Mid-sized firms top the returns

MID-SIZED accounting firms with between three and nine partners have outpaced their larger rivals in the profitability stakes, a new industry survey has found.

Firms with three to four partners were the most profitable with an operating profit margin of 25.3 per cent, according to the Australian Bureau of Statistics.

By comparison, big firms with 20 or more partners had a much lower operating profit margin of 14.3 per cent.

The mid-sized firms also achieved higher profits per employee than their larger counterparts.

The survey found there were 9,860 accounting firms in Australia in 2001-02, employing 46,474 practicing accountants and 34,653 other staff.

Two thirds of all accounting firms were sole proprietor businesses and a further 20 per cent had just two partners or principals.

The survey revealed major differences in the employment profile and income mix of accounting firms based on their size.

In the large firms, with 20 or more principals, practicing accountants com-prised nearly 70 per cent of the total staff.

This was substantially higher than the proportion at smaller firms.

The large firms also generated substantially more income, with $152,500 of income per employee (the industry average was $95,000) and $215,300 of income per practicing accountant (the average was $162,600).

They also achieved an operating profit before tax per partner of $260,000, which was substantially higher than for all other firms.

However, as outlined above, they did not rank so well in terms of profit per employee or profit margin at a firm level.

In terms of income sources, small firms (with one to four partners) relied on business and personal tax work for about three quarters of their total income.

Mid-sized firms (with five to 19 partners) obtained about 60 per cent of their income from tax work, with other sources being auditing and assurance, management and business consulting and insolvency work.

The major income source for large firms (with 20 or more partners) was auditing and assurance, which accounted for 32 per cent of their total income.

Other major income sources were business taxation (23 per cent), management and business consulting (18 per cent) and insolvency (9 per cent).

Personal accounting and taxation services accounted for just 6 per cent of income of the large firms.