the cpa industry’s largest, most authoritative annual report

by cpas, for cpas

where does your firm rank?

the rosenberg map survey is the best-known, most-respected independent study in the profession –for itsaccuracy,thoroughness,andhigh participation rate.

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new for the 2023 outlook:

the top 5 challenges and opportunities

by charles hylan
from the foreword

it’s a banner year! our 2022 survey is based, for the most part, on data from 2021. revenue is up 9.5%, the largest increase since 2007, and income per partner is up a whopping 12.0%.

there’s no doubt that it was an incredible year from an economic standpoint.

however, the challenges of running a firm — keeping up with technology, hiring qualified candidates, retaining star team members, and serving clients — continue to grow.

we clearly see some areas where firms are embracing change more than ever before:

1. alternative workforce– this is the term i’m using to describe firms that are outsourcing, onshoring, and offshoring.
   • i have talked with more firms this year than ever that are either increasing their usage of an alternative workforce or really getting serious about
   • one firm, which just hired two highly qualified people in the philippines, will be on their website, and they plan to integrate them into their firm like any other team member.
   • we’re seeing firms increase the number of tax returns they complete by a factor of ten and begin to use outsourcing companies to help accomplish tasks associated with their accounting and audit bottom lines.
   • frms are coming to the harsh realization that they are simply not going to be able to hire enough people via the traditional channels.
2. compliance to advisory– after years of merely easing down the path, firms are now picking up the pace.
   • why are firms accelerating this shift?
   • clients are demanding more than traditional accounting services.
   • the fees for traditional services are getting more and more competitive.
   • it’s easier (though still not easy) to hire people in some of the advisory areas. and,
   • the ability to increase income per partner is simply too attractive.
   • after all, the shift to advisory is one of the biggest reasons why private equity is entering our profession.
3. non-traditional hires– we’re seeing firms hire solid team members who do not have accounting degrees or any desire to pursue a cpa license.
   • for example, as cas (client accounting services) continues to grow, firms are hiring smart, detailed-oriented people who can use technology and simply “put numbers into” the system.
   • clearly, the role of a cas team member is more complicated than just putting numbers into boxes. but i think we would all agree that a staff member in this area doesn’t need a cpa license.
   • ultimately, leaders in accounting firms are trying to get the highest and best use (habu) out of each team member.
4. remote work– the covid pandemic has forced the accounting profession to work remotely, and i personally believe firms did an excellent job rising to the challenge.
   • while there were plenty of hiccups along the way, firms are successfully navigating the move to a remote work environment.
   • we are now over two years removed from the start of the pandemic, and team members expect remote work options.
   • we all know plenty of firms that have employees spread throughout the country. some even actively hire people outside of their physical office locations.
   • this transformation of how and where people work, coupled with technology and process, will continue indefinitely.
5. technology– technology is the linchpin of everything —
   • • deploying an alternative workforce strategy,
     • transitioning to advisory,
     • hiring non-traditional team members, and
     • embracing a remote work environment.
   • not only does technology help firms with these areas, but it has transformed, and will continue to transform, how accounting firms complete work.
   • technology, and the items listed above, are enabling firm members to work on the highest and best use of their talent set.

as you read through the results ofthe 2022 rosenberg survey,we encourage you to see the data as questions and not answers.

• • why is our realization up?
  • why is our income per partner above the average of our revenue band?
  • why is our net firm billing rate so high but our income per partner lower than average?

while we may be in the business of acquiring and compiling data, our why is ultimately to help accounting firms become more effective, profitable, and sustainable.

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highlights from the new edition

metrics and kpis for firms of all sizes and regions

i. detailed analysis

1. demographics of survey participants
2. same firm analysis
3. revenue growth
4. profitability
5. age of the partners
6. audit practice impact on key metrics
7. bigger firms and profitability
8. billing rates of partners within the same population markets
9. billing rates: do firms with high rates have lower realization?
10. elite firms analysis
11. strategic plan
12. marketing plan
13. gender mix and percentage of female partners
14. financial services
15. managing partners’ client responsibilities
16. new partner buy-in
17. new partner compensation
18. non-equity partner position
19. partner compensation systems
20. partner buyout systems
21. client retention for retiring partners
22. partner retirement plans
23. mandatory partner retirement
24. profitability measurement
25. small cities and profitability
26. staff billable hours
27. states: profitability and growth for certain states
28. tax season impact on staff billable hours
29. which statistics correlate most with firm profitability?
30. staff-to-partner ratio correlated to income per partner

ii. key statistics and ratios:

1. firms over $20 million in net fees
2. firms $5-$10 million in net fees
3. firms $2-$5 million in net fees
4. firms under $2 million in net fees
5. analysis by 6 sizes of firms
6. analysis by 4 sizes of population markets
7. analysis by 4 geographic regions of the country
8. firms $10-20 million in net fees

iii. percentile analysis for multi-partner firms

iv. raw data, firm-by-firm, row-by-row:

1. firms over $20 million in net fees
2. firms $10-20 million in net fees
3. firms $5-$10 million in net fees
4. firms $2-$5 million in net fees
5. firms under $2 million in net fees

commentary, analysis and forecasts by leading authorities

• carl george, carl george advisory, llc
  firms are running their businesses better. in march 2020, firms went into plan a, plan b, and plan c mode (rightfully so). the overall mantra to partners was to run the business better. that paid off-wip management, billings, collections, and expense management are at their best – and will stay that way…
• jim boomer, boomer consulting
  while we don’t know for sure what the profession will look like post-pandemic, i’m confident it won’t look the same as it did prior. three of the primary areas that i think will be different going forward are…
• art kuesel, kuesel consulting
  as we all saw, some industries suffered greatly during the pandemic; many adjusted and did okay, and others thrived. our profession was no different, as some firms really struggled, some adjusted and did okay, and others really stepped up – and thrived. having a flexible mind and lens is a key ingredient for the firms that thrived and will continue to be leaders in the future…
• terry putney, transition advisors
  a huge issue is the changes that are happening where firms work. office space is being downsized dramatically. long-term office leases that must be assumed by an acquiring firm are becoming a deal killer in many m&a deals. we are seeing a significant increase in the number of firms that are going almost completely virtual…
• gale crosley, crosley+consulting
  we will morph to an “anytime anywhere” work environment. you choose when and where you want to work – not necessarily just office or home, but wherever you are with your laptop or mobile device. as consultants, we have already been living this life for years. our office is in an airplane, airport, starbucks, hotel lobby…
• jeff pawlow, the growth partnership
  clearly, the biggest “ah-ha” from the pandemic is that we were able to conduct business as usual with the majority of employees working remotely. this realization has significant ramifications…
• jennifer wilson, convergencecoaching
  firms are getting creative to manage their reduced headcount. offshoring, outsourcing, fractional staffing, increased digital service, robotic process automation, firm-wide resource scheduling, and hiring non-cpas are just some of the ways…
• marc rosenberg, the rosenberg associates
  the pandemic will be a seminal life event that will always be remembered – like the assassinations of the 1960s, 9/11– and, for me, the chicago cubs winning the world series. it most certainly will have a permanent impact on the accounting industry…
• julio gonzalez, engineered tax services
  i think the long-term ramifications are that we have a new norm vs. old-school leadership. it’s time to face facts—senior management is no longer in a position of strength because the talent will move on. the result is that it’s imperative that management change its mindset to keep and attract more mobile staff…
• kristen rampe, rampe consulting
  the major long-term ramification of the pandemic to our industry is that flexibility is crucial. it’s no longer optional for success; it’s required…
• tamera loerzel, convergencecoaching
  while there are many long-term ramifications from the pandemic on the accounting profession, there are three business model shifts that firm leaders need to be planning for…
• angie grissom, rainmaker consulting
  the accounting industry has undergone a significant change in the past year that has catapulted progress in many key areas and created some new challenges along the way. in terms of long-term ramifications, my views are the following seven areas have been impacted…
• carrie steffen, the whetstone group
  we see four major trends:first, more firms are finally transitioning bad clients out of the practice. every firm serves clients that are not a good fit, cause inefficiencies, are difficult to serve, and make their people miserable. often, these bad clients take more than their share of your people’s time and energy, causing undue amounts of stress and frustration…
• sarah dobek, inovautus
  covid has taught the globe that you can work anywhere. working remotely forced technology adoption and, more importantly, taught our clients and our employees that they could be anywhere and work anywhere. that has trickled into a few areas, including…
• allan koltin, koltin consulting
  firms that have truly moved to hybrid scheduling and a new workplace model will have a major competitive advantage vs. those that are simply tweaking the old model. more specifically, firms that allow flexibility and have expanded their ability to hire remote employees will make great strides, not just in the retention of their own workforce but also will have a huge competitive edge over firms that are still living by the old model…
• roman kepczyk, right networks
  two key areas will be remote work and advisory services: remote work – flexible work arrangements and the use of video collaboration tools are here to stay… and with remote audit, many firms are realizing benefits for both the client and the firm…

37 key data points for firms of all sizes

1. income per equity partner
2. fee growth: including mergers
3. fee growth: excluding mergers
4. fee growth projected
5. fees per equity partner
6. fees per professional
7. fees per person
8. realization
9. average equity partner billing rate
10. overall net firm billing rate
11. average equity partner charge hours
12. average staff charge hours
13. staff to equity partner ratio
14. admin to total headcount percentage
15. professional staff turnover
16. utilization rate
17. months of a/r + wip
18. staff salaries/benefits as % of fees
19. overhead expenses per person
20. assurance services as a share of total fees
21. the average fee per 1040 return
22. percentage of firms offering investment advisory
23. formal written marketing plans
24. offer virtual (remote) work
25. typical new partner buy-in
26. non-equity partner position at firms
27. male/female professional staff breakdown
28. percentage of female partners
29. expected acquisition in 3 years
30. the average age of partners
31. percentage of partners over age 50/60
32. comp committee for allocating ptr income
33. the formula used for allocating partner income
34. closed compensation system – % usage
35. buyout method – multiple of compensation
36. the average valuation of goodwill
37. percentage of firms making partner buyout payments

profile of firms

293 firms participated in this year’s survey. the breakdown of those firms is as follows:

• 53 firms with annual net fees in excess of $20
• 70 firms with annual net fees of $10–20
• 98 firms with annual net fees of $5–10
• 56 firms with annual net fees of $2–5
• 16 firms with annual net fees under $2

87% of the firms in our 2022 survey also participated in the 2021 survey.

in terms of market size (metropolitan population of the county in which the firm resides, plus all collar counties), the firms represent the following:

• 167 firms were from very large cities with population in excess of two million such as chicago, new york, atlanta, etc.
• 37 firms were from other large cities with populations between one and two
• 54 firms were from markets ranging in population between 250,000 and one
• 35 firms were from markets of under 250,000.

in regard to geographic dispersion, surveyed firms came from the following areas:

• 83 firms were from midwestern states (great lakes, dakotas down to kansas).
• 56 firms were from northeastern states (new england down to pennsylvania).
• 102 firms were from southern states (kentucky, delaware, and maryland down to florida, as far west as oklahoma and texas).
• 52 firms were from western states (colorado, new mexico, wyoming, montana, and all states west).

elite firm analysis

many firms tell us that this is one of their favorite sections of our survey.if your firm is serious about being a top firm, you need to know what to shoot for – how the elite firms perform.

our criterion for the elite is simple. we declare all firms with income per partner (ipp) over $500,000 as “elite.” one-hundred-twelve firms cleared this hurdle in the 2020 survey. we have added some additional analysis by looking at the key metrics across firms with ipp over $600,000 as well.

some key observations of the difference between elite firms and mainstream firms:

• the average ipp of all 112 elite firms at $798,000 is nearly $292,000 more than the mainstream average. the ipp of the 78 firms with ipp over $600,000 averaged an impressive $909,000.
• you will note in our analysis of certain statistics and their correlation with income per partner that leverage is one of the most important driving factors. leverage can be measured in different ways:
  • the staff-to-partner ratio of the elite firms is 8.4 vs. the mainstream average of 4.
  • the net fees per equity partner of the elite firms is $2.4 million vs. the mainstream average of $1.7 million.
  • the fees per person of the elite firms is $220,000 vs. the mainstream average of $189,000.
• elite firms’ partner billing rate of $382 is much higher (13%) than the mainstream average of $339.

as we show in the correlation between key statistics and profitability, the drivers of income per partner areleverage and rates.

the methodology
by cpas, for cpas

the rosenberg survey team uses several quality control techniques that make our survey what accounting today has called “the generally accepted barometer for practice management for mid-sized cpa firms.”

1. wecompute all ratios. for example, we do not ask firms to list fees per partner. instead, we ask them to give us their firm’s annual fees and the total number of partners. we compute the ratio, thereby ensuring that the computation is made accurately.
2. the rosenberg survey team consists of charles hylan and carol stano:both are former practicing cpas.equally important, hylan is a nationally known consultant to the cpa industry. his familiarity with cpa firm operations is put to good use in reviewing input data. each team member contributes to the review and counter-review effort required to publish an accurate survey. when we see an error or something that looks strange, we contact the firm, notify them of the issue, and get the situation clarified, corrected, and resolved. no data is entered into our survey if it does not look right.

4. our survey gives breakdowns of various metrics by the size of firm and size of the this enables firms to identify a segment in our survey that most closely parallels them. hence, the comparisons are more relevant.
5. we make a major effort to get as many repeat participants in our survey as possible. we contact firms who were in our survey the previous year and do everything in our power to get them to participate again. we are proud of the high repeat rate we achieve year after year.

the common thread is that our survey is prepared by experienced cpa firm consultants who are cpas themselves and who have consulted with hundreds of firms for more than 30 years. we do not hire clerical workers to input data. we do not outsource the tabulation of the survey.we do everything ourselves.

when we are done, we know the survey is accurate, and so do you!