My firm does about 800 personal returns and 200 business returns and trusts each year. During the off season we service about 150 business clients with payroll, compilation reports, and reviews. We have 6 to 8 employees depending on the season, two of which are CPA’s. Three of us prepare 1040’s and business returns while one prepares only business returns.
This is pretty much the limit we can handle. We are not taking new clients right now. It’s a good position to be in but sometimes it feels bad to turn down new clients.
There are several other firms in our area with similar numbers and they are also accepting very few new clients. This means the market needs more accountants. That’s a great thing for anyone considering a career in accounting!
It’s important to note that the number of clients a small CPA firm can handle depends on their capacity and resources. The 80/20 rule indicates that most firms generate 80% of their revenues from 20% of their clients. This means that small firms may have to cull clients to focus on the ones generating the most revenue. However, this can be a difficult decision to make as smaller clients may still be valuable for future growth.
Defining a Small CPA Firm
When it comes to defining a small CPA firm, there are several factors to consider. Generally speaking, a small CPA firm is any practice with revenues under $3 million, including sole practitioners. However, the size of a firm’s client base can also be a determining factor in its classification as a small firm.
Here are some factors that can affect how many clients a small CPA firm has:
- The size of the firm: Larger firms will generally have more clients than small firms. This is because they have the resources to handle a larger volume of work. They can afford to employ more staff, have a bigger office space, and have a greater budget to invest in marketing.
- The type of clients: Small CPA firms may specialize in serving a particular niche, such as small businesses or individuals. This can impact the number of clients they have, as well as the types of services they offer.
- The location of the firm: A small CPA firm located in a rural area may have fewer clients than one located in a major city. This is because there may be fewer businesses and individuals in the area that require accounting services.
- The level of competition: Small CPA firms operating in a highly competitive market may need to work harder to attract and retain clients. This can impact the number of clients they have, as well as their profitability.
It’s important to note that the number of clients a small CPA firm has is not necessarily an indicator of its success. Some firms may choose to focus on serving a smaller number of high-value clients, while others may prefer to have a larger client base with lower fees. Ultimately, the success of a small CPA firm will depend on a variety of factors, including the quality of its services, its reputation, and its ability to adapt to changing market conditions.
Average Number of Clients for Small CPA Firms
Small CPA firms are a significant part of the accounting industry, accounting for the majority of the 45,000 CPA firms in the United States. These firms typically have revenues under $3 million, including sole practitioners.
The number of clients a small CPA firm has can vary depending on factors such as the size of the firm, the services offered, and the target market. However, according to a survey by Accounting Today, the average number of clients for a small CPA firm is around 200-300 clients. Of course we don’t know what type of clients these are and how much revenue they contribute to the firm.
In most firms, 80% of the revenue is generated by 20% of their clients, while the other 80% of clients make up only 20% of the revenue. This means that small CPA firms need to evaluate their client base regularly and consider culling clients that are not profitable.
Small CPA firms also need to consider their fee structure to ensure they are generating enough revenue to cover their expenses and make a profit. According to the same survey by Accounting Today, the average net income for small CPA firms is around $200,000 to $300,000.
To increase their profits, small CPA firms can consider offering client advisory services (CAS). Clients who purchase advisory services spend 43% more than those who do not use advisory services. However, starting a CAS practice requires commitment and resources.
Factors Affecting the Number of Clients
Small CPA firms often have to juggle between client acquisition, retention, and profitability. The number of clients a small CPA firm can have is affected by several factors, including location, services offered, marketing, and networking.
Location
The location of a small CPA firm can have a significant impact on the number of clients it can have. Firms located in urban areas may have a larger pool of potential clients compared to those in rural areas. Additionally, firms located in areas with a high concentration of businesses or industries that require accounting services may have an advantage over those located in areas with fewer businesses.
Services Offered
Firms that offer a wide range of services, such as tax preparation, bookkeeping, and auditing, may attract more clients compared to those that offer only a few services. Additionally, firms that specialize in a particular industry or niche may have an advantage over those that offer general accounting services.
Marketing
Marketing is crucial for small CPA firms to attract new clients. Firms that invest in marketing efforts such as advertising, email campaigns, and direct mail may have an advantage over those that do not. Additionally, firms that have a strong online presence through their website and social media accounts may attract more clients.
Networking
Networking is also essential for small CPA firms to attract new clients. Firms that participate in networking events, such as industry conferences and trade shows, may have an advantage over those that do not. Additionally, firms that have established relationships with other professionals, such as lawyers and bankers, may receive referrals, which can lead to new clients.
Strategies for Growing a Small CPA Firm
Practice Development
Growing a small CPA firm can be challenging, but with the right strategies in place, it can be done successfully. One of the most important strategies is practice development. This involves identifying and developing new services that can be offered to clients, as well as finding new clients to offer these services to.
To develop your practice, you can consider the following:
- Conduct market research to identify areas where there is a high demand for accounting services.
- Offer specialized services that are not commonly offered by other firms.
- Invest in marketing and advertising to increase your visibility and attract new clients.
- Develop a strong online presence through social media and search engine optimization.
- Partner with other firms to offer joint services and expand your reach.
By focusing on practice development, you can increase your revenue and attract new clients, which can help your firm grow and thrive.
Talent Acquisition
Another important strategy for growing a small CPA firm is talent acquisition. Hiring the right employees can help you provide better services to your clients, which can lead to increased revenue and growth.
To attract and retain top talent, you can consider the following:
- Offer competitive salaries and benefits packages.
- Provide opportunities for professional development and advancement.
- Create a positive work environment that fosters collaboration and teamwork.
- Use technology to streamline processes and improve efficiency.
- Offer flexible work arrangements to attract a wider pool of candidates.
By investing in talent acquisition, you can build a strong team that can help your firm grow and succeed.
Industry Trends and Insights
Rosenberg Survey
According to the Rosenberg Survey, the average small CPA firm has around 75 clients. However, this number can vary widely depending on the size of the firm and the industries it serves. For example, larger firms may have more clients, while firms that specialize in niche industries may have fewer clients but higher revenue per client.
Revenue Growth
Revenue growth is an important metric for small CPA firms. In order to grow revenue, firms must attract new clients and retain existing ones. This can be challenging in a competitive market, but there are strategies that firms can use to differentiate themselves from their competitors. For example, offering specialized services or targeting specific industries can help firms stand out and attract new clients.
Profitability
Profitability is another important metric for small CPA firms. In order to be profitable, firms must manage their costs effectively and ensure that they are charging competitive rates for their services. In addition, firms must provide high-quality service to their clients in order to retain them and generate repeat business. This can be challenging, but it is essential for long-term success in the industry.
