $500,000 and $10 million in revenues (see Exhibit 3).
The average owner’s hourly rate was $179, up about 5% from 2008. Virtually all owner rates were up in 2010, and the rates ranged from $117 at the smallest firms to $319 at the largest.
Billing rates for directors jumped 14% to $178, although some of the most significant increases were seen in larger firms (see Exhibit 4 for a breakdown by firm size in 2010). Managers’ rates rose about 8% to $144, and senior associates’ rates edged up a little more than 5% to $113. Associates were billing 7% higher at $91, and new professionals garnered 12% more at $85.
“Keep in mind that an increase in billing rates does not convert to an increase in revenues,” Koziel said. “For many firms, while the billing rates increased, as they often do year to year, client fees didn’t, which caused an increase in write-downs for the year.”
Although 29% of firms reported experiencing turnover in the last year, the numbers varied widely depending on firm size, with the smallest firms seeing the least turnover. The average number of terminations was slightly higher in 2010 than the average number of those who left voluntarily, a sharp change from 2008, when there were about three times as many voluntary losses as involuntary. The overall average was skewed by a jump in terminations among the largest firms. In 2010, firms with revenues of $10 million and higher had an average of nearly 13 people leave voluntarily, and they let go an average of about 14. In 2008, these firms had about 15 people leave voluntarily and let go an average of three.
Despite economic uncertainty, the overwhelming majority of firms—69%—expected no changes in staffing going forward, and several segments expected modest increases. A small number among the larger firms were planning to cut staff.
The most common benefits firms offered employees were continuing professional education (CPE), payment of professional dues and professional licenses, health insurance, and a retirement plan, virtually unchanged since the last survey. Among the smallest firms, 46% did not pay for any employee benefits, also essentially the same as in the last survey. However, 42% of the smallest firms did pay for CPE, a sign of the importance of training, Koziel said.
“While many firms are paying for education, the amount of spending on CPE still is low at less than 1% of revenues—as much as firms pay for phone service,” he said. “The more progressive firms invest far more in their human capital by giving training to increase knowledge capital inside the firm.”
OPINIONS ON THE ECONOMY
The survey also asked practitioners about how near-term economic conditions will affect their firms and their clients. The survey found that firms were cautiously optimistic about the future, with 28% expecting growth of 1% to 5%; 16% expecting growth of as much as 10%; and 13% expecting growth of greater than 10%. On the other end of the spectrum, 19% foresaw no change, and the remainder—23%—expected revenue declines from 1% to as much as 10%.
When survey participants were asked about current economic conditions, almost 27% said their firms are still in economic crisis mode (see Exhibit 5 broken down by firm size). The rates were slightly higher in the Midwest (28%) and West (30%) than in the Northeast (20%) and South (26%).
ECONOMIC RECOVERY IN FIRMS
Firms reported that half of their clients are still in crisis mode, with a similar regional gap between the Northeast (44%) and the West (55%).
The majority of larger firms reported that their clients are showing signs of recovery, while small firms noted that more of their clients are still in crisis mode. Less than 10% in each firm size category said their clients weren’t affected at all (see Exhibit 6).
Separately, the survey asked how firms are using technology to enhance productivity and profitability. For more on that topic, see the related story, “Survey Highlights Emerging Tools for Firms of All Sizes,” in this issue, page 28.
Alexandra DeFelice is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact her at adefelice@aicpa.org or 212-596-6122.
To access the full survey, which includes breakdowns by firm size and region, visit aicpa.org/2010MAPSurvey. Information on future surveys will be available in the PCPS Firm Practice Center at aicpa.org/PCPS.
AICPA RESOURCES
Publication
Management of an Accounting Practice Handbook (#MAP-XX and #090407)
Conference
PCPS Human Capital Forum, Oct. 6–7, New Orleans
For more information or to make a purchase or register, go to cpa2biz.com or call the Institute at 888-777-7077.
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