Revenue and Profitability Growth on Rise for CPA Firms, Survey Finds

Competition Heats Up for Talent in the Profession

October 24, 2016

ORLANDO, Fla. (Oct. 24, 2016) – Most CPA firms reported solid gains in revenue and profitability over the past fiscal year, and are taking steps to become more innovative in practice management, according to a recent survey by the American Institute of CPAs and its subsidiary,

The 2016 National Management of an Accounting Practice (MAP) Survey is designed to shed light on 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, since key performance indicators often vary widely by firm size. The MAP Survey, the profession’s largest benchmarking poll on practice management topics, is conducted every two years. Among its findings:

From 2014 to 2016, the median growth rate for revenue (also known as net client fees) rose in every firm segment except the $5 million to $10 million revenue category. Median revenue still rose in absolute terms in that segment over the past two years.

Revenue growth rates ranged from a median 4.9 percent (for the $500,000-$750,000 firm revenue segment) to a median 10.5 percent (for the less than $200,000 firm revenue segment).

The profitability picture is a little more mixed. Median profits – known in public accounting as “net remaining per owner,” which measures revenue minus expenses before partner-related compensation is factored in – grew by double digits from 2014 to 2016 for firms with revenue of $500,000-$750,000 (11.2 percent) and revenue of $750,000 to $1.5 million (13.3 percent). They grew more modestly for the smallest and the largest firms (2.9 percent and 4.2 percent, respectively). And they fell for the $200,000 to $500,000 segment (-3.7 percent), the $1.5 million to $5 million segment (-0.9 percent) and the $5 million to $10 million segment (-4 percent)

“The main takeaway of this year’s MAP survey is that the business of public accounting is strong,” said Mark Koziel, CPA, CGMA, the AICPA’s executive vice president for firm services. “Many trends, however, are highly specific to firm size and specialty, which is why the survey serves as an important benchmarking tool for firm leaders.”

On staffing issues, the cost of employees continues to grow as a percentage of firm profits, which is in part a reflection of the growing competition for talent, the survey found. Demand has increased for job candidates with more education, with firms showing a strong preference for accounting graduates with 150 credit hours.

Practice innovation is also on the rise. While hourly billing still constitutes the overwhelming method for collecting fees, more firms – particularly small to midsize practices – are shifting away from timesheets and experimenting with value or fixed pricing.

Methodology: The AICPA PCPS/ National Management of an Accounting Practice Survey is conducted every two years by the AICPA’s Private Companies Practice Section and, the AICPA’s marketing and technology subsidiary. Representatives from 1,537 CPA firms were asked details about their latest fiscal year financial results. Responses were gathered from May through July this year. The poll’s main sponsor is Aon.