plus: how the merger picture hasn’t changed.
by marc rosenberg
the rosenberg map survey
an extraordinarily perfect storm was experienced by cpa firms in 2020: the endless tax season plus the virus. in mid-july, five months after the virus’s onset, no one knew anything for sure going forward – neither the science of the virus and people’s health nor the economic impact of the virus on the business world.
more: pandemic highlights value of digital files | remote work success helps solve staffing shortages | you like being remote, but what about your clients? | covid-19 shakes up m&a activity | we adapted to remote work … now what?
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here is data from a survey we took of 61 cpa firms in mid-june. virtually all firms had annual revenue of $35 million or less, with the average being about $10 million. it is important to understand these firm sizes because the top 25-50 firms were making more drastic operational moves (mainly layoffs and partner draw reductions) than typical local cpa firms.
- 69% of firms’ revenues were down or flat compared to 2019. interestingly, by the end of 2020, one-third of all firms expected to catch up to – not exceed – last year’s revenues, with only 16% of the firms expecting a decline.
- half of the firms projected 2021 revenues to increase from this year. 41% felt it would be about the same.
- only 10% of firms had laid off staff.
- only 17% of firms had reduced partner draws or were planning to do so.
- before the virus, only 15% of the firms had their staff working remotely to a significant degree. post-virus, this was expected to rise to 36%.
mergers. pre-virus, the big merger news over the past three to four years or so has been the continuing boomer retirement-induced need of small firms to sell or merge up contrasted with buyers being much more selective in sellers they choose to talk to.
amid the virus, we see no changes except in these obvious instances:
- how much of sellers’ practices will survive? how much revenue will sellers have left to sell?
- the frenetic work pace triggered by the virus has tried out many sellers, making them even more determined to sell or merge up.
- many buyers may offer slightly lower prices to sellers because of the stress they are under to make a move. but sellers with a fine pedigree and healthy economics will continue to get nice offers.
big issues that firms are frantically trying to get their arms around
- before the virus, there was a clamor among staff in cpa firms to work more remotely. amid the virus, with virtually 100 percent of staff working remotely, the biggest sentiment we hear is that staff miss working in the office and the social and professional interaction with co- workers. absolutely fascinating how this has flipped. firms have concerns about productivity, training and mentoring on a remote basis. no clear, successful solutions have emerged.
- since the dawn of time, cpa firms have stubbornly clung to two ancient methods of measuring productivity: billable hours and visually being able to see their staff’s butts glued to their seats. with most of the work being done remotely, partners are going to have to adopt new methods. this will be interesting to watch.
- how will firms bring in new clients? this has historically been elusive for 80 percent of all cpas. but without being able to meet prospects face to face, new tactics will need to emerge. the vast majority of firms have yet to figure this out.
- finally, the office space conundrum. social distancing and remote work requirements will have a huge impact on firms’ office space
the cpa industry is as steady as an ocean liner in heavy seas … in normal times, which is 90 percent of the years. most established, multipartner firms experience increases in revenues and profits on an annual basis … in normal times.
sure, there are major challenges such as finding staff, baby boomers retiring, technology’s relentlessly huge impact on the how cpa firms perform their work, among others. 2019 was no exception to these trends. but as the singing duo of chad and jeremy said, “that was yesterday, and yesterday’s gone.” 2020 is a year that will live in infamy (fdr), that featured perhaps the biggest change to the profession since the adoption of the income tax law. i will dwell no more on 2019.