What Small CPA Firms Are Doing to Recruit and Retain Staff

By Mark Steadman

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JULY 2008 - At a conference hosted by CCH in November 2006, AICPA Chairwoman Leslie Murphy stated that accounting firms needed to attract more students into the profession. In a speech to more than 500 tax and accounting professionals, Murphy said that “firms will face severe competition for increasingly scarce and costly talent.” Several demographic and generational factors are the root cause of this problem. Within 15 years, 75% of AICPA members will be eligible for retirement. The national workforce growth is slowing as the Baby Boomers reach retirement age. Members of the generation entering today’s workforce are more technologically savvy and expect a better work-life balance in a career.

In terms of retention, there is a disconnect between younger CPAs and the current work environment. The results of the 2006 CCH Young Accounting Professionals Survey indicated that factors important to younger CPAs are not being met by their current employers. The younger CPAs responded that infrastructure, culture, benefits and compensation, and training were the most important factors to their professional growth. For most of these factors, less than 50% of the firms surveyed received a very good rating in meeting CPAs’ expectations.

A survey by the AICPA’s Private Companies Practice Section (PCPS) revealed similar results. Of the firms surveyed, 93% did not have a leadership development program, 90% did not have a career professional program, and 89% did not have a partner-in-training program. All of these programs were important to staff members surveyed. The study included some comments from CPA firm partners regarding best practices they were using to retain staff.

Prior Research

According to the AICPA-sponsored report, “Management of an Accounting Practice” (2001–2006), staffing concerns have been the number one issue for CPA firms over the past several years. Given the increased demand for accounting staff due to the requirements of the Sarbanes-Oxley Act (SOX), firms are having even more difficulty meeting their staffing needs.

In 2005, the PCPS released the results of their study regarding this issue. “Best Practices in Recruiting and Retaining Talented Staff” confirmed that, while firms continue seeking to attract and retain staff, few firms have formal, documented programs to help to achieve this goal. The study outlines the best practices and offers suggestions to help alleviate CPA firms’ staffing problems. Because most suggestions offered in the white paper focus on larger firms with more resources, this article offers suggestions for smaller CPA firms, which are often unable to implement complex staffing programs.

Small CPA firms must adapt to the changing workforce. Recruiting and retaining staff is a vital issue for a firm’s future, as well as for the retirement plans of current owners. These owners must recruit and cultivate future partners in order for their individual retirements to be possible. Smaller firms are faced with recruitment and retention problems that larger firms do not have to face. In most markets, the starting salary is lower. The prestige factor leads many graduates to larger firms. Larger firms have more resources available to attract candidates. Once hired, staff members at smaller firms often receive less formal, on-the-job training. Smaller firms are not as structured with regard to promotions. While the turnover rate at smaller firms is not as high as larger firms (9% vs. 17% in 2004), the issue is still crucial for the current and future success of these firms. Increased workloads, client satisfaction, and succession planning are all impacted by this issue.

The author’s research provides an extension of prior research in the area by focusing on the activities that small CPA firms are actually using to successfully attract and retain staff. Only firms with 50 or fewer professionals were used in compiling the results presented in the following sections. These results reveal current practices being used by small CPA firms and provide insight for future staffing efforts.

Survey Results

In May 2007, a survey was mailed to 521 CPA firms randomly selected from an Internet listing of over 3,500 CPA firms in the United States. Seventy-six letters were returned as undeliverable, and 100 firms sent in responses (a 22.5% response rate of delivered letters). Eight respondents had more than 50 professionals and, thus, were not counted, leaving 92 responses to be analyzed in the study.

The average number of professionals at a respondent firm ranged from one to 50, and the average was 10.7. The primary revenue sources of these firms were tax (51.7%), audit (17.1%), bookkeeping (16.3%), compilation/review (4.3%), financial planning (3.5%), consulting (1.5%), and other services (5.6%). Other services included litigation support, business valuation, estate planning, and miscellaneous services.

Of the 92 responses, 63 had hired new staff in the past year, while 29 had not. Two of these 29 firms stated that they had attempted to hire staff but were unsuccessful. Also relevant among the 29 nonhiring firms was that 21 firms had fewer than three professionals (10 were sole practitioners), and none of the firms had more than 10 current staff members.

The firms were asked to rank the difficulty they encountered when hiring over the past year. On a scale from 1–7 (1 being “not difficult at all” and 7 being “very difficult”), the responses averaged 5.74. This number reflects the overall staffing difficulties that CPA firms are facing in today’s competitive employment environment. The starting salaries for new staff ranged from $28,500 to $80,000, with an average starting salary of $46,087.

Recruiting Activities

Firms were asked to list the activities they used in hiring staff over the past year. The number and percentage of firms using the following activities are shown in Exhibit 1.

As the results indicate, small CPA firms used a variety of activities to compete for talent. In fact, referrals from current employees may be the best source to find new staff. Hiring interns is also an effective method to attract new staff. Half of the respondents used their firm website as a recruiting tool. Firms have also increased starting salaries and benefits to attract staff. Smaller firms did not use a signing bonus as a recruiting tool in many cases. Less than one-third of firms were actively using university “meet-the-firms” events or on-campus recruiting, although they were developing personal relationships with accounting faculty to identify future employees.

Retention Activities

Seventy-nine firms responded to the section of the survey that asked about their current retention activities. Of the 13 firms not responding to this section, 10 were sole practitioners, two firms had two employees, and one firm had three employees—retention in these firms is probably not an important issue. The responses of the 79 firms with regard to activities used to retain professional staff are listed in Exhibit 2.

The results show that firms are utilizing several activities in order to retain their current staff. Firms are changing their management styles (more open-door policies) and work duties (improved technology and changed work environment) to accomplish this goal. Flextime, paid overtime or time off, formal evaluations, and professional growth were all highly used activities. Firms also used financial incentives, such as bonuses, raises, and increased benefits to retain staff. The relatively low use of mentor and partner-in-training programs reveals that firms have not totally accepted these practices yet. These activities have succession planning implications for the CPA firms, yet are not widely used. Although firms reported several activities to improve the working environment of current staff, they have not reduced overtime in a significant manner.

A recent AICPA survey listed the top seven reasons professionals stay with their firms. They are: respect for company mission statement, career growth opportunities, salary, open-door/accessible management style, interesting/challenging projects, flexible work schedule, and paid time off. Most small firms in the author’s survey participate in these activities in order to retain staff, with the exception of “respect for company mission statement.” Many small CPA firms do not have a formal mission statement, but adopting one could provide another positive factor for retaining current staff.

Advice for Smaller Firms

Most small CPA firms offer advantages for staff that are not found in larger firms. These include a more relaxed environment, opportunity for career advancement, and skills development in multiple areas (such as tax, audit, or consulting). The staff may also work with small business clients to help them succeed and grow, allowing them the opportunity to learn small business procedures and see the “whole picture” of a client. These benefits, however, are sometimes not enough to attract and retain staff in small CPA firms. The managers of these firms must compete for talent as well as clients.

The results of this study show that small CPA firms are using various recruiting and retention activities to adequately meet their staffing needs. Both traditional and innovative practices are being used to compete for talent in the current employment environment. Management of CPA firms can use the results of this study to determine if they are currently competitive in the staffing arena. By looking at the practices of other firms and implementing relevant activities listed above, these firms can improve their recruiting and retention efforts.

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Mark Steadman, PhD, CPA, is an associate professor of accountancy at East Tennessee State University, Johnson City, Tenn.




















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