Benchmarking is not Just for Clients

Smart Consultants Use Benchmarks to Add Insight and Increase Profits

Business valuation professionals constantly use benchmarking tools to evaluate businesses that we determine values for—but we aren’t always as diligent in using benchmarking tools to evaluate and to manage our own consulting businesses. Dave Cooper explains why this should be a priority.

Mark Rosenberg, CPA, a nationally known consultant, author and speaker on CPA firm management says that most CPA firm owners operate in a cocoon.  A most common interview question posed by Mr. Rosenberg to his clients is, “Do you feel your firm’s billing rates are high, low, or just where they should be?”  He reports that the most common answer CPA firm owners give him is “high.”  When presented with actual information about competitors’ rates obtained from a survey, most are surprised to learn that their rates are below those of competitors.   Changing billing rates to match competition can directly increase bottom line profits for a firm without a loss of clients.  This is just one example of how benchmarking can increase profits.  For more insight from Mr. Rosenberg on this subject see his full article “How Benchmarking Increases Profits.”

Many NACVA members see the services offered by their specialty valuation or litigation support practices as being substantially different from the typical services offered by CPA firms and, therefore, do not believe CPA firm benchmarking data to be useful.  It is true that most CPA firms provide traditional tax preparation and financial statement preparation services that are not provided by a specialty business valuation or litigation support firm.  However, a large number CPA firms in the United States, including most NACVA members, provide business valuation and litigation support services to clients as just one of many value-added consulting services provided by owners of the CPA firms. 

Traditional CPA firm owners are the largest group of competitors for CPA specialty valuation and litigation support practices.  My large regional CPA firm used multiple sources of CPA firm benchmarking data to manage our firm, including a business valuation/litigation support division.  Today, as a specialty firm with only me to manage, I use the same CPA firm benchmarking data to manage my practice.

The metrics used for evaluating and comparing CPA firms are the same metrics used for valuing and comparing law firms and other service provider firms (including specialized business valuation and litigation support practices):  annual charge hours (H) x billing rates (BR) x realization rates (RR) = annual billings (B) x the margin rate ((salaries to nonprofessional staff + other overhead)/total firm billings) (MR) = profits per professional (PPP) x Leverage (the number of professionals per owner) = profits per owner (PPO).

There are two readily available sources of CPA firm benchmarking data that should be considered: 1) the PCPS/TSCPA National MAP Survey and 2) the Rosenberg Survey.  Both have enough participants to provide statistically valid comparable data.

[pullquote]”When utilizing any benchmarking database, it is important to use the data properly.”[/pullquote]

The PCPS/TSCPA National MAP Survey is available to participants in the survey for free.  PCPS members of the AICPA, who are not participants, can get a Regional/Firm Size Comprehensive copy of the survey for free and a copy of the National Summary for $200.  Members of the Texas Society of CPAs (TSCPA), who are not participants, can get a State Comprehensive copy of the survey for free. 

Members of any other State’s society, who are not participants, can get a State Comprehensive copy of the survey for free and a copy of the National Summary for $300.  If you are a member of the AICPA, membership in PSPS costs only $35 per CPA in the firm up to a maximum of $700 per year per firm.  Membership in the PCPS also provides its members other practice management articles and discounts on AICPA practice management materials.  In my humble opinion, PCPS is a good cost/benefit value.  The 2012 survey is currently being conducted.  You can access this survey here.

The Rosenberg Survey is available for $350 to participants.  The 2012 survey is now being conducted on line.  This survey is highly recommended by Accounting Today, a nationally known web newsletter for CPAs.  You can access this survey here.

When utilizing any benchmarking database, it is important to use the data properly.  Marc Rosenberg has another article that is a useful guide to using benchmarking data.  See his article on that subject, “The Ten Biggest Mistakes CPA Firms Make in Reading and Compiling MAP Statistics.”

David M. Cooper, CPA, CVA, was an owner of a three-office CPA firm in Idaho, employing close to 90 people. He was with the CPA firm for 36 years and served as its Managing Member for 20 years. In 2009, Dave sold his interest in the CPA firm and now consults with private businesses helping to develop strategic business operating and transition plans, to build and capture intangible value, and to establish demand-driven markets for their private business equity following his True Corporate Model™ concept.  For more information, visit www.davecooper.com, write to dave@davecooper.com, or call (208) 899-4666.