An update on sole practitioners.

How are sole practitioners conducting their practices today? Gail Eynon, assistant professor, Kevin T. Stevens, assistant professor, and John M. McEnroe, Ledger & Quill Alumni Professor, DePaul University, Chicago, offer highlights based on a survey of CPAs that they conducted.

The sole practitioner's business environment has changed dramatically in the last 20 years. For example, the ethical standards governing all CPAs have been evolving since 1972, when the American Institute of CPAs ended restrictions against competitive bidding. Since that time, the rule restricting advertising was dropped (1978), open solicitation of clients was allowed (1979) and, in 1988, certain contingent fee arrangements were permitted and a new AICPA Code of Professional Conduct adopted.

Many of these changes helped sole practitioners build a client base, but they also increased competition. When combined with the decreased demand for traditional accounting services, the result was lower prices for these services. This has forced some small practitioners to offer new types of services and employ various marketing techniques. For example, some local CPA firms are now providing tax advice at $3 to $4.50 per minute through the use of "900" phone lines.

To examine several aspects of the sole practitioner's environment, we conducted a survey of 1,000 sole practitioners from around the nation and received 215 responses. The survey covered ethical perceptions, marketing techniques, billing and collection procedures and other aspects of a sole practitioner's business.

Exhibit 1 at right shows the demographic characteristics of the sole practitioners surveyed. The average respondent had nearly 12 years' experience as a sole practitioner and a base of 258 clients that yielded about $155,000 in 1991 billings. Even though sole practitioners are said to be working longer hours for reduced fees, over 50% said they nonetheless would recommend solo practice as a career to other CPAs.

ETHICAL PERCEPTIONS

The survey asked respondents to reply to statements on ethics issues based on their own perceptions rather than by reference to the AICPA Code of Professional Conduct. Exhibit 2 below lists the results. It has been 15 years since the advertising rules were revised, and almost 71% of the respondents agreed that CPA advertising was ethical, while significantly fewer (47%) considered open client solicitation to be ethical. The results also disclosed that 86% of the sole practitioners surveyed never used contingent fee arrangements and that over 93% never paid or received any kind of referral fees.

To compete effectively for new clients, sole practitioners are being forced to consider selling more types of products and services, such as valuation and litigation services and accounting systems installation. Perhaps this demand for new and more varied services is responsible for respondents' enthusiasm for continuing professional education courses - over 87% agreed (46% strongly agreed) that CPE was useful in their practices.

In spite of the increased requirements for specialized knowledge, 83% of respondents said they seldom or never accepted engagements that required skills outside their expertise. When an outside expert was employed, most (68%) thought the client should have been made aware of this subcontracting arrangement. When accepting an engagement for which they needed to develop new skills or knowledge, only about a third (35%) believed it was ethical for the CPA to bill this learning time to the client.

MARKETING TECHNIQUES

Exhibit 3 below shows sole practitioners' marketing techniques. As the data indicate, even though most respondents considered advertising to be ethically acceptable, almost three-fourths (74%) said they seldom or never advertised. Of those who did advertise, 72% did not offer any free services for new clients in their promotional materials. Furthermore, over 83% said they never used cold calls to seek new clients and, among those who did employ this practice, over one-half (57%) reported them as not very successful. In fact, 44% said they did no marketing at all. In contrast, 94% of the respondents listed referrals as the chief source of new clients. The sole practitioners who did employ marketing techniques cited newsletters and community activities as specific promotional methods.

BILLING AND COLLECTION

As sole practitioners begin to offer new services, they may have to employ more than one billing practice. Accordingly, the survey asked respondents if they billed clients based on hours worked or if they performed services for a fixed fee (billed by the job). Over one-half (53%) billed only for services based on hours worked; however, 37% employed both billing procedures. Over 41% agreed that working for a fixed fee yielded a lower than usual billing rate. Exhibit 4 on page 99 lists the responses for billing and collection procedures.

With increased competition and narrower profit margins, billing and collection have become ever more important to accountants. When faced with a collection problem, only 18% would rely on legal recourse and only 6% would employ a collection agency. Surprisingly, almost two-thirds (66%) said they would never call the previous accountant in these cases and 70% said they never used credit checks on new clients.

NO REGRETS

The survey results provide a snapshot of sole practitioners' attitudes and how they apply them in practice. It is encouraging to see that despite the competitive environment, most sole practitioners still find their careers rewarding.