annual rosenberg survey: cpa firms feel recession’s chill

six-year culture of abundance ends with a thud, firms re-group, restructure and re-learn how to operate in a culture of recession.

via news release

the cpa profession opened 2008 on the heels of several years of extraordinary growth and profits, hopeful that the economic slowdown would not morph into a recession.  cpa firms ended the year with results most industries would have been happy with.  the full effect of the recession didn’t have a big impact on cpa firms in 2008 because by the time the economic woes surfaced in the 4^th quarter, most firms’ revenues were collected, invoiced or booked.  firms with annual net fees over $2 million (referred to as the “over $2m group”) posted the following 2008 results:

• annual net fee growth was 8.2%, down from 10.8% in 2007. this marks the end of a remarkable six-year run for the cpa profession, triggered by the scandals of enron and others in 2002 and fueled by the multi-billion dollar market created by legislation that followed.
• average income per partner declined slightly to $365,000 compared to $369,000 the year before. but larger firms’ (over $10 million in annual fees) earnings were down 8% from 2007 due to a drop-off in sarbanes-oxley and internal audit work. however, medium sized firms’ ($2-10 million) profits were up almost 1%.

changes hit the cpa profession like a ton of bricks

“the cpa profession had a great run for these past six years,” said marc rosenberg, creator of the rosenberg survey. “the post-enron climate created a huge surge in demand for cpa firm services, allowing firms to virtually become order takers.  throttled by a historically low supply of experienced staff, partners worked harder than ever before, and the benefits showed up in their paychecks:  income per partner rose 50% since 2003.”

but like many businesses that experience an extraordinary run of success, a number of shortcomings surfaced that went unaddressed by firms because they were too busy getting the work out.  during the so-called “golden age,” many firms pulled back on their practice development efforts for fear they might be successful.  underperforming partners were given a free pass.  costs were not monitored closely.  a lot of marginal staff were hired and retained because firms were desperate for any kind of labor.  new services were back-burnered and strategic planning was put on hold at many firms.  “the recession is now focusing cpa firms to address these failings, thereby strengthening and ‘right-sizing’ their firms to position themselves for the healthier business climate that will surely follow the recession,” said rosenberg.

“flat is up”-the mantra for 2009

“most firms tell us that if their 2009 revenues match 2008, they will consider it an ‘up’ year,” said charles hylan, senior partner of the growth partnership, parent company of the rosenberg survey.  “breakeven is the new profitability.”  surveyed firms are projecting very modest growth in 2009-3.1%.  roughly 20% of all surveyed firms are projecting a revenue decline as their clients struggle to weather the recessionary storm.

2009: is the glass half empty or half full?

firms seem to be split on how they see 2009.  the optimists expect a moderately successful year because they plan to pick up clients fleeing the high fees charged by bigger firms.  they see a recession as a time to increase their investment in marketing, not cut back.  these firms are drooling at the resumes they are receiving from highly skilled staff laid off from other firms.  this is the best labor market for the cpa profession in 15 years.

on the other hand, many firms are taking the practical approach.  they are laying people off, hunkering down, eliminating raises, cutting costs, freezing billing rates and granting price concessions to clients in order to keep them.

“2009 will witness a dramatic schism in the profession as a result of the recession.  some firms are battening down the hatches while others see opportunity amidst the chaos,” said jeff pawlow, president of the growth partnership, parent company of the rosenberg survey.  “in either case, firms are expecting dollars to go further and yield more than they have in the past.  we expect this to continue for the foreseeable future.”

 

other noteworthy findings and results

1.       fees per partner, which rosenberg says, “is the metric that correlates the strongest with firm profitability,” soared past the million dollar mark, finishing at $1,066,000 in 2008 for the group of firms with annual fees of $2-10 million.  “this is significant because we consider the $2-10 million firm to be emblematic of mainstream, local cpa firms,” said rosenberg.

2.       partners continue to age: 54-60% of all partners are now past age 50.

3.       an increasing number of firms have created the position of non-equity partner.

4.       firms’ internal valuation of their goodwill remained rock-solid at 80% of fees.

the rosenberg map survey, now in its 11^th year, includes the results of 353 firms, most of which range from $2-20 million in annual fees.  nearly 100 map statistics are measured.  accounting today considers the rosenberg survey “the generally accepted barometer for practice management for midsized cpa firms.”  “we are passionate about our commitment to making our survey the most accurate and authoritative national map survey in the profession.   every year, 30-40% of the data we receive contains gross errors,” said rosenberg.  “our team of three cpas reviews every survey input form and gets revisions where necessary.  we simply will not include data in our survey that doesn’t look right.”

the rosenberg survey was created and produced 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 five years, he has been named by accounting today as one of the 100 most influential people in the public accounting profession.

in 2009, the rosenberg survey partnered with st. louis-based the growth partnership, which serves public accounting firms in the areas of practice management, outsourced marketing, lead generation and human resources training.  its leadership development division, the partner institute, is the accounting industry’s premiere partner development program.  tgp employs 20+ individuals who, collectively, possess well over 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.  it’s 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 o(847) 251-7100 to order or visit at www.rosenbergsurvey.com for an order form.

posted on august 17, 2009