CPA Firm Revenues Continue Steady Climb Upward: Reportby
2013 marked the third consecutive year CPA firms in the United States saw a spike in annual revenues, according to the latest national practice management benchmarking survey by The Rosenberg Associates Ltd. and The Growth Partnership.
Annual revenues last year increased 6.7 percent, up from 5.4 percent in 2012, according to the 2014 Rosenberg Survey. Revenues have continued to rise steadily since post-recession lows of 1.4 percent in 2009 and 1.7 percent in 2010. CPA firms posted improved revenue growth of 3.8 percent in 2011.
“We can safely say that firms have emerged from a post-recession recovery malaise into economic times that are satisfying most firms,” survey report authors Marc Rosenberg, CPA, president of The Rosenberg Associates; Charles Hylan, CPA, shareholder of The Growth Partnership; and Carol Stano, CPA, controller of The Growth Partnership, wrote in this year’s study.
Now in its 16th year, the Rosenberg Survey captures data from participating firms of all revenue ranges – from solo practitioners to those with more than $20 million in net fees. There were 382 firms that participated in this year’s survey, including:
- 36 firms with annual net fees in excess of $20 million.
- 59 firms with annual net fees of $10 million to $20 million.
- 237 firms with annual net fees of $2 million to $10 million.
- 32 firms with annual net fees under $2 million.
- 18 firms were sole proprietors.
As was the case in previous years, there were vast growth rate differences between the larger and smaller firms. The percentage of firms that experienced growth rates of 10 percent or more in 2013 included:
- 39 percent of firms with more than $20 million in annual revenues.
- 34 percent of firms with between $10 million and $20 million in revenues.
- 22 percent of firms with between $2 million and $10 million in revenues.
- 17 percent of firms with under $2 million in revenues.
Also, virtually no firms with annual revenues of $10 million or more posted negative growth; however, 31 percent of firms with annual revenues of less than $2 million experienced negative growth in 2013.
“Our interpretation of this is that the owners’ ages at these firms are considerably older than at firms over $2 million,” the authors wrote. “As a result, there is a higher incidence of these owners wanting to work indefinitely, essentially ‘hanging on’ to what they’ve got and being reasonably content with that state.”
There are several factors contributing to why larger firms are outperforming smaller firms in growth, according to the survey’s authors, including:
- More commitment to organized marketing tactics and strategies.
- Greater focus on specialization and niche services.
- More consulting services provided to clients.
- Deeper investment in leadership development and staff training.
- Stronger management.
- More mergers.
“What a difference a year makes. Sluggish economic conditions still prevailed a year ago. Now the outlook is more upbeat, and firms are investing again,” Gale Crosley, CPA, owner and president of CPA consulting firm Crosley Co., said in the survey report. “Firm leaders are more aware that growth is a different game. Complex market conditions are driving the need for a more sophisticated approach. I believe this is not just an incremental change, but the emergence of a new business model. The old and proven growth model traditionally featured individual contributions by book-of-business partners, tactical maneuvers, such as banker breakfasts and lawyer lunches, and a generalist market approach. The new growth model, developing in many firms, features a leader-driven approach, the development of strategies versus random tactics, and a deep commitment to specialization.”
M&A Strong; Percentage of Female Partners Rose Slightly
Other key findings of the 2014 Rosenberg Survey include the following:
- Mergers accounted for 22 percent of the industry’s overall revenue growth in 2013.
- Partners at firms with annual revenues of more than $10 million earned an average of $492,000, while their counterparts at firms with revenues under $10 million earned $349,000, a gap of 41 percent.
- 16.4 percent of all partners in 2013 were female, up from 15.6 percent in 2012.
- 55 percent of all firms have the nonequity partner position, up from 51 percent in 2012.
Gary Adamson, CEO of CPA consulting firm Adamson Advisory, predicts there will be no let-up in mergers and acquisitions within the CPA profession in the next 12 months.
“I think that pricing will see some downward pressure as supply of smaller practices comes on the market. I also think that there will be several combinations within the top 100 firms as the big guys get bigger,” he said in the survey report.
As for other predictions for the next year, Adamson said, “Clients are becoming more open to being served by the ‘best firm,’ regardless of whether it happens to be located in their back yard. We will also see more virtual service models and joint ventures between CPA firms and nonaccounting service companies to serve clients on a national basis.”