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Exclusive AOMAR Survey Results: Key Benchmarks Show Good Management Practices Do Pay for CPA Firms
Practice management is now showing itself to be an integral part of CPA firms’ success. Although in the past CPA firms tended to pay less attention to practice management when times were good, the move to strategic operations in the past few years shows that managing the practice is always in fashion, as demonstrated in key metrics and benchmarks from AOMAR’s 2008 CPA Firm Practice Management Survey.
Revenues will continue to rise
At least, this is what responding firms anticipate in the fiscal year ahead. Forty-four percent of respondents believe that revenues will increase in the coming fiscal year between 5% and 10%, and another 25% expect the increase to exceed 10%. Twenty percent anticipate an increase of less than 5% ( see Table 1 [.PDF] ).
Very few respondents believe that the next fiscal year will result in lower net income: Just 7% anticipate less than a 5% decrease, and 2% respectively foresee a decrease of 5% to 10% or more than 10%.
For those anticipating higher fees in the coming year, the most popular reasons among respondents include marketing to new clients (ranked first of three factors by 29.6% of respondents) and increased billing rates (ranked first by 27.3%). The accompanying Table 2 indicates other factors and how respondents ranked them.
Financial and operational ratios.
Annual gross fees billed (fees billed at the standard billing rate for the most recent fiscal year) by respondents this year were $8,084,810, on average. In the previous year (although different firms participate year-to-year in our surveys), the average annual gross fees billed was $7,311,306.
Firms with write-downs averaged -11.3%; those with write-ups averaged 4.7%. Obviously, there was a tremendous range among the fees at the various sizes of firms ( see Tables 3 and 4 [.PDF] for breakouts, by gross fee range and by number of personnel respectively).
Net fees—fees adjusted for write-ups and write-downs—averaged $7,254,075 per firm; and per owner, $766,163 ( see Tables 5 and 6 [.PDF] ).
Leverage this year averaged 5.8, ranging from a low of 2.9 at firms with less than $1 million in gross fees to a high of 6.9 at firms with $10 million to $19.99 million in gross fees ( see Tables 7 [.PDF] ).
Readers will want to cross reference the leverage data broken out by number of personnel ( see Tables 8 [.PDF] ); leverage ranged from 1.9 at firms with one to five people to a high of 6.3 at both firms with 51 to 100 people and those with more than 100.
Net income per partner (NIPP) averaged $280,009, compared to $256,696 last year. The range, again, was broad ( see Tables 7 and 8 [.PDF] ): The high of $359,012 was at firms with more than $20 million in fees, and $368,430 at firms with more than 100 people.
WIP, AR, and collections
CPA firms are continuing to work at shortening their average collection period: This year’s average is 54.5 days ( see Tables 9 and 10 [.PDF] ). More good news on cash flow management: Accounts receivable that are billed but yet unpaid averaged $1,536,053, with uncollected fees as a percentage of AR at 4.0%. Unbilled accounts receivable is just $505,232 for all respondents, and uncollected fees last year averaged $87,595.
While there is always room for improvement in how cash flow is managed, these averages indicate that CPA firms have been paying attention to more than just billing rates — they are working to keep the cash flowing into the firms.
Miscellaneous benchmarks
Average net income before owner’s compensation this year was $2,616,985, with total net income per owner averaging $286,914 ( see Tables 11 and 12 [.PDF] ). Because of the huge span in sizes of responding firms, these numbers ran the gamut from $173,687 at firms with less than $1 million in gross fees to $10,290,810 for firms with $20 million or more in gross fees.
The average number of offices per firm in this year’s survey was two. Even the smallest firms — those with one to five people — have exceeded the single office average: those small firms now have an average of 1.1 offices.
Total employee compensation (excluding equity owners) as a percentage of net fees is still a hefty percentage: 35.6%, or an average of $2,523,704 among all survey respondents.
For more information:
Key definitions and statistics about the survey respondents are in the December 2007 issue of AOMAR. The CPA Firm Statistical Analysis Reference Handbook 2008 containing complete results is available from IOMA Subscriber Services at 800-401-5937, ext. 2. Ask for product 2639M. Price: $449 plus shipping & handling.
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