The Results Are In
CPA firms are standing on solid ground and building for a sustainable future. That’s one key finding of the 2014 AICPA PCPS/TSCPA National Management of an Accounting Practice (MAP) Survey, sponsored by the AICPA Private Companies Practice Section (PCPS) in association with the Texas Society of CPAs (TSCPA). The latest results of this comprehensive study of CPA firms of all sizes from across the country show that firms are maintaining the growth that followed the economic recession of 2008 and are also experiencing modest increases. At the same time, many appear to be reinvesting a portion of their profits back into their businesses to ensure ongoing success, particularly as Baby Boomers transition into retirement.
“We’re seeing many firms take conservative steps to ensure the sustainability of their organizations,” said Mark Koziel, CPA, CGMA, the AICPA’s Vice President of Firm Services and Global Alliances. “They’re plowing money back into the firm or reserving it for future use rather than doling out every penny in profit to owners and partners. Succession planning, budgeting for new hires, merger strategy and hedging against uncertainty all play a factor in this kind of decision-making.” This year’s results indicate firms have maintained modest growth in revenues while keeping an eye on future challenges and opportunities. (Keep reading the ‘views’ section of this e-newsletter which highlights other survey trends and provides tips on how to take advantage of the results and put the numbers to work!)
The MAP survey, the profession’s largest benchmarking poll on practice management topics, is conducted every two years. The survey gathers information on the financial results and practice management approaches of firms. The national results are reported as medians and broken into seven size segments, from those with less than $200,000 in annual revenue to those with $10 million or more as well as by geographic regions and sub-regions. Responses were gathered from May through August of 2014 and reflect firms’ financial results for 2013. Results are now available to PCPS firms at no charge and firms who participated in the survey will have access to free personalized results on the survey platform.
Firm owners and administrators are among the many interested readers who can use the survey results to analyze how their firms compare with others throughout the country as well as in their own size segments and geographic areas. They can also diagnose their firm’s areas of strength and weakness and identify alternative approaches to the challenges they face. The survey is a great reality check that spotlights where a firm stands in relation to other similar practices and which issues it may want to address. It’s easy to identify the significant differences between an individual practice and others in the same size segment or region. Reviewing the survey forces firm leaders to dig deep to understand variances from the median and to line up their metrics with their desired results, identifying solutions as needed.
So don’t miss out. The results are now available for your analysis and PCPS resources are easily accessible, customizable and specifically designed to help addresses those key performance indicators or practice management issues that you want to tackle in the coming year.
Content excerpted from the soon-to-be released 2014 AICPA PCPS/TSCPA MAP Survey. The commentary will provide Questions to Consider and an Action Agenda to ensure firms get the most benefit from the survey and helps them reflect on where they stand and what their conclusions mean for their current and future plans. Contact us at firstname.lastname@example.org or 1-800-CPA-FIRM with any questions!
How is Your Firm Trending?
by Carl Peterson, CPA
The AICPA PCPS/TSCPA National MAP Survey is one of the best sources of benchmarking information I used at my firm before coming to the AICPA as Vice President of Small Firm Interests. At my firm, I would use the survey to look for trends at firms of equal size. It is easy to get overwhelmed by all of the data available in the survey and mired in the details. However it’s important to assess how firms of your size and in your geographic region are doing at a high level in important areas such as growth, billing rates and realization. Then you can drill down to understand what other firms are doing to affect these metrics and compare your firm’s practices.
One trend that has been improving over the last few years is realization. Firms have been working on improving their realization rates and becoming more efficient and effective in their client engagements, so realization rates are trending higher. At the same time though, firms have not been raising fees. Most firms have room to raise fees and should be evaluating how and where they can do so - starting with new clients first and then raising them with existing clients. As firms raise fees, their realization rates may decline but their overall revenue and net income per partner should increase.
However, be careful about how much focus you put on realization rates because in the end it is all about profitability. Realization rates can be high due to increased efficiencies but they can be misleading and perhaps point to other issues. If your firm tracks time, it may be that staff are not keeping track of their time properly, so be sure you have a good time keeping system in place and ensure that time is entered daily at all levels. Watch your work in process too and be sure to release all work in process at the end of an engagement when billed because unreleased time will give a false realization rate.
Another recent trend is that firms have been focused on cash flow and mitigating expenses. Many firms held on to cash as they worked through the recent recession to ensure that they had it for the future. Now it’s important for firms to invest in key areas, such as people and technology, to capitalize on the positive market opportunities many firms are experiencing. In fact, providing new and innovative technology solutions is especially important to attract young top talent. When I was in practice, we invested in technology to ensure we were attractive to staff - and to larger firms as we explored merger opportunities.
Putting the Survey to Work
The MAP Survey helps firms nail down and improve the metrics of importance to them. For example, look closer at how you are leveraging your staff because you could improve profitability by making sure their time is spent where they are the most effective. Drill down to the detail of your staff annual time reports. With good detailed time reports you can analyze where your staff is spending their time on a particular engagement. When you compare their time by area versus their level within the firm maybe they are being underutilized or spending time on returns or areas that do not generate the billing rates for their level.
Take advantage of the MAP Survey and use it as a tool to help guide you to areas of focus that can help improve your bottom line. Take the results of the Survey and have a meeting with all staff, sharing the common trends in your firm’s segment size and geographic region and highlight the positive aspects of the firm. Then open up the discussion to cover areas of concern and where the firm is at with profitability, realization rates, expenses and even staff utilization. Identify the improvements the firm can make and come out of the meeting with three focus areas for improvement as you go into this upcoming year.
PCPS Can Help!
When I was in practice, I didn't realize all of the tools and resources PCPS has available for firms of all sizes. These tools will help you address those issues that you identified as improvement areas from the Survey. Also consider empowering your firm’s young professionals with exploring PCPS after you have shared the Survey results. Having a better and clearer understanding of firm operations will equip them to provide practical suggestions and application of PCPS tools to improve firm profitability.
If you have questions about how to better use the MAP Survey results in your firm, don’t hesitate to email or call us at any time at email@example.com or 800.CPA.FIRM. We look forward to hearing from you!
Carl Peterson, CPA is the Vice President of Small Firm Interests at the AICPA.