How much do sole practitioners make in the accounting profession?

TORONTO, July 20, 2018 – Canadian accountants working as sole practitioners or in small accounting firms are primarily focused on providing tax services and not particularly interested in providing advisory or consulting services. That is just one of the surprising findings revealed in a new survey of SME accounting firms across Canada from Alan Salmon and K2E Canada.

The “Accounting Operations and Technology Survey” provides the first comprehensive look at sole practitioner and small-sized public practice in the new CPA profession. Of the 2,535 Canadian accounting and bookkeeping professionals surveyed, 56 per cent worked in accounting and held the CPA designation. Of those, 61 per cent were sole practitioners, and 26 per cent worked in firms with two to three partners.

Accounting Operations and Technology Survey, K2E Canada 2018.

The dollars and cents of public practice

How much do sole practitioners make in a year? Three-quarters of sole practitioners report an annual revenue of up to $500,000 per year, with 22 per cent of practitioners reporting $200,000-$500,000 in revenue. Thirty-two per cent, however, reported annual revenue of less than $100,000. Naturally, among small-sized firms, the revenue ceiling is higher, with fully 95 per cent of firms reporting annual revenue of up to one million dollars.

Perhaps the most surprising revelation of the survey is how little interest sole practitioners and small firms have in offering advisory and consulting services. As the report states, “Despite the talk about the need to move from data processing to advisory and consulting services over 50% in accounting practices and 66% in bookkeeping practices have less than 10% of revenue from these services. The need for training and tools to help practices move to an advisory role are clearly needed.”

That said, these firms demonstrate little interest in providing such services. When asked, “What percentage of your firm revenue would you like to have come from advisory and consulting services?”, almost three-quarters of respondents reported less than 30 per cent.

Instead, the bread and butter of the sole practitioner public practice is the T1 tax return, with the T2 tax return following closely behind. With more than 90 per cent of all SME firms providing tax services to their clients, almost half of all sole practitioners are preparing between 100 and 500 T1 tax returns a year. Incredibly, five per cent of sole practitioners reported preparing more than 1,000 T1s annually.

What is the median charge for a basic T1? Accounting firms charged $150 while bookkeeping firms charged $75. “This is surprising to see such a large variance between accounting and bookkeeping firms,” states the report. “Consider that national tax preparation companies are normally in the $150 average price range bookkeeping firms are undercharging for this service.” For a business T1, accounting firms are charging a median $350, while bookkeeping firms charge $199.

As for T2 preparation, 96 per cent of sole practitioners prepare fewer than 250 per year, whereas 90 per cent of small-sized firms prepare the same number. The typical accounting firm charged $1,000 for a T2, whereas a bookkeeping firm charged $650.

Forty-two per cent of accounting firms charge by the hour, 30 per cent through value billing, and 27 per cent provide fixed price billing.

Demographic trends for sole practitioners

The life of the sole practitioner or CPA working in a small accounting firm must be a good one. Just 20 per cent have plans to retire in the next three years, despite 20 per cent reporting they are over the age of 65, and more than half over the age of 55. As the report states, “the number planning for retirement (Q7) or succession (Q8) is lower than expected.”

The report also bucks the trend of the stereotypical male bean counter. Fifty-eight per cent of the respondents were female. Thirty-two per cent reported a sole proprietorship legal structure. And 60 per cent had been in practice for more than 20 years. Eighty-five per cent reported operating from one location only, with just over 50 per cent of sole practitioners working from home.

The “Accounting Operations and Technology Survey” can be purchased directly from Alan Salmon & Associates at www.salmon.ca. We will have more from the report in the coming weeks, as we look at practice technology and management among sole practitioners.

Colin Ellis is the managing editor of Canadian Accountant.