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• W193565358 abstract "Jeffrey W. Lippitt, PhD, associate professor, Union College, Schenectady, New York, and Nicholas J. Mastracchio, Jr., CPA, lecturer, School of Business, State University of New York at Albany, and former managing director of CL Marvin & Co., Schenectady and Albany, New York, describe a formula firm managers can use to see how partner or staff additions will affect operations and profitability. Are there staffing norms for the accounting profession--an appropriate number of people a firm should have at each level? And how does a firm's staffing affect its profitability? To answer these questions, we used the collective wisdom in data from CPA firm manager responses to an American Institute of CPAs management of an accounting practice survey to develop a set of staffing standards based on firm size. We also examined staffing variances between predicted (based on our staffing norms) and actual levels in each firm and compared the variances with individual firm profitability. We uncovered two important findings: * There is a clear consensus among practice managers on appropriate staffing levels given firm size. * Divergence from these levels can have a significant impact on firm profitability. SURVEY RESULTS The data represent 167 firms from all sections of the country with gross fees ranging from $379,000 to $17 million; the median firm had $1.9 million. We used survey staffing levels for each firm in the following categories: owners, professionals, paraprofessionals and support. One of our goals was to develop standard staffing levels for each staff category for any size firm. To accomplish this goal, we had to choose a definition of size. The survey included three measures: total firm chargeable hours, total fees and fees categorized by service areas. While tests using other size measures produced similar results, we decided to use chargeable hours for developing the staffing standards because they are easy to use and interpret and are unaffected by inflation and billing rate variations. STANDARD STAFFING LEVELS Once we had chosen our size definition, we had to create a formula, or budget, for the appropriate number of firm members at any level. Based on our analysis of survey respondents, we developed the following budget for owners: Number of owners = 1.34 + (.000101 x firm chargeable hours) The coefficient of chargeable hours (.000101) is the number of owners necessary per chargeable hour. Most of us are more accustomed to thinking of this relationship in its inverse form, the number of chargeable hours per owner. Our analysis found it takes 1/(.000101)--or 9,901 additional chargeable hours--to justify an additional owner. To understand how to use the budget, consider a firm with 16,500 total chargeable hours. That total multiplied by the coefficient equals 1.67. Add that to 1.34, and the conclusion is that this firm should have approximately 3 owners. This calculation can be made for all staff levels (using different budget equations) to find the number of firmwide chargeable hours necessary to support an additional staff member in each category. A worksheet for tabulating a firm's standard staffing levels is provided in exhibit 1 on page 126. These standards are best suited to firms with between 10,000 and 220,000 chargeable hours. STAFFING VARIANCES AND PROFITABILITY Using the staffing standards, we calculated standard staffing levels based on firmwide chargeable hours for every surveyed firm and then calculated staffing variances by comparing them with actual levels within the firms. When we examined how the variances affected firm profitability, we found they were the most important consideration in determining firm profitability when comparing firms of equal size. The addition of one person in a given category, in other words, will change profitability significantly (see exhibit 2 at right). …" @default.
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• W193565358 date "1992-10-01" @default.
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• W193565358 title "To Expand - or Not?" @default.
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