The National Results of the 1998 Management of an Accounting Practice Survey

Article excerpt

Does your firm measure up?

Each year, the Texas Society of CPAs sponsors a survey examining the management policies and performance of accounting practices from the previous year. The 1998 Management of an Accounting Practice Survey examines many aspects of an accounting practice but is generally limited to non-national firms. It does attempt to include large regional firms. The full report (available upon request from the Texas Society) categorizes the responses by firm income, population of the city of the respondents, number of owners, and top 25% most profitable firms versus the overall response. In addition, information on both national and international activities is reported.

When comparing the 1998 results to prior years', it should be kept in mind that the responding firms are not necessarily the same from one year to the next. The total number of responses during each year, however, is sufficient to ensure statistically representative averages.

Each participating firm was categorized into one of six groups based on firm size and net fees generated. Performance measures based on financial characteristics, sources of fees, marketing activities, administrative policies, and fringe benefits were calculated for each group. This allows readers to compare their firms with the reported average of similar participating firms and examine which attributes impact a firm's operations. For example, a small, multiowner firm with annual fees between $400,000 and $1 million can compare itself to responding firms in its peer group. In addition, the survey reports the increasing extent to which respondents must address international issues for their clients. Firms that are willing to take on new expertise and desire to expand their practice can find lucrative opportunities in the international area.

Participation in the survey was voluntary and anonymous. A total of 1,554 firms chose to participate. Participants were categorized as either sole practitioners or multiowner firms. An additional subclassification, based on annual fees generated, was used to further divide the respondents into more relevant categories. The number of respondents in each category is displayed in a sidebar on page 44.

Highlights of the survey, with comparable amounts from the 1997 survey (in parentheses), demonstrate trends in the profession. The averages reported are weighted according to the response rate for each category.

Financial Characteristics

Income. Accounting practices prospered during the past year. Respondents reported a weighted average annual net income per owner of $114,200 ($ 106,600). Sole practitioners reported a weighted average of $93,800 in 1998 ($87,600), an increase of 7.07% over the previous year. Multiowner firms reported a weighted average of $138,100 ($127,400), an increase of 8.4%. Figure I reflects the averages across the past three years based on firm size and category.

Overall, sole practitioners reported total hours worked per firm of 6,221 (6,508) with billed hours of 3,641 (3,835). This represents a billing rate of 58.5% (58.9%). Multiowner firms, on the other hand, reported a weighted average of 34,976 (32,086) total hours worked with 20,438 (18,936) actually charged. This results in an effective billing rate of 58.4% (59.0%). The strong national economy seems to be benefiting the larger firms more. The net fees realized per charged hour ranged from $50 to $85. The average was $64 per hour for sole practitioners and $70 per hour for multiowner firms.

Compensation, The survey does not yet reflect the overall increase in starting salaries that would be expected because of reported staff shortages in some areas (See the following section on fringe benefits). Significant increases were reported at the larger practice units. In 1998, average starting salaries for new professional personnel averaged $23,200 ($23,700), ranging from the $16,400 paid by small sole practitioners to the $28,300 ($26,500) paid by large multiowner firms. …