know your profession.
by marc rosenberg
how to bring in new partners
“engaging your employees – involving them in the business – can drive revenue growth. an educated workforce can also make better decisions, work more efficiently and seize opportunities faster. teaching your employees to be smart businesspeople can be a big investment, but it’s one that can have a significant return.” – keith lamb, inc. magazine
more: nuts and bolts of mentoring staff | it shouldn’t take so long to make partner | three types of skills you need to become a partner | seventeen basic expectations of partners
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personnel in any organization, from widget manufacturers to hospitals to baseball teams to charities, work with more enthusiasm and commitment when they genuinely feel part of the organization. when people understand how they fit into the overall scheme and what their role is and grasp the essentials of how the organization operates, they produce higher quality work and are more energized. cpa firms are no exception to this rule.
the messages of this post:
- partners should be formally educating their staff on the business of public accounting, how firms are structured, what makes them successful, how firms are managed, how they get clients, what makes them profitable and how profitability is held back.
- staff who aspire to become partners should understand all of the topics listed above. if the firm doesn’t proactively offer this education, then they should take it upon themselves to acquire this knowledge.
services provided by cpa firms
cpa firms typically provide three main types of services, with each service having several subgroups. the mix of these three main services is shown in the table below, broken down by size of firm:
- big 4 (deloitte, pwc, ernst & young and kpmg)
- large regional firms. these are roughly the largest 50 firms in the u.s. beyond the big 4. though an increasing number of these firms have become quasinational firms, most are regional, based in the northeast, midwest, southeast, southwest or another region. the 50th largest firm in the country has annual revenue of roughly $100 million.
- local firms. these are multipartner firms below the regionals. most have one or two offices.
primary services provided by cpa firms
| big 4 (1) | top 100 firms (2) |
local firms $2-$20m (3) | |
| 1. audit and accounting:
a. audits and reviews b. compilations, bookkeeping, payroll, etc. total a&a (note 6) |
41%
2% 43% |
30%
7% 37% |
26%
14% 40% |
| 2. tax:
a. corporate/business b. individual/1040s total tax (6) |
21% 4% 25% |
24% 12% 36% |
29% 18% 47% |
| 3. consulting (4):
a. specific areas (4) b. handholding, misc. (5) total consulting |
28% 4% 32% |
20% 7% 27% |
4% 9% 13% |
(1) from big4careerlab.com
(2) from ipa national benchmarking report
(3) from the rosenberg map survey
(4) see below for a list of the most common types of consulting.
(5) the term “handholding” is colloquially used to describe arguably the most important work that cpas do for their clients. cpas are their clients’ most trusted advisors. clients seek advice from them in a wide variety of areas, such as estate planning, paying for college, getting a business loan, hiring a controller, buying a company, investing their money, choosing what kind of insurance to buy … the list is endless.
(6) the totals for the three primary services were from the sources listed above. rosenberg estimated the breakdown within each service line.
common consulting services and industry practice areas
data is from the ipa national benchmarking report, accounting today top 100 survey and the rosenberg map survey.
consulting
business valuations
estate and financial planning
litigation support
forensic services
retirement plans
employee benefits
technology consulting, including cybersecurity
investment advice
cfo outsourcing
industry practice areas
real estate
construction
technology
wholesale/distribution
professional services
nonprofits
health care
hotels and restaurants
governmental
retail
entertainment
financial institutions/banking
common position titles at cpa firms
| titles | most commonly found at local firms | some firms also have these positions |
| entry level: staff assistant | · recent accounting graduate
· newly hired
|
|
| staff | most firms don’t have separate titles for these first two positions. | has completed first year but is not yet a senior; does little supervising of other staff |
| senior | · first major promotion
· performs most of the detailed work on a job · works one job at a time · supervises other staff · has lots of contact with partners |
|
| super-visor | intermediate promotion from senior but still below manager | |
| manager | · on track to be a partner or it’s a permanent position for highly experienced staff
· common to work on several jobs at the same time · heavy supervision of staff · heavy contact with partner |
|
| senior manager | promotion from manager but still below partner | |
| non-equity partner | roughly 60% of all firms now have this position, though it’s much more common at larger firms than smaller firms. | · has most of the skills to become an equity partner
· is often a partner in training · has heavy client relationship duties · is not an owner |
| equity (or full) partner | highest position in the firm. an owner. has final responsibility for all client matters. |
the u.s. cpa firm market
there are roughly 44,000 cpa firms in the united states. the market is skewed significantly from large to small:
- the big 4 international firms (ernst & young, kpmg, pwc and deloitte) account for 46 percent of the industry’s total revenue.
- there is a huge fall-off from the big 4 to the next tier of firms: the smallest big 4 firm is five times the size of the fifth biggest firm.
- the 200 largest firms account for 65 percent of the industry’s total revenue.
- the vast majority of the 44,000 firms are very small; most employ well under 10 total people.
- roughly 30,000 of the 44,000 firms are sole practitioners. most are one-person operations but many have several employees.
the demographics of the 44,000 firms are summarized in the chart below.
u.s. cpa firm market demographics
|
number of firms |
total market size
(billions) |
average annual revenues
|
range of
annual revenue |
||
| amount | pct. | ||||
| the big 4 | 4 | $57.0 | 46% | $15b | $9b-$20b |
| #5-100 | 96 | $20.0 | 16% | $212m | $40m-$2b |
| top 100 subtotal |
100 | $77.0 | 62% | ||
| #101-200 | 100 | $3.3 | 3% | $33m | $25m-40m |
| #201-300 | 100 | $2.0 | 2% | $20m | $15m-25m |
| top 300
subtotal
|
300 | $82.3 | 67% | ||
| next 2,000 | 2,000 | $15.0 | 12% | $7m | $2m-$15m |
| very small multipartner firms | 11,700 | $17.6 | 14% | $1.5m | almost all under $2m |
| sole practitioners | 30,000 | $9.0 | 7% | $0.3m | almost all under $1m |
| grand total | 44,000 | $123.9 | 100% | ||
data from statistics.com, inside public accounting, the rosenberg survey
and author’s industry knowledge. excludes payroll companies.
i am unaware of any authoritative, exact source for the revenue size of the 44,000 cpa firms. the above is a very good guess. however, the point of the chart is to show how a relatively small number of firms dominate the market in terms of revenue. three hundred firms comprise 67 percent of the market.