THE

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Benchmarking CPA Firm Performance Presented
by Marc Rosenberg, CPA
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The Rosenberg Associates

• Marc Rosenberg, CPA, President
• 23 years consulting to CPA firms
• Consultant, author and speaker to CPAs
• 700 client firms from coast to coast
• Top 100 Most Influential People in Actg
• Profession Accounting Today
• - 7 consecutive years
• Named one of the most recommended
• CPA firm consultants by INSIDE Public Accounting

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Rosenberg is active with CPA firms

• Facilitate retreats
• Partner compensation retirement
• Succession planning
• Mergers
• Strategic planning
• Practice management reviews
• Partner relations and conflict
• Upward evaluation surveys

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The Rosenberg Associates

• The Rosenberg MAP Survey Accounting Today says
  its generally accepted as the barometer for CPA
  firm practice management.
• The Management Catalyst quarterly newsletter
  sent to 3,000 CPA firms nationwide, free of charge

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The Rosenberg Associates

• 1000 Skokie Blvd. Suite 555
• Wilmette, IL 60091
• Phone [phone]
• Fax [phone]
• marc_at_rosenbergassoc.com

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Definition FTEs(2000 hours is a normal year)

• FTE
• 1000 hours a year 0.5
• 1600 hours a year 0.8
• 2800 hours a year 1.0
• -one person can never gt 1.0 FTE)

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Other Definitions

• Partner income and IPP
• Total work hours
• Equity vs. non-equity partners
• Fees profits from separate entities
• Cash vs. accrual basis

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Benchmarking In Our World
Baseball hitter High School Grad Economy
Home runs Runs batted in Batting average On base pct SAT ACT GPA Activities Growth rate Inflation Dow Jones Unemployment
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Why CPA firms benchmarkTo Make More Money!

• To understand and analyze performance by having
  something to compare to
• To identify areas where things are going well
• To identify areas needing improvement

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The 3 steps of benchmarking

• Measuring
• Analyzing
• Changing

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Our Process

• Sweet spot 308 firms lt10M 117 firms gt 10M
• 84 repeat rate
• On-line input easy, short input form
• 3 CPAs review data
• 40 error rate we contact firms for better data
• We compute all ratios
• 40 page narrative analysis by Rosenberg
• Data sorts firm size, market size, geog. region
• Every participant gets a 1 page custom report
• Row-by-row data - ALL FIRMS over 100 metrics
• Release date Sept 10 earliest of all public
  surveys

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DemographicsFee Size of Firms

• 40 firms over 20 million in fees
• 77 firms 10 20 million in fees
• 243 firms 2 10 million in fees
• 42 firms under 2 million
• 23 firms solos
• 425 firms in all the most ever!

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2010 Rosenberg MAP Survey
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DemographicsPopulation Size of Market

• 198 firms population gt 2 million
• 70 firms population 1 to 2 million
• 98 firms population 250K to 1 million
• 59 firms under 250,000

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Actual 2009 Growth RatesMulti-Partner Firms
gt20M 10-20M 2-10M lt2M All
Overall growth rates 3.7 -0.3 1.5 -1.4 1.4

Ranges of growth rates
Over 7.5 23 12 20 11 17
5 to 7.5 22 8 10 9 11
2.5 to 4.9 3 10 14 14 12
0 to 2.4 7 21 19 18 18
Negative growth lt10 40 43 28 30 32
Negative growth gt10 5 6 9 18 9
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Definition of Partner

• An owner
• Only includes equity partners
• EXCLUDES non-equity partners

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Growth rate plummets Profits only off slightly
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Summary of 2009

• Tough year FLAT proved to be up
• 41 of all firms lost revenue
• No fee growth, but profits only down 3
• Cost monitoring and deferral, especially in IT
• Layoffs and furloughs
• Little or no staff raises
• Goodbye work-life balance hello glad to have
  a job
• First time in 15 years staff available
• Some hiring as marginals weeded out
• Pricing competition fee pressure
• Collection slowdown clients? BK
• Chargeability down

2010 Rosenberg MAP Survey
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Projected 2010 Growth RatesMulti-Partner Firms
gt20M 10-20M 2-10M lt2M All
Overall Projected 3.2 3.1 2.3 2.8 2.6

Ranges of growth rates
Over 7.5 13 12 13 25 14
5 to 7.5 18 27 22 23 23
2.5 to 4.9 28 21 17 7 18
0 to 2.4 31 27 28 20 27
Negative growth lt10 10 12 17 20 16
Negative growth gt10 0 1 3 5 2
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Outlook for 2010

• 2.6 growth recovery slow and guarded
• Marketing! Marketing! Marketing!
• Closer look at partner performance
  accountability
• Pricing pressure continues unprecedented
  low-balling
• Minimal staff raises
• Staff available 1st time in 15 years
• Regional firms very active in mergers, especially
  outside their traditional boundaries
• Addressing inefficiencies excesses
• Lean and mean
• Many dominant and/or founding MPs retiring
• Succession planning crisis hasnt gone away.

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Tactics and Strategiesfor Recession

• Marketing! Marketing! Marketing!
• Spend more time with existing clients
• Improve processes, efficiency
• Closer look at partner performance
  accountability
• Link partner comp to performance
• Keep fee increases minimal
• Watch WIP and receivables minimize risk
• Upgrade staff
• IT deferrals now being implemented
• Lean and mean
• New MPs leapfrogging a generation

2010 Rosenberg MAP Survey
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Top 10 Findings

• 10. Pct. female partners in MW NE a shocking
  11 elsewhere its 20.
• 9. New partner buy-ins creeping up now at 141K
  vs. 127K last year.
• 8. Partner billable hours down across the board.

2010 Rosenberg MAP Survey
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Top 10 Findings

• 7. Partners continue to age percent of partners
  over 50 now 59, up from 58 last year and up
  from 52 in 2005.
• 6. An amazing 87 firms or 27 of the firms in our
  survey DO NOT have a partner buyout plan.
• 5. CPA firms continue to see the light regarding
  partner compensation methods more compensation
  committeesfewer formulas.

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Top 10 Findings

• 4. Big jump up in use of non-equity partners 46
  this year vs. 38 last year.
• 3. Staff charge hours fell through the floor,
  averaging only 1,471, almost 50 hours a person
  lower than last year.
• 2. Despite a flat year caused by the recession,
  income per partner was only down 3. Firms
  trimmed staff and cut costs to preserve their
  profit level.

2010 Rosenberg MAP Survey
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Top 10 Findings

• 1. Last year, firms were saying flat is up.
  They got their wish.
• Revenues were up a scant 1.4.
• Worst year for growth in 2 decades
• 41 of all firms had revenue declines.
• 2010 is expected to slowly recover firms are
  projecting a 3 increase in revenues only 18 of
  firms are expecting further revenue declines.

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One thing to remember about MAP surveys

• The statistics are averages only.

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The Rosenberg MAP Survey
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Watch for MVP Slides
MVP

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Annual Billable Hours for Prostaff (Firms over 2
Million)
MVP
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Increase staff charge hrs by
MVP

1. Clarifying expectationsbudgets
2. Staff looks for work
3. Creating staff scheduling systems
4. Partners delegating
5. Partners keeping staff busy
6. Culture of recording ALL time
7. Change orders
8. Training and performance feedback
9. Daily timesheets

2010 Rosenberg Survey
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4 Year TrendsPartner Charge Hours
2009 2008 2007 2006
Over 20M 1,047 1,055 1,116
10-20M 1,099 1,115 1,155 1,149
2-10M 1,142 1,189 1,225 1,233
Under 2M 1,173 1,271 1,226 1,236
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Partner Charge Hours and Profitability(Over 2M
Group)
Ptr Charge Hrs Number of Firms IPP 2009 IPP 2008
gt1700 9 506,000 396,000
1600s 5 366,000 573,000
1500s 14 476,000 373,000
1400s 18 378,000 391,000
1300s 32 414,000 346,000
1200s 49 389,000 359,000
1100s 58 330,000 361,000
1000s 61 313,000 369,000
900s 58 322,000 341,000
lt900 58 332,000 368,000
Overall Avg 362 354,000 366,000
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Partner Charge Hours and Profitability(Over 10M
Group)
Ptr Charge Hrs Number of Firms IPP 2009 IPP 2008
1300-1500 14 471,000 471,000
1200s 13 455,000 455,000
1100s 24 426,000 426,000
1000s 23 420,000 420,000
lt1000 42 423,000 423,000
Overall Avg 116 435,000 472,000
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4 Year TrendsRealization
of hours worked on clients that are actually
billed
2009 2008 2007 2006
Over 20M 80.4 80.0 83.5 84.9
10-20M 82.8 84.0 83.5 84.9
2-10M 86.9 87.1 88.9 89.4
Under 2M 91.0 87.9 89.2 88.3
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How To Increase Realization

1. Game plan for reducing historical write-offs.
2. Monitor jobs too late if you wait until the end.
3. Change order mentality.
4. Staff never accepts a job w/o time budget.
5. Set fees aggressively look in eyes.
6. Advance payments, interim and prompt billing.
7. Cull through unprofitable clients.
8. Management challenges write-offs.
9. Staff drafts the bills.
10. World class service usually trumps high fees.

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4 Year TrendsPayments to RetireesPayments as a
of Fees
2009 2008 2007 2006
Over 20M 1.0 0.9 1.1 1.0
10-20M 1.2 1.4 1.1 1.0
2-10M 1.0 1.1 1.1 1.3
Under 2M 0.6 0.5 0.7 0.5

Over 20M 73 of firms making buyout payments 73 of firms making buyout payments 73 of firms making buyout payments 73 of firms making buyout payments
10-20M 69 69 69 69
2-10M 48 48 48 48
Under 2M 15 15 15 15
All Firms 51 51 51 51
2010 Rosenberg MAP Survey
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4 Year TrendsPercentage Female Partners
2009 2008 2007 2006
Over 20M 15.7 13.6 15.1 14.3
10-20M 16.4 17.0 15.1 14.3
2-10M 14.7 14.1 13.8 13.9
Under 2M 10.5 11.9 10.5 11.5
All firms 14.7 14.3 13.7 13.6

Midwest Northeast 11 11 11 11
West South 20 20 20 20
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The Power of Billing Rates
MVP
Upper 25 Partner Billing Rate Upper 25 Partner Billing Rate Middle 50 Middle 50 Lower 25 Lower 25
Population No. Of Firms Average Partner Billing Rate IPP Average Partner Billing Rate IPP Average Partner Billing Rate IPP
gt2M 184 399 464,241 302 365,500 253 322,362
1-2M 68 346 408,972 263 308,789 195 234,367
250K-1M 92 303 377,666 242 314,443 187 274,279
lt250K 57 288 346,918 215 255,549 154 253,674
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Billing rates in general

• Question Whats the single biggest problem in
  CPA firm profitability?
• Answer Wimpy billing rates

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Billing rates in general

• Question What do you want your clients to say
  about you?
• Answer Theyre expensive, but theyre good!

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Which statistics correlate the most with firm
profitability?
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How 10 MAP statisticsCorrelate to Income Per
Partner
MVP
Rank 2009 Rank 2008 Metric
1 1 Fees per partner Rates and leverage
2 2 Fees per person Rates and leverage
3 3 Ratio of professional staff to partner Rates and leverage
4 4 Partner billing rate Rates and leverage
5 9 Partner billable hours
6 6 Utilization percentage
7 7 Staff billable hours
8 8 Realization percentage
9 5 Total partner work hours
10 10 Ratio of admin to total personnel
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High fees per partner results from
MVP

1. Partners are account managers
2. Good staff to delegate TO
3. Good at bringing in business
4. Good mix of large small clients
5. Partners avoid admin like the plague
6. High standards-who makes partner
7. Aggressive billing rates
8. Low write-offs

2010 Rosenberg MAP Survey
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Elite Firms (54 firms with IPPgt500K)
Elite Firms 2009(08) 10-20M Firm Group Averages 2-10M Firm Group Averages
Net fees 14,081,000 14,056,000 5,119,000
Income per partner 632K (642K) 403,000 324,000
Staff to partner ratio 7.7 (7.5) 5.6 4.7
Partner charge hours 1,251 (1,181) 1,099 1,142
Staff charge hours 1,511 (1,548) 1,483 1,471
Partner billing rate 324 (329) 308 263
Fees per partner 1,886,000 1,319,000 1,042,000
Fees per person 186,000 162,000 151,000
Revenue growth-2009 2.6(11.7) -0.3 1.5
Rev. growth-proj 2010 2.8 3.1 2.3
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Bigger is Better
MVP

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Bigger firms
MVP

1. Develop strategic plans goals
2. Hire COOs and firm administrators
3. Get serious about training
4. Formalize their marketing
5. Specialize
6. Hold partners accountable for helping staff grow
7. Have staff scheduling systems

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Tax season compression holds back profitability.
of annual billable hours worked in tax season Average Staff Hours Income Per Partner
Highest 25 54 1,429 332,000
Middle 50 47 1,466 353,000
Lowest 25 39 1,504 387,000
All Firms 46 1,467 356,000
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Firms with higher billing rates have higher
write-offs, so they net the same as firms with
lower rates.

• Right?

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49
Firms with higher billing rates have higher
write-offs, so they net the same as firms with
lower rates.

• Right?

WRONG
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Yes. Firms with higher standard rates have
higher write-offs, but they still net more.
Quartile Standard Partner Rates Realization Net Realizable Rate
Upper 25 374 83.1 311
Mid 50 278 84.8 236
Lower 25 203 88.9 181
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Correlation of Staff-Partner Ratio To
Profitability
MVP
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Partner Compensation Systems
2 Ptrs 3-4 Ptrs 5-7 Ptrs 8-12 Ptrs 13 Ptrs 2009 Total 2008 Total
Comp Committee 5 10 25 49 73 32 29
Formula 20 41 38 28 14 31 33
Paper Pencil 0 3 5 1 3 3 3
Ownership Pct 5 7 4 3 2 4 5
MP Decides 18 11 11 12 3 11 8
Pay Equal 30 8 4 3 2 7 9
All Decide 22 20 13 4 3 12 13

Open 93 83 81 69 50 75
Closed 7 17 19 31 50 25
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Managing Partners Data
Annual Fees Annual Fees Annual Fees
Over 20M 10-20M 2-10M
Annual bill hrs-all partners 1,047 1,099 1,142
Annual bill hrs for MPs 398 723 995
of MPs with client base gt500K 53 85 88

Managing partner compensation
MP higher than or equal to highest paid partner 58 45 62
-MP up to 10 lower than highest paid partner 14 26 15
-MP more than 10 lower than highest paid ptr 28 29 23
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Partner Compensation

• Nothing more unequal than the equal treatment of
  unequal people.
• (Thomas Jefferson)
• Ratio of highest to lowest paid partner
• Over 20M group 4.4
• 10 - 20M group 2.6
• 2 - 10M group 2.0
• Under 2M group 1.4

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Partner Retirement Systems
2-4 Ptrs 5-7 Ptrs 8-12 Ptrs 13 Ptrs All -2009 2008
Multiple of comp 27 46 51 56 43 41
Book of business 17 11 4 2 10 13
Owner Pct. 31 19 14 16 21 21
AAV 15 14 22 16 16 17
Fixed 8 10 8 8 9 8
Equal 2 0 1 2 1 0
No provision 26 (44 firms) 25 (22 firms) 9 (6 firms) 20 (13 firms) 21 (85 firms) 22 (73 firms)
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Multiple Used To ValueInternal Partner Buyouts
2-4 Ptrs 5-7 Ptrs 8-12 Ptrs 13 Ptrs All Firms
gt100 6 4 3 12 6
100 20 20 21 26 21
90-99 4 1 4 7 4
75-89 34 34 34 17 32
50-74 25 28 29 24 26
lt50 11 13 9 14 11
Overall Valuation Percentages (as of Fees) Overall Valuation Percentages (as of Fees) Overall Valuation Percentages (as of Fees) Overall Valuation Percentages (as of Fees) Overall Valuation Percentages (as of Fees) Overall Valuation Percentages (as of Fees)
Over 20M 10-20M 2-10M Under 2M All Firms
2009 82.5 75.4 77.6 82.5 78.1
2008 76.6 76.6 79.6 83.3 79.1
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Do firms reduce retirement payments if clients
leave after the partner retires?

• Yes 19
• No 81
• yes
• Over 20M 5
• 10-20M 13
• 2-10M 22
• Under 2M 24

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New Partners

• Compensation
• gt20M 206,000
• gt10-20M 180,000
• 2-10M 139,000
• lt 2M 103,000
• Buy-in
• Very narrow band for all size firms
• Range 120,000 to 156,000
• Overall average 141,000

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The aging of CPA firm partners(For all
multi-partner firms)
Pct. of Partners Over Age 50 Pct. of Partners Over Age 50 Pct. of Partners Over Age 50 Pct. of Partners Over Age 50
gt20M 10-20M 2-10M lt2M All
2009 55.7 56.3 59.7 61.5 58.8
2008 52.6 55.5 59.5 58.5 58.0
2007 49.7 49.7 58.6 59.4 56.6
2006 50.0 50.0 54.7 55.7 53.9
2005 47.0 47.0 52.0 53.3 51.5
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Malpractice premiums

• 2009 -0.9
• 2008 No change
• 2007 0.7
• 2006 - 1.9
• 2005 4.3

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Mandatory Retirement

• Average retirement age is a solid 65 at all firm
  sizes

Size Range Pct With Mandatory Retirement
Over 20M group 82
10-20M group 75
2-10M group 50
Under 2M group 21
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Non-Equity Partners
MVP
gt20M gt 10-20M 2-10M lt 2M All
of firms with NE partners 68 74 60 10 46
Last year 69 58 33 5 38

1. Keep the bar high. Looking for PD leadership.
2. Partner in training.
3. Client retention technique.
4. Treated like a partner but legally, a W-2.
5. No buy-in, buyout, partner agreement, etc.,
   EXCEPT
6. Sign non-solicitation agreement.

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Results by Size Grouping
gt20M 10-20M 2-10M lt2M
Income per partner 448,277 402,592 323,523 214,220
Fees per partner 1,802,154 1,319,323 1,042,199 574,131
Fees per person 167,815 161,551 150,973 139,749
Billable hrs-partners 1,047 1,099 1,142 1,173
Billable hrs-staff 1,408 1,483 1,471 1,511
Realization 80.4 82.8 86.9 91.0
Partner billing rate 356 308 263 217
Ratio staff to ptr 7.9 5.6 4.7 2.4
Admin to total pct 19.3 19.7 19.0 19.6
Overhead exp/person 41,184 35,067 35,950 35,665
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Results by Size Grouping
gt20M 10-20M 2-10M lt2M
Written performance review for partners 67.5 55.8 35.0 11.9
Upward evals of ptrs 62.5 53.2 37.4 22.0
female partners 15.7 16.4 14.7 10.5
casual dress code 80.0 75.3 64.0 57.1
Pct of partners gt50 55.7 56.3 59.7 61.5
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Results by Size of Market
POPULATION OF METRO MARKET POPULATION OF METRO MARKET POPULATION OF METRO MARKET POPULATION OF METRO MARKET
Over 2M 1-2M 250K-1M lt250K
Income per partner 371,608 310,112 323,769 273,634
Fees per partner 1,259,210 1,015,476 1,061,085 833,920
Fees per person 170,201 144,974 140,402 131,985
Billable hrs-partners 1,113 1,104 1,158 1,236
Billable hrs-staff 1,464 1,449 1,509 1,475
Realization 85.8 84.4 86.4 89.8
Partner billing rate 309 264 244 216
Ratio staff to ptr 5.1 4.7 5.2 4.3
Admin to total pct 19.6 18.6 19.7 17.9
Overhead exp/person 41,479 33,025 31,863 31,974
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Results by Geographic Region
GEOGRAPHIC REGION GEOGRAPHIC REGION GEOGRAPHIC REGION GEOGRAPHIC REGION
Midwest Northeast South West
Income per partner 305,740 364,620 352,223 339,012
Fees per partner 924,742 1,204,509 1,197,602 1,216,924
Fees per person 154,038 162,812 143,892 158,053
Billable hrs-partners 1,196 1,159 1,136 1,035
Billable hrs-staff 1,484 1,500 1,474 1,432
Realization 88.0 82.5 86.1 87.5
Partner billing rate 250 298 268 297
Ratio staff to ptr 4.1 5.0 5.8 5.0
Admin to total pct 19.1 19.2 19.1 19.6
Overhead exp/person 37,132 36,741 33,580 39,486
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Top Strategic Directions
MVP

• More emphasis-marketing and PD
• More corporate, less partnership style of
  governance
• Tenacious commitment..great place to work
• Upgrade staff by tapping into available people
• Leadership development programs
• More comp committeesaway from formulas
• Mergers sizzling
• Raising bar on equity ptr promotion more NE ptrs
• Renewed focus on fundamental practices/workflow
• More partner accountability
• New MPs leapfrogging a generation

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ORDER A COPY OF THE 12TH ANNUAL ROSENBERG
SURVEY OF CPA FIRM STATISTICS
GO TO WWW.ROSENBERGSURVEY.COM
69
QUESTIONS?
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2010 Rosenberg MAP Survey