Accounting firms analysis

Through this study, we want to showcase the way accounting firms work. We have analyzed their incomes, expenses, operating margins, and hourly rates first and foremost.

Based on this analysis you will be able to do a benchmark analysis for your accounting firm, and see how you stand compared to the average fluctuations.

The analysis covers the representative sample of 1433 accounting firms from Europe. The sample has been generated from the Tomson Reuters base.

The last financial reports are from 2020.

The sample doesn’t contain micro-companies

We analyzed firms that perform the following activities:

  • Accounting
  • Audit
  • Tax and financial advisory

The average number of employees per company within our sample is 35.

Income analysis in the accountancy business

Based on the 1433 accounting firm sample, the conclusion is that a large number of firms generate annual income between EUR 300.000 and 900.000.

213 accounting companies from the sample, that is, 15% generate an annual income higher than EUR 3.000.000

The analyzed accounting companies make an average of EUR 3.9. mil total.

Median revenue amounts to EUR 957.000

Income analysis in the accountancy business

Expense analysis in the accountancy business

54% of the analyzed companies realize expenses up to 900.000 EUR.

199 accounting companies from the sample, or 14% generated annual operating expenses higher than EUR 3 mil.

The analyzed accounting companies realize an average of EUR 3.5 mil of total expenses.

Median operating expenses amount to EUR 813.000.

Expense analysis in the accountancy business

Profit analysis in the accountancy business

4% of the analyzed firms generate losses, while 96% generate gains.

38% of accounting companies make a profit between Eur 40.000 to 160.000

The analyzed firms make an average of EUR 371.000 in operating profit.

Median operating amounts to EUR 143.000.

Only 5% of accounting companies make a profit higher than EUR 1 mil.

Profit analysis in the accountancy business

Operating margins analysis in the accountancy business

Most accounting companies (42% of them) realize an operating margin of 3% to 15%.

30% of accounting firms realize the operating margin higher than 20%, while 15% of the companies realize a margin over 30%

23% of the companies have a margin lower than 6%

The analyzed accounting companies realize an average operating margin of 16%

Median operating margins amounts to  13%.

Operating margins analysis in the accountancy business

Additionally, we have analyzed the way the size of the company affects the realized margin.

The conclusion is that smaller companies realize a higher margin. The cause is the fact that larger companies need to invest in business infrastructure and non-profit centers – for example, HR, IT, and similar.

If we observe the companies that have less than EUR 1 mil of total income, their average margin is 19%. on the other hand, accounting companies with over EUR 3 mil of total annual income realize an average operating margin of 10%.

Operating margins analysis in the accountancy business

Revenues per employee in the accountancy business

A half of accounting firms realize an income of over EUR 100.000 per employee.

If we look at the extremes, 4% of the firms make less than EUR 50.000 per employee, while only 8% make more than EUR 250.000 per employee.

On average, accounting firms make an income of EUR 186.000 per employee, while the median is EUR 100.000.

Revenues per employee in the accountancy business

We have also analyzed the ways the size of the company impacts income per employee. The conclusion is that larger companies make more money per employee. We remind you, these companies also have a lower margin.

Revenues per employee in the accountancy business 1

Cost per employee in the accountancy business

Almost 50% of the companies have annual expenses from EUR 50.000 to 100.000 per employee, including all operating costs added to salary costs.

If we look at the extremes, 17% of the analyzed firms have costs lower than EUR 50.000 per employee, while only 8% have costs over EUR 200.000 per employee.

On average, accounting firms have EUR 161.000 of expenses per employee, while the median is EUR 84.000

Cost per employee in the accountancy business

Additionally, we have analyzed the way a company’s size impacts the cost per employee. The conclusion is that larger companies have larger expenses per employee. This analysis doesn’t account for salaries. That is, operating expenses include all overhead expenses except for salaries. Still, we assume that, on average, larger companies have higher employee salaries.

Hence, as the business increases, the absolute profit rises, incomes and expenses per employee grow, but profitability decreases.

Cost per employee in the accountancy business 1

Hourly rates in the accounting business

This analysis considers gross hourly rates. In other words, how much profit is billed per hour considering the employees’ total working hours. So, we have not analyzed the net billing rate here.

Our initial assumption is that all full-time employees work for 1936 hours per year effectively.

Almost 85% of the companies from our sample (1200 of them) realize an hourly rate lower than 90 EUR/h, while the other 15% make over 90 EUR/h.

Only 9% of the firms have an actual gross hourly rate higher than 120 EUR/h.

The average hourly rate in the accountancy business, based on our sample, is 96 EUR/h.

The median hourly rate is 52 EUR/h.

Hourly rates in the accounting business

We have additionally analyzed the way the size of the company affects the realized hourly rate. We have concluded that larger companies have higher hourly rates.

Additional analysis showed that accounting business has half the hourly rate compared to tax and financial advisory businesses.

Hourly rates in the accounting business 1

Conclusion

As a business grows, the number of clients and income rise slower than the profit does. In other words, the net margin decreases due to necessary investments into the infrastructure and non-profit centers.

Only 5% of accounting firms make a profit higher than EUR 1 mil.

The net operating margin in the accounting business is 13% (median).

Larger businesses, on the other hand, charge a higher hourly rate than smaller firms on average, but their salary expenses also increase.

Comparing a different service line we concluded that highest margin is achieved in tax and finance advisory and lowest margin is achieved in bookkeeping.

 

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