Industry Trends and Takeaways from the 2022 Rosenberg Survey

The 2022 Rosenberg Survey has been released, and, along with it, volumes of data on the CPA industry’s performance over the past year.

The survey asks the industry’s top consultants to share their observations from CPA firms. Here are the questions and our responses.

How would you assess the last 12 months? Trends? Observations? Struggles?

Marc Rosenberg:

1. Working remotely and its wide-ranging challenges may be the biggest game-changer to the CPA industry since 1978, when CPAs were allowed to solicit business. Remote work can no longer be described as a trend; it’s here to stay. You can’t give a perk (if we can call the privilege of working remotely a perk) to people and then take it away. These days, firms are dealing with a wide range of remote work issues. It may take years before firms are able to flourish with it. To their credit, they are adapting, but many challenges are still to be resolved. Yes, figuring out everyone’s work schedule is difficult. But even more challenging are training/mentoring of staff, especially younger ones; building a firm culture; business development; nurturing of client relationships; supervising work; and evaluating staff’s work based on results instead of butts in seats.
2. Who wants to be a partner? Firms are continuing to find a disturbing number of partner-worthy managers declining partnership offers. For two reasons: (a) Staff see partners “working all the time” and are not willing to make the sacrifices they feel will be required of them. (Interesting observation: Will this challenge continue in an environment where it’s difficult to “see” the partners working “all the time?”) and (b) Partners continue to suck at mentoring staff on what a great job they have.
3. The M&A market continues to be robust. Buyers are pickier than ever, resulting in sellers realizing they have fewer options to find buyers and a diminishing ability to negotiate the price. No changes are foreseen on this, except for the possible intervention of private equity with smaller firms.
4. Private equity. Certainly, the biggest new trend in the CPA firm industry. Initially, it was geared to mega-firms, but it’s starting to trickle down to large firms below the mega firms. What’s the future for private equity? Will it catch on? Will it ever invade the domain of $5–30M firms? Stay tuned.
5. Cybersecurity. If you want to get scared, attend a cybersecurity presentation. You’ll most assuredly leave with a heightened sense of anxiety over the exponential growth of cybersecurity issues and incidents. The adoption of remote work as a norm has amped up the concern in cyber.
6. The aging of baby boomer partners has had two ripple effects: First, as stated above, the M&A market is hot with no end in sight; the only exit strategy for most retirement-minded owners is to merge up. Second, there is an avalanche of small firms who are fortunate to have young managers willing and able to become partners. But a huge challenge is before them: how to bring these managers in as partners. Small firms have very little or no experience bringing in new partners, and they are at sea as to how to do it.

Kristen Rampe:

We’ve observed more firms lowering or eliminating business development as an admission requirement of equity partners. There’s an obvious retention play here because many accountants just don’t see themselves as skilled or interested in this aspect of running an accounting practice. Remove that barrier to a leadership role, and voilà, your partner-candidate pool just tripled.

Of course, there’s long-term risk if firms have no one who can maintain referral relationships, bring in new leads and close a deal. But I believe that all but the least personable CPAs naturally (if slowly) cultivate a business development skill set over time. It comes with growth in technical abilities, confidence in routine communication with clients, and mentoring over the years. They may not be the huge rainmakers, but they will play their part in keeping the firm growing. Some firms are still holding out on this requirement. Not a bad plan, as long as you are not shutting out those with other skills (like leadership, strategy, and people management) by prioritizing the need to have someone willing to feign enjoyment at a mixer.

The Rosenberg Survey has been the gold standard for benchmarking CPA firms for over 20 years.  Accounting Today calls it the “industry’s barometer for CPA firm practice management.” 

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How do you think the next 12 months will unfold? Trends? Predictions? Other thoughts?

Marc Rosenberg:

1. Firms will continue to struggle with all facets of remote work. Firms will never get back to working in the office as a norm, not because of Covid, but because their people – especially partners – don’t want to work in the office full-time.
2. Sellers will continue to struggle finding buyers.
3. Cybersecurity issues will get worse before they get better (if ever!).
4. The labor shortage seems to get worse every year. It’s bound to increase the salaries of staff if it hasn’t done so already.

Kristen Rampe:

Retiring will continue to be difficult for many partners of small firms. Even if on paper they’ve done their job of bringing in new partners, many of their successors already have a full book of business and can’t absorb all of the outgoing partner’s client bases. Not to mention that many newer-generation partners have no appetite for the long-hours lifestyle of baby boomers. It’s not uncommon to need two new partners to replace a founder who’s been working 3,200+ hours per year. Few want that job.

Here are 10 survey highlights to know:

1. The industry showed epic revenue increases and unheard-of profit increases (both 9–10%).
2. Revenue hikes were coupled with ongoing challenges in hiring and retaining staff (only a 4% increase in headcount). This is consistent with the staffing crisis, and we don’t see an easing anytime soon. How will firms manage the increased revenue without matching increase in staffing? The stop-gap measure: partners have to work more.
3. Income per partner (IPP) increase, for the first time in 15 years, exceeded revenue increase. Average IPP for firms over $2M in revenue was $583k.
4. Goodwill valuations for internal buyouts moved down from 80% (for years) and is now closer to 75%.
5. Professional staff turnover is the highest in recent memory: 19% vs. 15% last year.
6. The percentage of female partners increased to 27% from 25% — highest ratio ever.
7. Staff-partner ratio had a significant uptick: 6.9 vs. 6.4 last year.
8. New partner buy-in amounts jumped to $196K from $166K. Firms use of non-equity partner positions has continued to increase steadily: 64% up from 58%, up from 54%.
9. Despite all the talk about consulting being the future of CPA firms, consulting revenue as % of revenue was a low 11.0% vs. 13.5% last year.
10. Total work hours for both partners and professional staff was almost exactly same as last year.

Benchmarking is one of the best ways to know where you need to focus as a firm. The Rosenberg Survey includes row-by-row information on each firm that participated (without firm names) along with consultant analysis from 11 other industry leaders. If you’d like to see all the data and benchmark your firm, pick up a copy of the full survey here.