Find the Answers to Your Practice Management Questions
Do you have questions about the best practice management direction for your firm? Should your firm consider value billing? Is your firm’s revenue comparable to other similar-sized firms in your area? How much are other firms investing in technology? The 2016 AICPA PCPS/CPA.com National Management of an Accounting Practice (MAP) Survey has the answers. The profession’s largest benchmarking poll on practice management topics, which is conducted every two years, offers unique perspectives on the latest trends within seven defined CPA firm segments, from small practices with less than $200,000 in annual revenue to large firms with $10 million or more. The comprehensive data spotlights best practices for firms, identifies challenges and highlights how firms are tackling them. Practitioners can use the survey data to compare their own approaches with those of firms in the same region along with those with similar revenues. They also can compare their firms to others across the profession. Let’s look at some of the insights the latest survey has to offer.
Revenue remains on the rise for nearly every firm size. The median rate of revenue growth ranged from 4.9% over the previous year for firms with $500,000 to $750,000 in revenue to 10.5% for those firms with less than $200,000 in revenue. That’s consistent with the kinds of advances seen in the 2014 survey, when growth measured from 4% to 8% across various firm segments.
Insight: Each firm’s situation is unique, and its potential growth depends on a variety of specific factors. However, it’s fair to say that the business of CPA firms is strong, something to be factored in when considering expansion, new hires or other significant changes.
Business is particularly good for the smallest firms. Not only did firms with less than $200,000 in revenues chalk up nearly 11% growth in the most recent year, they were also the firm segment that achieved the highest (8%) growth in the 2014 survey.
Insight: These numbers may reflect a few large new engagements or the startup phase of some new firms. In any case, these firms are clearly benefiting from strong practice development opportunities.
More modest profit margins can be a result of investments in the future. Profitability can be measured using “net remaining per owner,” or revenue minus expenses before partner-related compensation. Looking at this measure, it’s clear that median profit margins have not returned to pre-recession levels, and that is likely due in part to greater competition that might be depressing fee levels.
Insight: Since the recession, there have been indications that firms are making strategic investments in their future, which would explain smaller profits in the short term. Later, however, these investments would lead to greater profitability. That can include technology upgrades that will help streamline processes and enhance productivity, higher salaries that attract the best people and set the firm apart in a competitive hiring market, and investments in education and training that enable the firm to move into new niches.
Smaller firms lead in new approaches to billing. A case in point: Although 84% of all firms still use hourly billing, at firms with under $500,000 in revenues, a median of 25% of their fees are documented using another method, including fixed fee pricing, value pricing, a per-tax-form fee and client retainers.
Insight: Small firms should make the most of their flexibility, which can allow them to try new approaches to billing.
Large firms are showing interest in non-traditional strategies. The largest firms have embraced social media use in recruitment, for example, with a large majority of those with over $5 million in revenues putting a range of social media platforms to work in their recruiting efforts
Insight: Larger firms are well-positioned to use their resources to try new strategies. The survey also identified an opportunity for smaller firms: 11% of those with under $1 million in revenues are active social media recruiters, so those that use these tools may give themselves a competitive advantage in recruiting.
Firms are making the most of a variety of technologies. The use of tools such as cloud-based software, cloud-based backups and Skype or similar services to communicate has risen by double digits since 2014.
Insight: These are certainly a likely part of CPA firms’ strategic investments, and they pay off in obvious efficiencies. New forms of technology can also improve hiring opportunities among a new generation that has grown up with digital technologies and expects to see and use them in the workplace.
These are just a few of the insights that CPAs can glean from the MAP survey, which offers data on areas including financial results, billing, staffing, utilization and service areas, among others. AICPA members can access the executive summary which highlights key findings from the survey. After reviewing, you’ll come away with new perspectives on the profession and on how your own firm compares with others. Firms that use this data in their strategic planning will pinpoint areas to improve and make the most of existing opportunities.
Lindsey Curley, Senior Manager- Firm Services, American Institute of CPAs.
Kari Hipsak, Manager- Firm Services, American Institute of CPAs.
Benchmarking image courtesy of Shutterstock.