How Does Your Firm Compare?

By Charles P. Zlatkovich and Karl B. Putnam

In Brief

Census Statistics Reveal “Old Economy” Concentration

New census data recognize CPA firms as a distinct business category and permit CPAs to identify general competitive information by geographic region. This information is available for 1997 on the U.S. Census Bureau website. The authors have extracted information about the size and location of CPA firms that allows practitioners to identify general trends in their geographic concentration, size, and economic performance.

In December 1999, the U.S. Census Bureau provided detailed information on CPA firms for the first time. Statistics for CPA firms in each state, the District of Columbia, and nationwide were published in 52 reports as part of the 1997 Economic Census program. The census indicated that a total of 53,651 CPA firm offices nationwide employed 389,340 people, generated total revenues of over $38.6 billion, and supported an annual payroll of over $15.1 billion. The individual reports provide detailed information for each state and metropolitan area and for many larger counties and cities.

This is the first time that the Census Bureau has reported separately on CPA firms. Earlier reports provided data for a broader category known as Accounting, Auditing, and Bookkeeping Services, which included CPA firms as well as bookkeeping and billing services and payroll processors. The earlier reports included the five-year economic census reports and the annual County Business Patterns reports. All of these earlier reports followed the Standard Industrial Classification (SIC) system. The new 1997 Economic Census reports classify economic activity according to the North American Industry Classification System (NAICS) now adopted by Canada, Mexico, and the United States. Under the NAICS, the four-digit code 5412 covers accounting, tax return preparation, bookkeeping, and payroll services and a separate six-digit code 541211 identifies the offices of CPAs. Confidentiality restrictions prevent publication of data for areas with limited activity, but the state reports reveal information for most significant locations.

The National Averages

Some national averages may provide useful benchmarks for CPAs wishing to identify relative competitive levels and market growth potential. The average CPA firm office from national data possesses the following characteristics:

  • 7.26 employees
  • Annual receipts of slightly less than $720,000
  • Annual payroll of approximately $282,700.

    The average employee in this average firm earned slightly less than $40,000. The payroll amount includes the wages and salaries of employees but not the income distributed to sole proprietors or partners; the proprietors and partners are not included in the number of employees.

    Placing the average CPA firm in a broader national context, there are about 688 Americans for each employee. The amount of overall economic activity for each CPA firm staff member is slightly less than $17.4 million, using 1997 total personal income as the comprehensive indicator.

    CPAs from State to State

    California leads the country with 47,900 CPA firm employees. The next four states are New York, Texas, Florida, and Illinois, in descending order. The top five states account for more than 40% of all public accounting employment. Six other states have at least 10,000 public accounting employees each: Pennsylvania, Ohio, Michigan, New Jersey, Massachusetts, and Georgia. These top 11 states represent almost 62% of all public accounting employment. Perhaps more significantly, although the firms located in these 11 states represent only about 58% of the CPA firms nationwide, they generate more than 67% of the receipts and more than 65% of the payroll. The top 11 states in terms of CPA firm employment are also the top 11 states in terms of economic activity as measured by total personal income, with minor differences in their ranking. Nevertheless, the concentration of accounting activity in these states is greater than their share of population or income: They represent about 56% of the U.S. population and about 59% of U.S. total personal income. Information for the top 11 states is presented in (Exhibit 1, and summary information for all states is presented in (Exhibit 2.

    Concentration in Major Metropolitan Areas

    Public accounting activity is concentrated in the nation’s major metropolitan areas. The 40 most populous areas as defined by the U.S. Bureau of Economic Analysis (BEA) range in size from Los Angeles, New York, and Chicago (more than 7 million people) to Fort Lauderdale, Orlando, and Milwaukee (under 1.5 million people). In total, these 40 areas account for almost 44% of the total national population and for slightly more than 50% of all economic activity measured by total personal income. Approximately 51% of all CPA firm offices are located in the largest metropolitan areas, but these firms employ more than 60% of all accounting personnel. More significantly, the major metropolitan area firms generate over 69% of all CPA firm receipts, and their employees receive almost 68% of the national public accounting payroll.

    Not surprisingly, CPA firms tend to “follow the money”: Total CPA firm employment in a particular area is more closely correlated with income level than population. Although Los Angeles is now the nation’s most populous metropolitan area, New York and Chicago continue to generate greater total economic activity and remain the capitals of public accounting. CPA firms in each of the top five metropolitan areas (New York, Chicago, Los Angeles, Washington, and Boston) employ more than 10,000 people.

    The New York metropolitan area has the largest concentration of CPA firm employment, more than 25,500 people. Chicago ranks second with just over 19,000, followed by Los Angeles, Washington, and Boston. These five metropolitan areas contain about 15% of CPA firms, but they employ about 22% of all firm associates and generate almost 29% of firm receipts. The New York firms in particular are highly productive: New York metropolitan area CPA firm employees generate an average of nearly $152,000 in firm receipts, the highest in the nation, and their average compensation of about $50,100 is exceeded only by the employees of San Francisco firms, that earn about $51,000 but generate less than $144,000 in receipts.

    High productivity is found in most major metropolitan area firms. The average firm receipts per CPA firm employee is about $113,700 in the top 40 metropolitan areas, greater than the $99,100 national average. The average firm employee in the major metropolitan areas generates about 14% more revenue than the national average and takes home about 12% more compensation ($43,700 versus $39,000 nationwide). (Exhibit 3 presents information for the top 40 metropolitan areas.

    Big City Business

    Public accounting activity is even more geographically concentrated than the metropolitan area data indicate. While current population and employment trends indicate a migration to suburban areas, most public accounting activity remains concentrated in the central cities. In most major metropolitan areas, smaller firms are located in suburban areas, but larger firms remain in the central cities, primarily in downtown locations.

    A detailed examination of the five largest metropolitan areas makes this point. Only 3,033 of the 8,104 CPA firms (37%) in the five major metropolitan areas are located in the central cities, but the central city firms have 66% of the employees, generate 75% of the receipts, and provide almost 70% of the payroll. The only one of the top five metropolitan areas in which central city firms do not dominate the employment and total receipts statistics is Washington. There, only 35% of total CPA firm employment lies in the District of Columbia. The majority of employees work in the suburban areas of Maryland and Virginia, and these firms generate 60% of the Washington metro area receipts. In the other major metropolitan areas, however, the suburban firms tend to be small with the suburban firms in the top five metropolitan areas combined (including Washington) being actually smaller and less productive than the national average. Whereas the national average CPA firm has 7.26 employees generating an average of $99,100 in receipts, the average suburban firm in the large metropolitan area has only 5.77 employees and average receipts of less than $95,600 per employee ((Exhibit 4 presents details for the top five metropolitan areas). The pattern of central city dominance in public accounting is not unique to large metropolitan areas but is repeated across the nation.

    Changing with the Times?

    The Census Bureau reports raise some issues about how the accounting profession is positioned in the economy.

    The profession is more concentrated in regions identified with the “old” economy than those identified with the “new” economy. Cities such as New York and Chicago were the undisputed capitals of the old economy and remain the leading centers of public accounting. Will companies in Redmond, Washington, Silicon Valley, California, and Austin, Texas continue to look to New York and Chicago for their accounting services?

    Furthermore, will the accounting profession follow its clients to the suburbs? The move to suburban locations began with homeowners, which were soon followed by small and-medium-sized consumer businesses. In recent years, even large corporate headquarters have migrated to the suburbs. Quite a few significant accounting clients are headquartered in places like Schaumburg, Illinois, White Plains, New York, and Plano, Texas; more will follow. Where there is a critical mass in smaller metropolitan and suburban areas, CPA firms may move away from the central cities to service them.

    The next economic census will be released after data has been collected for 2002 (probably near the end of 2004). Will there be significant demographic changes in the location and economic activities of CPA firms by then? Much will depend on the success of the new economy and the role CPA firms play in its development.


    Charles P. Zlatkovich, PhD, is an associate professor of accounting at the University of Texas, El Paso, where
    Karl B. Putnam, PhD, CPA, is an associate dean at the College of Business Administration.


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