Highlights of the 2023 Rosenberg MAP Survey

• The Rosenberg Survey is compiled by The Growth Partnership. Charles Hylan, a partner at TGP, heads up their survey team. This is the 25th year of the survey, which reports on 2022 data.
• As always, “partner” means equity partners only.
• Percentage increases or decreases are based on data only for firms over $2M in revenue.

Key Data Findings

1. CPA firms are minting revenue and profits at a breathtaking pace. Revenue was up 11.4% and income per equity partner (IPP) up 11.8% to an amazing $653,000. Revenue increases were experienced in firms of all sizes and areas of the country. But alas, the euphoria of these great results is soured by high levels of frustration at firms due to the dire staff shortage.

2. Soaring profits were due to:

• Huge revenue increase, somewhat offset by higher staff salaries.
• Significantly increased staff-partner ratio; 7.7 vs. 7.1 last year. This metric is always one of the four highest indicators of profitability.
• Significant increase – 11% – in revenue per partner. Every year, this metric has the highest correlation to profitability.
• Firms are making do with the same number of partners despite increasing revenue. Causes of this are:
  • a shortage of staff with the right stuff to be partner
  • firms raising the bar for who makes partner
  • the continuing retirements of baby boomers, many of whom cannot immediately be replaced
• Realization increased to 90.1% from 88.6% last year, the highest in years. With the demand-supply curve working to their benefit, firms are less willing than ever to write off time.
• Nice increases in partner billing rates. Firms are emboldened by the high revenue demand coupled with a labor shortage. As we learned in Econ 101, this scenario usually results in increased prices.
• Culling of less ideal (and usually less profitable) clients.

3. Rate increases: Partner billing rates up 7.1% and average 1040 fees up 11.1%. Increases in partner billing rates have historically been an indicator of staff rate increases.

4. No change in the usage of the non-equity partner position; 64% of firms have such a position. Kind of puzzling why this isn’t higher. I personally think it’s old school insistence on promoting long-time, talented managers directly to equity partner; the concept of non-equity partners still puzzles some firms.

5. Partner compensation: use of the comp committee is still the Cadillac; 77% of firms use performance-based systems including the comp committee system.

6. Mergers: revenue increases from mergers was 13%, down from 16%–23% in recent years. Merger activity is still strong but a tad below the frenetic level it once was.

7. Despite the repeated assertions by our consultants panel that consulting services at CPA firms are increasing every year, the data doesn’t support this. Consulting revenue as a percent of total revenue is only 10.2% and has been virtually the same as prior years. Even the $>20M group posted only 13.5% consulting.

8. Female partners: unchanged at 26%. Firms over $10M increased the female partner headcount by 9% whereas smaller firms were down 9%.

9. Outsourcing: 44% of firms over $5M are outsourcing. Plus, many firms not currently outsourcing are planning to look into it.

10. Partner buyout:

• Use of the multiple of compensation method remains the most popular system at 54% of all firms.
• The multiple of comp and AAV systems combined (they are very similar) is used by 70% of all firms.
• Goodwill valuations are falling gradually; now at 76% of revenue vs. 78% last year and around 80% in the years before that.
• 74% of all firms are making buyout payments to retired partners – evidence that partner buyout plans are alive and well, if not thriving. Naysayers feel that partner buyout plans are nothing more than a Ponzi scheme. We dispute this. Buyout payments as a percentage of revenue are now at 2%, up from 1.5% not too long ago.

11. Staff turnover was high at 20% but unchanged from last year. For many years in the past, this figure has hovered in the mid- to high-teens.

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How CPA firm consulting luminaries see things

Every year, to supplement our own analysis of the survey, we ask leading CPA firm consultants what they think. This year, 15 top name consultants participated. The comments are very helpful and insightful. Many remarks parallel our own analysis.

1. Terrible labor shortage.

2. Business is booming, with 2023 expected to be more of the same.

3. Rising use of outsourcing.

4. Client culling is finally happening, triggered by firms’ inability to service their revenue volume with limited staff availability.

5. The hiring of non-accountants is on the rise. A super strategy.

6. Increased focus on consulting services (our data does not support this).

7. Billing rate increases with corresponding staff salary increases.

8. Partner burnout and frustration.

9. Rise of private equity but still lots of skepticism.

10. Remote work moving toward hybrid model at most firms.

Interested in seeing the full results of The Rosenberg Survey? Purchase your copy now.