The 2016 Rosenberg Survey-What We Learned: Leverage, Leverage & More Leverage

Marc Rosenberg, CPA / Nov 28, 2016

Cynics will say that things don’t change much from year to year in a staid industry like CPA firms.  This is true to some extent.  But the 18th annual edition of The Rosenberg Survey, based on 2015 data, shows quite a few eye-opening findings.

Readers should keep in mind the size of the participating firms, as the findings below are discussed:  61% of the firms have annual revenues of $2-10M, 26% are $10-$20M firms and 13% are for firms under $2M.

Revenue growth leaps to 8.1%.  This represents a nice increase from last year’s 6.7%.  The increase in 2015 was the highest since 2008.  28% of the growth was from mergers.

Profits increased by 3.6%, the highest increase since 2007.  Income per equity partner, CPA firms’ most reliable measure of profitability, broke the $400,000 barrier for the first time in history, finishing at $406,000, up from $392,000 in 2014.  The bottom line improvement results from rather dramatic increases in partners’ leveraging their staff.

2015 was the year of dramatically stronger leverage.  Each size range of firms increased their staff-partner ratio from 7% to 14%.  Paralleling this was a slight reduction in the number of partners at firms, despite the revenue growth.

Seventeen leading consultants shared insights regarding what they’re currently seeing at CPA firms: Gary Adamson, Sam Allred, August Aquila, Gale Crosley, Chris Frederiksen, Carl George, Angie Grissom, Rita Keller, Roman Kepczyk, Art Kuesel, Allan Koltin, Tamera Loerzel, Rob Nixon, Jeff Pawlow, Terry Putney, Marc Rosenberg and Jennifer Wilson. The following is a consensus of their observations:

  1. The shortage of people and the challenges of retaining, developing and mentoring staff are arguably the #1 issue keeping firms and their MPs up at night.
  1. The merger frenzy continues. Because the market is glutted with sellers, firms are getting more strategic in selecting merger partners and, though still interested in retirement-triggered mergers, buyers are increasingly spurning aging sellers with marginal staff.
  1. Succession planning remains a pressing issue for most firms, as it has for the past decade and will continue for at least another ten years. Sure, external issues such as the aging of Baby Boomers and shortage of talent are fueling succession planning challenges.  But a major contributor to the problem is firms continuing to focus on client production at the expense of developing talent, making the succession planning conundrum virtually insolvable for 80% of all firms under $10M.

What Really Makes CPA Firms Profitable? addresses►the essence of CPA firm profitability, ►benchmarking ►marketing and the bottom line ►strong management and leadership: the most reliable path to profitability ►25 best practices that move firms from good to great ►what does not seem to be important to firm profitability ►partner relations: happy partners are productive partners and ►40 great ways to improve CPA firm profitability

  1. More and more firms are finding that the traditional model of running a CPA firm is outdated. Obsolete practices include partners being too billable, firms failing to truly treat staff as important as clients and failure to fully embrace technology, are just a few examples.
  1. Increasing focus on consulting and wealth management, revving up the “most trusted advisor” dialog from the late 1990s; a larger than usual component to today’s growth is from consulting vs. A&A and tax.
  1. There is an epidemic of partners reaching their mid-60s and not wanting to retire because they are healthy, energetic and still out-performing younger partners. A mini-rebellion among “older” partners is brewing which questions the rationality of mandatory retirement.
  2. A glut of new MPs – many have not been mentored properly.

The Rosenberg Survey is compiled annually by The Growth Partnership, a St. Louis-based consulting firm that works with CPA firms in practice growth, leadership development, training and practice management.

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