Why Small Biz Owners Should Listen to their CPA: They Run a Successful Small Business, Too

Accounting firms may be in a unique position to be viewed as a trusted business advisor. After all, Sageworks data shows that privately held accounting firms had the highest profit margins over the last 12 months of any industry.

Sageworks, a financial information firm, conducted an analysis of financial statements from October 2011 to September 2012 and found that accounting firms had a net profit margin of 18.18 percent – the highest among more than 1,400 industries tracked by Sageworks. In fact, three of the five industries with the highest profit margins were finance-related, and all of them were industries with typically high profit margins.

Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.

What industries have the highest profit margins in the past 12 months?

Net Profit Margin

Industry Code

18.18%

5412 - Accounting, Tax Preparation, Bookkeeping, and Payroll Services

17.65%

2111 - Oil and Gas Extraction

17.13%

5239 - Other Financial Investment Activities

17.05%

5222 - Nondepository Credit Intermediation

16.81%

6214 - Outpatient Care Centers

[Table Source: Sageworks.]

Brad Schaefer, an analyst at Sageworks, said that accounting firms have had consistently high profit margins over the past 10 years or so, according to Sageworks data.

“Accounting firms are consistently profitable, they have a deep understanding of their own financials, and they have maintained that success even through rough economic times,” Schaefer said. This profitability is especially impressive when you consider the differences between the accounting industry and an industry like Oil and Gas Extraction, number two on the list of most profitable industries in the last 12 months.

“Industries like the oil and gas industry post consistently high profits,” Schaefer said, “but they also require a huge amount of upfront investment that accounting firms do not.” Accounting firms seem to be able to post high profit margins without these kinds of large, initial capital injections.    

In a way, this profitability can be used as a kind of selling point. All companies could benefit from a better understanding of their finances, and in many cases, they need that better understanding. These companies may be in need of an advisor to help advise them how to improve their day-to-day financial operations, improve cash flow, or increase profitability.

Accounting firms, with their deep understanding and experience, can easily play this advisory role, Schaefer said.

“Accountants are prime candidates for advising their business clients on how the business can achieve, maintain, or increase their profitability,” he said. By highlighting their own performance over the past 12 months, not to mention their consistent profitability over the past decade, accountants can make a strong case for themselves as not simply tax-preparers and bookkeepers, but as trusted business advisors.

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Lauren Prosser is the Director of Professional Services at Sageworks, Inc, a financial information company that provides financial analysis applications to accounting firms and private companies.

 

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