Accounting Office Management & Administration Report
January 2006
New IOMA Study Reveals Financial and Performance Benchmarks for Firms in 2006
2005 was a very good year for CPA firms, according to the results of AOMAR’s 2006 CPA Firm Practice Management Survey. More than 90 firms reported that they had an 8.4% increase in gross billings over the prior fiscal year. Chargeable hours were up 3.5%, and responding firms expect that billings will rise another 8.7% next year.
Other key data follow that CPA firms will find valuable in assessing their own performance this year and comparing it to the national sample of CPA firms that participated in this year’s survey.
Financial ratios. Annual gross fees billed averaged $8,243,493, with write-downs averaging -10.3% and write-ups, 5.4%. Net fees per firm averaged $7,716,631. Chargeability by firm hours was 55.0%; by active owners, 55.1%, and by professionals, 73.5%. Multipliers ranged from 2.6 for paraprofessionals (non-CPA positions such as accountants and bookkeepers) to 3.2 for both seniors and juniors (see Tables 1 and 2 for more information).
Performance ratios. Leverage among all firms averaged 6.1, while utilization was 1,147 and realization, 92.0%. Profit margins averaged 34.5%, and net income per partner (NIPP) was $271,927. (Tables 3 and 4 contain further results.)
WIP, A/R, and collections. The average balance in receivables for end of fiscal year averaged $1,292,057 in accounts receivable (A/R) billed but unpaid, and $521,108 in unbilled A/R. The average collection period was 56 days (see Tables 5 and 6 for more results).
Miscellaneous benchmarks. Average income before owners’ compensation was $2,555,553. Total employee compensation, excluding owners’, was $3,123,164, or 31% of net fees. (Tables 7 and 8 contain further information.)
Capital benchmarks for owners. Capital requirements for CPA firm owners remained the same for most respondents (81.9%) over the past fiscal year. An increase was reported by 15.3%, and a decrease by 2.8%. The percentage of gross fees being paid to retired owners is 2.0%. (See Tables 9 and 10 for more information.)
Complete results of the 2006 survey are available in the just-published AOMAR’s 2006 CPA Firm Statistical Analysis Reference Handbook, which also includes the Individual Firm Analyses of 36 CPA firms. To order, use the coupon on the back page or contact IOMA Subscriber Services.
| Table 1. Financial Ratios, Overall and By Gross Fees | |||||||
| <$1 | $1-$1.99 | $2-$3.99 | $4-$5.99 | $6-$9.99 | $10 million | ||
| Overall | million | million | million | million | million | or more | |
| Annual gross fees billed | $8,243,493 | $607,424 | $1,395,865 | $2,649,221 | $4,581,193 | $7,747,573 | $23,027,096 |
| % annual write-down | -10.3% | -8.4% | -9.5% | -11.5% | -11.8% | -9.0% | -11.0% |
| % annual write-up | 5.4% | 6.1% | NR | 0.8% | NR | 8.9% | 5.2% |
| Gross Fees | |||||||
| Per person | $137,592 | $107,497 | $129,615 | $119,045 | $133,497 | $135,875 | $175,018 |
| Per owner | 892,115 | 316,726 | 644,455 | 754,257 | 900,301 | 900,683 | 1,464,495 |
| Per professional | 362,545 | 292,196 | 360,920 | 378,479 | 378,154 | 306,016 | 408,034 |
| Per chargeable hour | 125 | 94 | 138 | 102 | 113 | 117 | 157 |
| Net Fees | |||||||
| Per firm | $7,716,631 | $562,100 | $1,283,798 | $2,483,586 | $4,064,374 | $7,183,109 | $20,979,038 |
| Per owner | 866,561 | 295,779 | 999,483 | 580,173 | 810,686 | 816,154 | 1,361,952 |
| Per person | 144,960 | 102,072 | 218,420 | 113,596 | 118,649 | 125,375 | 162,729 |
| Per chargeable hour | 114 | 89 | 117 | 96 | 100 | 107 | 146 |
| Chargeability | |||||||
| By firm hours | 55.0% | 59.3% | 55.5% | 55.6% | 50.4% | 56.6% | 52.5% |
| By active owners | 55.1 | 68.6 | 57.5 | 53.3 | 58.4 | 47.1 | 51.6 |
| By professionals | 73.5 | 72.1 | 79.0 | 71.7 | 77.9 | 68.7 | 73.9 |
| By paraprofessionals | 69.3 | 63.1 | 64.6 | 72.3 | 64.8 | 70.8 | 73.3 |
| Multiplier by Gross Fees | |||||||
| Multiplier for supervisors/managers | 3.0 | 3.6 | 2.8 | 2.9 | 2.7 | 2.8 | 3.4 |
| Multiplier for seniors | 3.2 | 2.7 | 3.5 | 2.8 | 3.5 | 3.1 | 3.5 |
| Multiplier for juniors | 3.2 | 2.7 | 3.5 | 3.0 | 3.9 | 2.9 | 3.6 |
| Multiplier for juniors (not yet CPAs) | 3.1 | 4.0 | 3.9 | 2.6 | 2.9 | 2.8 | 3.6 |
| Multiplier for paraprofessionals | 2.6 | 2.4 | 2.2 | 2.5 | 1.9 | 2.3 | 3.4 |
| (Source for all tables: AOMAR’s 2006 CPA Firm Practice Management Survey) | |||||||
Table 2. Financial Ratios, By Number of
Personnel
1 to 5
6 to 10
11 to 20
21 to 50
51 to 100
More than 100
Annual gross fees billed
$365,000
$956,552
$1,940,289
$4,134,271
$10,550,120
$30,495,085
% annual write-down
-2.3%
-9.2%
-10.3%
-11.7%
-9.4%
-11.5%
% annual write-up
4.2%
0.8%
7.4%
4.3%
7.2%
NR
Gross Fees
Per person
$133,472
$122,240
$125,376
$125,019
$149,054
$174,191
Per owner
305,833
475,437
610,544
931,933
1,065,206
1,598,207
Per professional
283,750
416,911
317,437
371,309
382,756
356,220
Per chargeable hour
126
102
128
103
132
162
Net Fees
Per firm
$357,000
$847,760
$1,758,297
$3,865,679
$9,795,707
$20,979,038
Per owner
300,333
423,007
857,995
771,275
963,482
1,548,227
Per person
131,222
112,939
188,338
117,509
137,011
165,470
Per chargeable hour
124
94
109
95
121
154
Chargeability
By firm hours
57.9%
60.9%
53.6%
56.8%
53.7%
50.5%
By active owners
74.9
68.3
50.3
56.6
47.8
51.5
By professionals
73.9
82.0
72.9
72.3
70.1
74.8
By paraprofessionals
69.5
57.2
64.5
73.1
73.7
69.0
Multiplier by Gross Fees
Multiplier for
supervisors/managers
NR
2.7
3.0
2.7
3.0
3.4
Multiplier for seniors
1.8
3.1
3.3
3.2
3.2
3.4
Multiplier for juniors
NR
3.5
3.2
2.7
3.0
3.7
Multiplier for juniors (not yet
CPAs)
NR
4.8
3.3
2.7
3.1
3.4
Multiplier for
paraprofessionals
3.4
1.8
2.5
2.2
2.7
3.4
$187,854
Table 3. Performance Ratios, Overall
and By Gross Fees
<$1
$1-$1.99
$2-$3.99
$4-$5.99
$6-$9.99
$10 million
Overall
million
million
million
million
million
or more
Leverage
6.1
3.1
5.1
6.7
7.0
6.4
8.5
Utilization
1147
1189
1017
1257
1161
1153
1120
Billing rate
$125
$94
$138
$102
$113
$117
$157
Realization
92.0%
94.0%
92.0%
94.4%
88.6%
90.9%
91.4%
Profit margin
34.5%
40.2%
39.2%
38.7%
27.8%
27.1%
34.0%
Net income per partner
$271,927
$123,069
$263,728
$258,613
$237,909
$438,663
| Table 4. Performance Ratios, By Number of Personnel | ||||||
| 1 to 5 | 6 to 10 | 11 to 20 | 21 to 50 | 51 to 100 | More than 100 | |
| Leverage | 2.4 | 3.8 | 4.9 | 7.4 | 6.9 | 8.9 |
| Utilization | 1035 | 1251 | 1052 | 1240 | 1154 | 1079 |
| Billing rate | $126 | $102 | $128 | $103 | $132 | $162 |
| Realization | 97.7% | 92.6% | 91.1% | 92.8% | 90.5% | 92.6% |
| Profit margin | 48.5% | 36.7% | 38.5% | 32.6% | 28.6% | 36.2% |
| Net income per partner | $157,500 | $151,756 | $240,362 | $217,624 | $310,503 | $508,999 |
| Table 5. WIP, A/R and Collections, Overall and By Gross Fees | |||||||
| <$1 | $1-$1.99 | $2-$3.99 | $4-$5.99 | $6-$9.99 | $10 million | ||
| Overall | million | million | million | million | million | or more | |
| Balance in receivables—end of year: | |||||||
| AR billed (not yet paid) | $1,292,057 | $71,872 | $235,945 | $333,954 | $666,701 | $1,212,389 | $3,653,166 |
| AR unbilled | $521,108 | $45,866 | $118,722 | $232,437 | $323,025 | $618,227 | $1,262,546 |
| Collection period (days) | 56 | 55 | 55 | 50 | 51 | 64 | 60 |
| Uncollected fees last year | $91,539 | $4,845 | $36,071 | $17,730 | $57,252 | $162,855 | $217,783 |
| Uncollected fees as % of A/R | 9.1% | NR | NR | NR | NR | NR | NR |
| Table 6. WIP, A/R and Collections, By Number of Personnel | ||||||
| 1 to 5 | 6 to 10 | 11 to 20 | 21 to 50 | 51 to 100 | More than 100 | |
| Balance in receivables— | ||||||
| end of year: | ||||||
| AR billed (not yet paid) | $75,875 | $96,078 | $307,512 | $651,629 | $1,620,675 | $4,861,807 |
| AR unbilled | $48,333 | $95,664 | $124,082 | $377,351 | $681,678 | $1,586,311 |
| Collection period (days) | 62 | 41 | 60 | 59 | 55 | 62 |
| Uncollected fees last Year | $7,667 | $5,564 | $34,299 | $98,997 | $128,761 | $265,781 |
| Uncollected fees as % of A/R | NR | NR | NR | NR | NR | NR |
| Table 7. Miscellaneous Benchmarks, Overall and By Gross Fees | |||||||
| <$1 | $1-$1.99 | $2-$3.99 | $4-$5.99 | $6-$9.99 | $10 million | ||
| Overall | million | million | million | million | million | or more | |
| Average net income before owners’ | |||||||
| compensation | $2,555,553 | $223,365 | $479,859 | $925,798 | $1,136,669 | $1,966,656 | $7,245,342 |
| Total net income per owner | 261,454 | 123,069 | 243,330 | 183,390 | 226,669 | 239,588 | 429,892 |
| Total employee compensation, | |||||||
| excluding owners | 3,123,164 | 135,574 | 421,956 | 774,925 | 1,267,093 | 2,315,327 | 9,340,301 |
| Total employee compensation as | |||||||
| a % of net fees | 31% | 22% | 31% | 31% | 31% | 35% | 34% |
| Average number of offices | 2.5 | 1.2 | 1.2 | 1.5 | 2.1 | 2.2 | 6.0 |
| Table 8. Miscellaneous Benchmarks, By Number of Personnel | ||||||
| 1 to 5 | 6 to 10 | 11 to 20 | 21 to 50 | 51 to 100 | More than 100 | |
| Average net income before owners’ | ||||||
| compensation | $175,333 | $342,325 | $653,190 | $1,213,898 | $2,861,415 | $9,901,400 |
| Total net income per owner | 157,500 | 162,672 | 220,659 | 213,671 | 297,319 | 484,616 |
| Total employee compensation, | ||||||
| excluding owners | 48,001 | 197,021 | 577,409 | 1,093,201 | 3,317,081 | 11,961,165 |
| Total employee compensation as a | ||||||
| % of net fees | 13% | 25% | 33% | 32% | 36% | 32% |
| Average number of offices | 1.0 | 1.3 | 1.3 | 1.6 | 2.2 | 8.8 |
| Table 9. Capital Benchmarks for Owners, Overall and By Gross Fees | |||||||
| <$1 | $1-$1.99 | $2-$3.99 | $4-$5.99 | $6-$9.99 | $10 million | ||
| Overall | million | million | million | million | million | or more | |
| Capital requirements for owners: | |||||||
| Stayed the same | 81.9% | 77.8% | 80.0% | 84.6% | 85.7% | 84.6% | 77.8% |
| Increased in the past year | 15.3 | 11.1 | 20.0 | 7.7 | 14.3 | 15.4 | 22.2 |
| Decreased in the past year | 2.8 | 11.1 | NR | 7.7 | NR | NR | NR |
| % change capital requirement: | -0.6 | -22.5 | 8.0 | -10.0 | 8.2 | 9.0 | 8.1 |
| % gross fees to retired owners—current year | 2.0 | 0.0 | 3.1 | 1.0 | 1.6 | 4.0 | 2.0 |
| % gross fees to retired owners—previous year | 2.1 | 0.0 | 2.9 | 1.1 | 1.9 | 4.5 | 1.9 |
| % gross fees to retired owners—next year | 1.8 | 0.0 | 2.2 | 1.0 | 1.7 | 3.9 | 1.5 |
| Table 10. Capital Benchmarks for Owners, By Number of Personnel | ||||||
| 1 to 5 | 6 to 10 | 11 to 20 | 21 to 50 | 51 to 100 | More than 100 | |
| Capital requirements for owners: | ||||||
| Stayed the same | 75.0% | 85.7% | 73.3% | 88.2% | 88.2% | 75.0% |
| Increased in the past year | 25.0 | 0.0 | 20.0 | 11.8 | 11.8 | 25.0 |
| Decreased in the past year | NR | 14.3 | 6.7 | NR | NR | NR |
| % change capital requirements | 5.0 | -50.0 | -1.0 | 8.2 | 8.5 | 8.1 |
| % gross fees to retired owners— | ||||||
| current year | 0.0 | 1.0 | 2.4 | 3.5 | 1.1 | 2.5 |
| % gross fees to retired owners— | ||||||
| previous year | 0.0 | 1.0 | 2.3 | 4.0 | 1.1 | 2.3 |
| % gross fees to retired owners— | ||||||
| next year | 0.0 | 1.0 | 1.8 | 3.2 | 1.3 | 1.6 |
January 2006 - Table of Contents
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