The recession hit the CPA industry with full force in 2009, and the results were quite different than in years past. Growth for CPA firms has been steady for 20 years or more, so firms had to rapidly adapt to the reality that the gravy days are gone for the time being.
In 2009, the mantra was Flat is Up, meaning that firms would be thankful if their revenues matched the prior year, according to Rosenberg's annual Management of an Accounting Practice (MAP) Survey. Firms got their wish.
Revenues were up an average of 1.4 percent in 2009. All size groups were flat, especially when the impact of mergers is factored out.
“The recession did not affect all firms in the same way,” said Marc Rosenberg of the Rosenberg Survey Team. “Thirty-eight percent of firms had growth of 5 percent or more, while 41 percent of firms suffered a decline in revenues. This disparity is striking,”
Profits, as measured by income per partner, averaged $354,000, down only 3 percent from 2008.
“With revenues flat for the first time in recent memory, it’s remarkable that CPA firm profits only declined by 3 percent", said Charles Hylan of the Rosenberg Survey Team. "Firms reacted well to the recession challenge by laying off staff, giving out minimal, if any, salary increases, and cutting overhead expenses.”
Projections for 2010 show a slight improvement over 2009. Overall, firms are projecting a modest 2.6 percent growth rate. More importantly, considerably fewer firms are projecting negative growth rates for 2010 compared to 2009.
In general, most public accounting firms did not feel the full impact of the recession, though there were some who suffered much worse than most. However, firms realized that solid revenue growth during the years 2002-2008, referred to by many as the profession’s Golden Age, masked several deficiencies in firm management.
With the onset of the recession, many firms addressed areas such as excess staff, inefficient work processes, underperforming partners, lack of partner accountability, and fat in their overhead spending. These efforts enabled CPA firms to minimize the downward pressure on their bottom lines caused by the recession.
“It is amazing to see how quickly the discipline of marketing CPA services has grown up as a result of the recession", said Jeff Pawlow of The Rosenberg Survey Team, and president of The Growth Partnership. "More than ever, firms are demanding a return and accountability from their investment in practice development activities, and the overall function is now being professionalized as a result. Window dressing is out. ROI is in – and in a big way.”
One stunning casualty of recession-plagued 2009: average annual staff charge hours fell through the floor, averaging only 1,466, almost 50 hours per person lower than 2008. Firms simply didn’t have enough work to keep their staff busy. Although 50 to 60 percent of all firms laid off staff in 2009, the remaining firms chose to retain all their staff, preferring to avoid morale problems and preserve talent for the hoped-for economic recovery.
A bright spot for CPA firms: for the first time in approximately 15 years, experienced staff are now available in most markets. Firms are taking advantage of this by upgrading their staff.
About the survey:
The Rosenberg MAP survey, now in its 12th year, reports on the results of 425 firms, most of which range from $2 million to $20 million in annual fees. Nearly 100 CPA firm metrics are measured.
The Rosenberg Survey was created by Chicago-based Marc Rosenberg, CPA, a nationally known consultant, author and speaker to the CPA profession. Rosenberg consults primarily on partner compensation and retirement, succession planning, CPA firm mergers, partner retreats, and strategic planning. For the past six years, he has been named by Accounting Today as one of the 100 most influential people in the public accounting profession.
The Rosenberg Survey partners with St. Louis-based The Growth Partnership, which serves public accounting firms in the areas of practice management, outsourced marketing, and lead generation. Its leadership development division, The Partner Institute, is the accounting industry’s premier partner development program. TGP employs approximately 20 individuals who, collectively, possess more than a century of accounting industry work experience. Its President, Jeff Pawlow, has been named by Accounting Today as one of the 100 most influential people in the public accounting profession. Its senior partner, Charles Hylan, CPA, is a member of The New Horizons Group, the largest consortium of CPA firm consultants in the U.S.
The Rosenberg MAP Survey can be purchased for $450. Call Carol Stano, CPA, at (314) 447-2345 to order or www.rosenbergsurvey.com for an order form.