[IMGCAP(1)]New regulatory requirements, expanded service offerings and increasing fees have improved sales and margins for accounting professionals.
Accountants and tax preparers have historically performed well, posting top sales growth and profit margins among other professional service industries. Now, these same firms seem to be benefactors of new laws that have sent businesses and individuals seeking help to comply with requirements specified in the Affordable Care Act and other regulations.
New data from Sageworks, a financial information company, show that sales for the accounting, tax preparation, bookkeeping and payroll services industry (NAICS 5412) have increased by 8.8 percent on average in the last 12 months. That’s stronger than the 6.9 percent average increase in sales recorded during the comparable period a year earlier, according to Sageworks’ financial statement analysis.
The bottom line is also benefiting. Net profit margins for accounting professionals overall have improved for three straight years and are among the strongest margins of all industries. For the 12 months ended Dec. 30, accounting, tax preparation, bookkeeping and payroll services firms generated nearly 18 cents of profit for every dollar in sales. Altogether, profit margins have improved steadily from about 15 percent in the 12 months ended Dec. 30, 2011.
New Regulatory Requirements
Kevin Abbas, an analyst at Sageworks, suggests, “Increased regulatory pressures on businesses, such as the Affordable Care Act, have increased the demand for all accounting services in order to ensure compliance.”
Under the Affordable Care Act, also known as Obamacare, taxpayers are required for the first time ever to report their health insurance coverage. While the IRS says most taxpayers will simply have to check a new box on their tax forms to comply with the ACA, others who utilize tax credits, claim exemptions or make payments in lieu of coverage may need to seek help to figure out the changes.
Shown Sageworks’ data on sales and profitability trends, a spokeswoman for the National Association of Tax Professionals said the group had no official information on why tax preparers and accountants are seeing stronger sales and profit margins. “Anecdotally we assume it’s due to the complexities and requirements under the Affordable Care Act, FATCA [Foreign Account Tax Compliance] rules, and the new repair v. capitalization regulations,” the spokeswoman said by email.
The association’s latest survey of tax professionals found that 43 percent of respondents are preparing more tax returns than two years ago. Forty-six percent reported no change in the number, while only 11 percent said they are preparing fewer returns than two years ago. Paid tax preparers helped with more than half of the tax returns filed last year, according to the IRS.
Accountants Expanding Service Offerings
Abbas noted that accounting firms in recent years have also recognized a need to expand their service offerings from tax and audit work alone to advisory-oriented services such as business performance improvement and business valuations. “Consulting, advisory and outsourced CFO work are all ways which traditional accounting firms can and have been able to open new revenue streams in order to continue to sustain their growth rates,” Abbas said.
Sageworks analyst Jenna Weaver added, “It’s important to remember that sales growth has two contributing factors—the price that is being charged by the accountant/bookkeeper/etc., as well as the volume of customers that are using these services.”
Fees on the Rise
Another factor that may be aiding financial performance? According to recent surveys of accountants and others in the industry, fees are generally on the rise.
The National Society of Accountants recently reported higher average fees for preparing several types of tax forms. Fees for preparing an itemized Form 1040 with a Schedule A and a state tax return increased nearly 5 percent to an average of $273 from last year, and the fee is up 11 percent from two years ago, the society said. Fees for forms typically filed for partnerships, corporations, S corporations and tax exempt organizations have also increased. A few fees—notably for the Schedule C used by businesses with Form 1040 and the Schedule D for reporting capital gains and losses —have actually decreased from last year.
Audit fees, too, have increased, according to a recent survey by the Financial Executives Research Foundation. Audit fees in 2013 rose 4.5 percent, 3.7 percent and 1.5 percent for public, private and non-profit companies, the foundation said in October.
Abbas noted the specialized knowledge required for these professionals enables them to demand higher prices, and the relatively low overhead tied to operating the firms also contributes to the higher margins.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.
Mary Ellen Biery is a research specialist for Sageworks, a financial information company that provides financial analysis and industry benchmarking solutions to accounting firms.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access