Magazine article The CPA Journal

Going Solo: Is It Time to Take Another Look?

Magazine article The CPA Journal

Going Solo: Is It Time to Take Another Look?

Article excerpt

The recent recession and subsequent slow recovery continue to affect the CPA's work environment. Despite turnaround in many sectors of the American economy, large corporations, public accounting firms, and government agencies continue to restructure and realign their operations. Some CPAs fear that the next round of cutbacks will involve them personally. Those with secure positions face the real possibility of increased workloads, additional responsibilities, and longer working hours.

During stressful times, many accountants experience an entrepreneurial spirit and entertain thoughts of going it alone. The rewards of being your own boss can be personally and financially gratifying. Before hanging out your shingle, those considering the leap will want to financial rewards and consider the tasks involved. The first step involves making a realistic self-evaluation of your capabilities and an appraisal of the degree of family support.

Financial Rewards

The annual Management of Accounting Practice (MAP) Survey compiled by the Texas Society of CPAs provides a start for evaluating the benefits of individual practice. It summarizes public accounting firm operating results furnished by participating state societies. Survey results represent the prior year's activity, e.g., 1994 data depicts calendar year 1993. Survey data includes income statement and balance sheet results and other items, such as partner profits, personnel policies, advertising methods, and sources of revenue The MAP data are organized by firm type: individual practitioner (one-owner firms), small non-national firms (multiowner firms with revenues up to $350,001), medium non-national firms (multiowner firms with revenues from $350,001 through $900,000), large non-national (multiowner firms with revenues over $900,000), and national firms. When reviewing the results of the survey, it should be recognized that firms participate in the study on a volunteer basis, data were taken from different fiscal years, and no control was in place to determine which firms responded in a particular year.

Exhibit 1 indicates steady growth in the net income of the sole practitioner. (Exhibit 1 omitted) From 1988 to 1994 the solos' average net income rose from $56,938 to $75,056--a 31.8% increase. In contrast, partners in small firms saw their net income rise on average from $49,265 to $57,622--a 16.9% increase. National firm partner returns were not reported from 1992- 1994, but had been trending downward--a 27% decline from 1988 to 1991.

The increase in the solos' financial rewards is further illustrated by owner's income to net fee percentage which increased from 37.9% in 1988 to 41.2% in 1994. By comparison, the share of owners' income dropped in national firms from 32.2% in 1988 to 26.1% in 1991.

What Type of Work to Expect

The MAP survey provides insight into the typical sole practitioner's workday. Much of the data is not surprising, but some trends are noteworthy.

* Nearly 50% of the solos' fees come from tax work and the trend is up 5.9% in 1988 to 48.9% in 1994).

* Although audit work seems to have leveled off after declining, less than 6.3% of the solos' fees are from auditing.

* Next to taxes, write-up and data processing (17.5%) and compilation and review (15.4%) are the major sources of fees for individual practitioners.

* Many solos offer selected special services. Exhibit 2 lists the more frequently offered special services and the percentage of practitioners surveyed offering the services. (Exhibit 2 omitted)

Office Operations

The survey also indicates a number of trends in office operations:

* Ninety-six percent of the sole practitioners prepare taxes using a tax preparation software. The most prominently used software for 1994 was Lacerte--utilized by 23.2% of the respondents.

* Twenty-nine percent of the respondents reported their computers are networked, an increase of 81% since 1991, when the question first appeared in the survey. …

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