Behind the numbers

The profession’s first ever national practice management survey will provide the latest information to members. The survey is already making an impact

By Ken Mark

“Comparisons are odious,” wrote dramatist Christopher Marlowe, a contemporary of William Shakespeare. But in the 21st century that’s no longer true, especially when comparisons enter the stage in the form of how accounting firms are managed. The CA profession hasreleased a survey that contains benchmark figures gathered from 1,082 countrywide CA firm offices segmented by title and position, firm size and region. The survey pro-vides a valuable national numerical snapshot of how practitioners organize their offices across the country.

The 2005 Managing a Public Practice Survey, Part 1: Billing Rates, Compensation andBenefits (MAPP) is a “news you can use” survey that provides practitioners with comparative figures based on local and regional rates and practices they can use to improve their firms’ performance. It is different because it charts data broken down by province and city as well as summarized into national aggregates. Since in the eyes of most CA firms all economies are local, these figures serve as benchmarks and guidelines for billing and other policy decisions that affect the prosperity of their practices.This is the first practice management survey conducted nationally. “The CSE’s Member Relations Task Force members collectively agreed that a national survey would provide clear and comparable information on how practices are managed across the various regions in Canada,” says Cairine Wilson, vice-president of member services for the CICA. “The survey’s findings effectively complement previous regional research initiatives and will help participating practitioners make better business decisions as results have been made available to them.”

The survey provides a first-ever national snapshot of small and medium-sized auditing practices: 52% of the respondents are sole practitioners and 81% of responding offices have three or fewer partners.

The survey is already making an impact. “We look upon its billing rate charts for guidance,” says Dan Little, partner, Hayes Stewart Little Co. in Duncan, BC, on Vancouver Island. It has six partners and 40 to 45 employees. “After comparing the numbers with what we charge, we have to consider making some adjustments. If our rates are too low, we might start thinking about raising them. Or if they are higher, we might consider holding the line or think about increasing them more slowly in future.”

That approach is echoed on the other side of the country. “We’ve looked at the survey findings together with other members of [the Atlantic Canada Group] as a reference point,” says Susan McIsaac, sole practitioner at SJ McIsaac Chartered Accountants, in Amherst, NS.
“Before, I would talk to three or four other CAs in the area to find out what they are charging. But the new survey numbers related to Atlantic Canada [give us] something broader to work with.”

The survey was e-mailed in November 2005 to 10,000 partners and sole practi-tioners in more than 6,000 offices. Only one response was accepted per office, and the 1,082 responses represent a response rate of 18.7% — somewhat lower than the 37% rate (17,982 respondents) from the better-known 2005 CA Profession Compensation Survey.

“We were satisfied with the response rate, but hope that it will increase in the future,” says John Tabone, CICA’s manager of innovation and survey report co-author. “Compared with other surveys, this survey was a lot more demanding, requiring up to a couple of hours to track down the relevant financial records and about half an hour to input the data. ”

The Member Relations Task Force is still evaluating the feedback from its first national practice survey. “We are considering doing them every two years,” says Wilson. “And as an incentive to boost participation, we will continue to offer a copy of the survey results only to firms that complete the survey and it will not be sold to those that did not participate.”

“We will be conducting a survey to gather additional feedback to ensure that the survey is providing the most value to firms,” adds Tabone. “In addition to determining the appropriate frequency, we will be seeking input to confirm that we are asking the best questions.”

Some of the MAPP survey findings confirm what many practitioners have long suspected — size matters. It concludes that average or mean partner billing rates are directly correlated to the number of staff at the firm, i.e., the larger the staff, the higher the billing rate. In fact, partners in firms with more than 35 full-time equivalent employees enjoy billing rates twice that of sole practitioners who have no additional staff.

Similarly, billing rates for offices with four or more partners are 22% higher than those with two or three partners.

Geography plays a huge role in determining such rates as well. The more prosperous the province and, generally speaking, the larger the city, the higher the rate. For example, the highest mean billing hourly rates ($183) occur in Ontario with British Columbia/Yukon close behind at $174 and Alberta/Northwest Territories at $171. Strangely, Quebec at $125 is slightly lower than in Atlantic Canada at $126. In comparison, the national average for the 1,071 firms reporting was $164.

In terms of cities, it is no surprise that Toronto tops the list at $211. However, the others in the top five might raise a few eyebrows. These include London, Ont., ($194), Vancouver ($189), Victoria ($181) and Ottawa ($180). Separately, in the battle of Alberta, Edmonton ($174) edged out Calgary ($166). A possible explanation for London’s high rate, according to Tabone, is that with the lower number of responses from London as compared with other large cities, the results may have been pulled up by a few firms that charge rates well above average.

The same trend is evident in mean billing rates for CA staff. For those who achieved their CA in 2001 or earlier, Toronto led at $178 tied with Vancouver followed by Calgary ($167), London ($165), Kitchener/Waterloo/Cambridge, Ont., ($160) and Winnipeg ($156). For more recent CAs i.e., post 2002, British Columbia billing rates were higher than the rest of Canada.

“Go West” is a valuable tip for recent graduates as red-hot local economies there have boosted CA salaries. Currently the highest salaries for newer staff members (post-2002 CAs) are in Alberta and British Columbia, followed by Ontario.

But for more experienced CAs (pre-2001), Ontario leads the salary parade at $83,000 followed by Alberta/Northwest Territories, British Columbia/Yukon at $77,000 and Manitoba at $74,000. The national mean is $76,000.

Typically, survey results for staff salaries help firms confirm their gut feelings about what the local market is paying. “We try to pay a little more,” says Alain LeFebvre, CA, partner with Chan Foucher LeFebvre LLP in Prince George, BC, “to reward them for loyalty and the quality of their work. I believe it makes for a happier and more satisfied workplace, which ultimately pays off by increasing customer loyalty.
“We understand the extra cost and effort required to bring in new clients rather than serving existing ones. This is one way we can extend the lifetime value of our practice. Ultimately, the salaries you pay are one of the main components of how much your firm charges.”

The continuing vibrancy of the economies in Western Canada actively fuels generous annual salary increases there. The MAPP survey divided this category into two sections: historic — average increase over the previous year, i.e., 2005 compared with 2004, for which the national average was 5%. However, for Calgary it was 9% and Edmonton, 10%. The second section is the future — the expected increase for next year compared with current year, i.e., 2006 versus 2005. The national average was again 5%. However, 2006 leading increases will be in Calgary and Edmonton with a forecasted 9% bump.

Intercity comparisons can be helpful. “We have some Calgary clients,” says Michael Epp, partner with Hawkings Epp Dumont LLP in Edmonton (which also has an office in Stony Plain, Alta., and has 16 accounting professionals, including seven partners, and a total staff complement of approximately 40-plus people). From personal knowledge, “we knew Calgary rates tend to be higher. But in relation to our Calgary work, we did not increase our rates, since we calculated that even with the extra expense of travel and hotels, we were still competitive.”

In terms of total annual partner hours, the winner was once again from Western Canada. But this time it was Saskatchewan with a mean of 2,100 hours or 17.5% above the national benchmark of 1,787 hours. It was also the leader in chargeable hours with 1,395 hours, or 19.5% higher than the national average of 1,167 hours. Perhaps it has something to do with the prairie air.

The survey concluded that across the country, the typical workweek was 35 to 37 hours. But during the busy season, it ranges between 44 hours in Quebec to 51 hours in Saskatchewan. “We found the national chart for total staff hours to be useful,” says LeFebvre. “Now we have comfort as partners that what we are paying” is in line with the rest of the country.

These findings also highlight, to smaller firms, areas of possible future concerns. “We looked closely at the national aggregate partner and staff hours,” says McIsaac. “So far, we have not set actual targets for individuals. But those national figures could be a start.
“We’re finding that as we grow, we must start putting in place formal business plans and procedures. Before, when we were very small, it was easy for me to have a good idea of how busy people were and what they were doing. That will change as we get bigger.”

Although national figures are not necessarily relevant for developing a competitive local strategy, they provide some reassurance that individual firms are indeed on the right track. “We don’t calculate total hours for partners,” says Little. “We were pleased, however, to find ourselves within the regional range for chargeable hours. We set a chargeable hour budget but not one for nonchargeable hours.”

The differences among practices across the country depend largely on local conditions, economic conditions and lifestyle. In Western Canada, the overriding concern is dealing with the special demands of an exuberant economy. Although many practitioners in other parts of the country are looking to attract new clients, in Western Canada, there is a greater concern for coping successfully with sudden and unexpected prosperity.

For example, Epp is more interested in a stable practice that serves clients for the long term. “The last time the oil patch was this active was in the late 1970s,” he says. “Then in the early 1980s, the federal government introduced the National Energy Policy, which was a contributing factor to the sharp drop in activity. Since 1986 I’ve personally seen a few boom-bust cycles.”

Similarly, the mainland British Columbia economy is almost as robust, driven once again by the resource sector. Despite the softwood lumber tariff dispute with the US and the rise in the Canadian dollar, the mills near Prince George in the past two years have been working flat out to get lumber to market.

“However, mill activity has slackened over the summer,” says LeFebvre. “But we’re still at the upper end of the business cycle. [I] don’t see the economy going into a recession.”

On Vancouver Island, the economy is booming for different reasons. “Traditional industries such as forestry — softwood lumber, pulp and paper — agriculture and fishing are managing to stay afloat,” says Little. “Recently the island has enjoyed a large and constant in-migration of people, many of them retirees from Alberta and the rest of Canada. Now the main driver of economic growth is the construction industry.”

When market demand is not the issue, labour supply likely is. As for the top issues facing firms, retaining quality clients and attracting the type of clients they want ranked No. 1 and 3 respectively. No. 2 was keeping up with charges in accounting and auditing standards. Since only multi-staff firms were interviewed, interviewees chose other top-of-mind concerns, most notably those related to recruiting good staff.

“For our practice I would say that finding and retaining the right people is the key issue,” says Epp. “The clients are there, finding the right combination of staff to serve them is the challenge. In the current environment, the opportunity to serve is almost limitless yet the lack of resources to provide this service challenges us all.”

As much as Epp is keeping an eye on new hires coming in the front door, he is also paying close attention to those thinking of walking out the back door — to corporate positions. “It’s all about attracting the right people for public practice,” he says. “They need to have the right personality. Those who are seeking partnership have to be entrepreneurial and outgoing enough to be able to draw people to them so they can bring in clients. All staff should enjoy being exposed to a variety of tasks and challenges.”

Equally important, firms have to demonstrate commitment. “When new hires start working here,” says Epp. “we have to show them a true career path. I firmly believe new CAs can become partners faster at a local firm like ours than at a large national one.”

In British Columbia, lifestyle is a major recruiting attraction. The opportunity to work on Vancouver Island seems to have a magical effect on CAs, especially those who have reached a certain age and stage in their lives and careers. “Some who grew up here and left for school or a job are starting to return,” says Little. “But it’s not recent CA grads — it’s not uncommon that some of them want to join a national firm to ‘see the world.’ ”

“But once they reach say 35 and have a family and a mortgage, working here becomes more attractive. Recently, we had someone from a large Vancouver firm who realized it would be very difficult for him to own a home there. So he moved back here where house prices are affordable.”

According to André Paquin, managing partner at Verrier Paquin Hébert’s head office, recruiting — and retaining — qualified accountants is a challenge in Quebec’s Drummondville area. With a staff of about 20, the firm also has offices in Saint-Hyacinthe, Longueuil, Sorel, Trois-Rivières, Bécancour and Nicolet. “The demand for accountants is sky high,” says Paquin. “Even if we had 10 more employees at our various offices, there’d be no shortage of work for them.” Paquin refers to Drummondville as a training ground for accountants as most of the firm’s clients are small businesses from the manufacturing and retail sectors. In addition, Drummondville is conveniently located between Sherbrooke University and the Université du Québec in Trois-Rivières.

Nevertheless, Paquin acknowledges that half the accountants on staff move on after two years, either to pursue new professional opportunities or to work for one of the firm’s clients.

In Amherst, finding good employees is not the real problem. The deeper issue is training new students properly. “In the past, I tended to let new hires make mistakes and let them learn from them,” says McIsaac. “I recognized we had to find a better way to get new people up to speed faster.”

Consequently, she introduced an innovative solution — setting up the Atlantic Canada Group of Independent Accounting Firms Ltd. It is a formal network of 13 smaller, independent firms scattered across Atlantic Canada — one from Newfoundland just joined — that shares resources but not actual business related to their individual practices. The group has its own executive director to handle administration, enabling members to focus on their clients’ needs.

“It’s only been around for two years,” she says. “Already we have in place a better, more organized way to train new hires. We’ve discussed combining our purchasing power and have done so on a smaller scale.”

Although firms in smaller centres can’t offer the big salaries of a metropolis, they can provide a more viable work/life balance. Epp has adopted a flexible approach to help employees make their job a part of their life rather than vice-versa. “My view is find the right people and accommodate their needs,” he says. “So we have a number of people who work part time and for others we can adapt to some of their personal commitments such as caring for a young family.” The firm also permits employees to take winter holidays, provided they don’t conflict with the busy tax season.

Verrier Paquin Hébert offers flexible lifestyle and work choices to its employees. Because it has many female accountants, they are free to report for work between 8 and 9 in the morning, based on their personal needs. In addition, with the exception of the switchboard, the office closes at noon on Fridays from July to December and outings to concerts and sporting events are organized on a regular basis.

The firm pays gym membership fees for employees who want to stay in shape, and covers the tuition for new hires who enrol in a master’s program in taxation, provided they stay with the firm after they graduate. Some employees, however, have turned down this tempting offer. “We offered one fellow $25,000, but he refused because he didn’t want to feel tied down.”

CAs in mid-sized firms tend to have a reasonable workload, and this is an attraction for employees. “We very rarely require our employees to work long hours or at odd times,” says Vic Arya, partner in the Cambridge-Waterloo, Ont., office of Collins Barrow. It has seven partners and 40 employees. “We don’t work them as hard as major firms.”

Smaller firms also excel at providing interesting and satisfying assignments for staff members. “We pride ourselves on being flexible as a practice offering to our employees a wide range of challenging opportunities,” says Little, “with various clients having very broad needs. If staff members want to do things beyond audits, they can try their hand at different projects.”

The interviewed partners are all keenly aware of the necessity of nurturing the next generation of CAs in smaller centres. “In this part of the country,” says McIsaac, “one reason there is not a lot of competition is that often when sole practitioners retire, the practice often disappears because there is no one to take it over.”

The emerging litmus test for an acceptable quality of life is commute time. For most of the partners it was about 15 minutes. That’s how long it took for Little and Arya to drive, Epp to ride his motorcycle in the summer and McIsaac to walk, to their offices. However, at seven minutes, LeFebvre has the shortest commute.

For many partners, that number is becoming almost as meaningful as the money they earn, the amount they bill and the hours they work.

Ken Mark is a Toronto-based writer