Six Types of Accounting Practices
The accounting and tax market in Australia is comprised of over 32,920 accounting practices/businesses and employs over 136,000 people generating $17 billion in annual revenue.
This industry is made up of six main types of accounting practices which have different characteristics and profitability levels:
1. Part-time home based operators
These practices generally have $20,000 – $50,000 of annual fees and operate with minimal expenses. These operators are happy with the extra income generated from their small loyal client base. The clients of these practices often expect below market fees due to the practices lower overheads. Clients are normally salary and wage earners or micro businesses.
2. Full-time home based operators
These practices generally have $100,000 – $250,000 of annual fees. Principal profits range from $60,000 pa to $200,000 pa. The ability of the principal to complete all the work by themselves limits the size of these practices.
3. Tax franchises
The largest tax franchises in Australia are H & R Block with 440 offices (over 750,000 tax returns lodged pa) and ITP with 250 offices. Both franchise groups have been operating for over 40 years and predominantly service the salary and wage tax return market. There are also another 10 smaller accounting/tax franchises in Australia with office numbers varying from 5 to 60.
4. Sole practitioners – office
These practices generally have $100,000 – $300,000 of annual fees and employ staff to assist the sole practitioner. With the extra overheads these practices generate principal profits of around $100,000 pa.
5. Partnerships – 2 to 10 partners
These practices generally have $1,000,000 plus fees per partner and generate profits of $400,000 – $500,000 per partner pa. The most profitable firms generate partner profits of over $1,000,000 pa.
6. The big 4
The big 4 accounting practices are KPMG, PWC, Deloitte, and Ernst & Young. Each of these firms has over $1 billion in annual revenue. The partners of these firms generally make at least $1,500,000 pa each.
Accountants entering public practice on a self-employed basis need to decide what type of practice they are aiming to operate as the financial returns vary greatly from less than $20,000 pa profit to over $1,500,000 pa profit.