National MAP Survey Indicates Firms Continued To See Growth in 2007

Demand for CPA services remains robust and growth remains steady, with over one quarter of responding firms experiencing 1-19 percent growth in 2007. That’s one of the many conclusions to be drawn from the 2008 PCPS/TSCPA National Management of an Accounting Practice Survey, conducted by the American Institute of Certified Public Accountants’ Private Companies Practice Section and the Texas Society of CPAs. The findings of the highly regarded survey—available free to PCPS members and for purchase by the public—offer practitioners, especially in smaller firms, the opportunity to benchmark their financial results and practice management policies and procedures against those of other firms.

The 2008 survey marked the second-highest participation rate in the comprehensive survey’s history; 2,722 CPA firms participated—a 40 percent increase over the 2006 survey. The survey provides national averages and meaningful benchmark data in areas such as billing rates, expenses, revenue, realization, service offerings, staffing, marketing and benefits, and the data is delineated by region and firm size so CPAs can compare their financial results and practice management policies with other firms. “It’s often difficult for small practitioners to know how they are doing compared with other firms of the same or similar size. The PCPS/TSCPS National MAP Survey makes that comparison possible,” said James C. Metzler, CPA, AICPA vice president, Small Firm Interests.

The 2008 survey found that CPA firms continue to report healthy growth rates; however, there are signs that the profession may have reached a plateau in demand. The last survey, conducted in 2006, showed a surge in growth and profits, undoubtedly due to the increased need for CPA services in the wake of the Sarbanes-Oxley Act and other new regulation. The 2008 survey found that firms held steady at high levels in 2007 but did not experience significant change in several important indicators, including firm growth, earning, spending, human capital and practice management.

How Firms Grew

The results surrounding how firms grew reflect a great deal of optimism among firms. When reporting on growth (as measured in gross fees), 26 percent of the responding firms had 10 percent to 19 percent growth in the most recent fiscal year, roughly the same percentage as in the 2006 survey. Another 18 percent experienced between 6 percent and 9 percent growth, while 19 percent grew between 1 and 5 percent. Another positive sign: only 10 percent of firms experienced no change, down from 15.1 percent in 2006, and once again fewer than 10 percent of firms decreased in size. These numbers are very close to the percentages reported in the 2006 survey, but they are still a sharp increase from the growth seen in 2004.

What Firms Earned and Spent

Firm earnings and billing rates have risen since 2006. The net remaining per owner—the amount that partners can take out of a firm—averaged $247,147, up 8 percent over two years from $228,542 reported in 2006. While partner compensation—the amount partners claimed to have withdrawn—decreased only slightly from 2006 to $188,572, mid-level salaries moved higher. Directors saw an increase of 18 percent to $91,999, and managers experienced an 11 percent jump to $71,986. Salaries for junior level staff changed little.

The average hourly billing rate for owners was $171—just a three dollar change from 2006, when it was $168. Realization (net client fees earned divided by gross fees billed) averaged 90 percent, also little changed from the last survey, while utilization (total chargeable hours or billable hours divided by total compensated hours) averaged 66.7 percent, down slightly from 2006.

Tax services were the top fee source among firms, with 28 percent of fees coming from individual tax work and 24 percent from tax services rendered to an entity not an individual. Compilations and reviews and write-ups represented 12 percent of firms’ fees. Audits of non-public clients provided 10 percent of fees and consulting services provided 7 percent. These numbers are very similar to the findings in 2006.

The survey also looked into how firms spend their money. As usual, the largest expense was salaries (excluding owners’ salaries), which accounted for roughly 33 percent of income (or net client fees), a percentage that was about the same as in 2006.

How Firms Handled Human Capital Concerns

For several years, the profession had experienced a staffing crisis. The 2008 MAP Survey indicates that this trend continues, but at a lower rate than in 2006. An average of 31.3 percent of firms lost professionals in fiscal 2007, however that percentage is significantly lower than the 45.6 percent of firms that did so in 2006. Staffing remains a challenge, but appears to be less daunting than in previous years. Benefits, of course, are an important factor in holding on to talented professionals. The survey found the top five benefits that firms offered, in the following order, were: continuing education courses; professional dues payment; professional license fees reimbursement; health insurance; and retirement plans. This was true for firms of all sizes, although fewer small firms offered many of these benefits.

Firms Show Practice Management Improvement Areas

Based on the survey findings, firms that want to set themselves apart in their recruiting efforts should offer an established career path and ample learning opportunities. According to the survey, 94 percent of firms did not have a formal partner-in-training program and only 22 percent had a succession plan. Among the smallest firms, no more than 10 percent had a practice continuation agreement. A little more than one-third of all firms (37 percent) had a written partnership agreement.

Professional training was another problem area. The survey found that continuing professional education represented about 1 percent of firms’ expenses. That’s about 50 percent less than firms spent on promotion and marketing and less than half of their information technology outlays. While firms may report that CPE is the most common benefit given to staff, what’s being offered may not be enough in terms of dollars or hours.

Planning for Change

Metzler cautioned that although business may be good, it may be time to plan for a change in demand or a shift in the type of services needed. “Given the uncertain economy, practitioners should prepare for the possibility of fee competition and fee pressure from clients,” he said. On the other hand, businesses and lenders may call on CPAs for help in light of the troubled economy. “Clients may turn to CPAs for further services to help them weather tough times and banks may seek greater assurance from practitioners about the companies with which they do business. Firms should consider both these possibilities in their strategic planning.”

For more information on the 2008 National MAP Survey, go to the PCPS Firm Practice Center at www.aicpa.org/pcps.