The Five Big Trends Pinching CPA Profits

‘Dealing with the recession has not been pleasant or easy.’

Steve Erickson
www.SteveEricksonLLC.com

The “Great Recession” has reduced the spending of countless millions that has a negative impact on the clients we serve. As a result, our revenues have been relatively flat or decreasing, while our costs have continued to rise. This trend will have to be reversed if we are to remain viable and able to serve our clients successfully.

Here are some of the major trends:

1. Pricing has moved substantially from a cost-plus model, in which a multiple of a person’s hourly salary was charged for services to a fixed fee, for many of the services we provide at a time when regulatory agencies are imposing ever increasing requirements and standards. As a result, our realization has decreased on many engagements due to budget overruns that cannot be billed to our clients. Since our clients are also experiencing the downturn in the economy many have requested fee decreases from us.
2. Competition for off-peak seasonal work has become extremely intense as firms vie for those few engagements where work can be done over the summer and fall months to keep their staff busy which has resulted in net realized fees that are extremely low during this time of the year. Staff utilization rates continue to be a concern within the entire profession due to the seasonality of our work and our inability to keep everyone fully utilized during the June to December time period.
3. Employee costs and benefits have increased over the years and now in many firms exceed 50 percent of net revenues which is an historic high. As a result of the down economy and client fee pressures we have been very limited in our ability to give pay increases to our employees for several years and in some cases we have had to adjust our staffing levels and salaries. Dealing with the effects of the recession has not been pleasant or easy. Our objective has been to keep as many people working as possible.
4. Our need for technology has continued to increase requiring substantial investment by the partners of the firm not only for equipment but also software, training and the loss of efficiency while employees are learning how to apply the new technology. Software vendors continue to look for ways to increase their revenues from their software which has put further pressure on our cost structures.
5. The aging demographics of our profession and our society. Baby Boomers represent approximately 25 percent of our population and they are just now starting to retire. This is having a direct impact on the services required by clients and our ability to provide those services as many CPAs, 50 percent of which are baby boomers, begin to retire. The resulting “brain drain” is concerning as we want to give our clients the very best advice and service possible while creating opportunities for everyone to grow professionally.

via AICPA Insider

Find more Steve Erickson here.

Posted on October 25, 2010