CPAs are doing cost segregation studies in different ways. Our recent survey reveals exactly how most firms are doing cost segregation work, including the tools they use and the people they hire. In this article, we’ll dive into our survey results and what they show about how CPA firms can do cost segregation better.
Tools firms are using in cost segregation studies
First, let’s examine the tools that firms are using to do cost segregation. Most of the cost segregation work reported to us is still done manually, with either Excel-based tools, homegrown software systems, or a patchwork of both.
Excel: 47.1% of CPAs are setting up Excel templates where they can collect and/or plug client information into, then (ideally) using pre-built formulas to crunch the numbers for cost segregation studies. These will need to be thoroughly double-checked for errors and accuracy, as this method is highly prone to mistakes.
Software: Only 11.8% of firms are using either homegrown or vendor-purchased custom software to aid in the completion of cost segregation studies. Ideally, a good software program will automate much of the number crunching and help CPAs collect the client information they need through easy-to-use and shareable forms.
Both: 41.2% of firms are patchworking a combination of software and Excel. This could look like using a custom-built form software to collect information from clients, and then importing that information into an Excel spreadsheet to run the calculations. This might be better than just using Excel but isn’t as efficient as doing it all in one system.
Our take: Giving highly-skilled employees such as CPAs and engineers only basic tools to work with can hamper their work. They will be slowed down by doing basic data entry work in Excel when using a better system could speed up the process and allow them to get more done in less time.
The labor firms are using complete cost segregation studies
When considering labor, we think about whether or not firms use in-house employees or contractors if they’re outsourcing their work or taking in outsourced work from other firms, and what types of people they’re hiring to do cost segregation work.
Full-time employees vs contractors: Almost all of the firms we surveyed do their cost segregation studies with in-house employees and don’t hire temporary contractors. It seems more commonplace to just outsource work to other firms rather than hire temps. That’s likely because of the highly skilled nature of cost segregation work.
The firms we surveyed averaged seven employees dedicated to doing cost segregation work full-time. Some had no employees working on it full time, while others had as many as 45 full-time cost segregation employees. The median average was three.
Accepting outsourced studies from other firms: 48% of the firms we surveyed completed cost segregation studies that other firms outsourced to them. This can be a good revenue source for firms that have either the labor or streamlined tools—like automated software—to help them complete more studies in less time.
Preferred backgrounds for cost segregation employees: Having a construction background was the most preferred type of cost segregation employee, followed by mechanical and civil engineering. Less firms preferred architecture or appraisal backgrounds. This is likely because the nature of cost segregation work requires lots of knowledge of building materials, measurements, and reasonable estimates—which are all best learned on the job.
How digital transformation can push cost segregation forward
Most of the issues with cost segregation stem from inefficient tools and processes. The labor isn’t necessarily the issue, it’s the fact that employees can’t complete studies with the poor tools and processes. Firms are investing in more labor, but the tools are what’s broken.
Cost segregation is ripe for digital transformation. By using a tool like SegStream, you could reduce the time it takes to complete a study from weeks to a couple of days. Once you have your client’s information, it only takes a few hours to complete an automated study that matches or exceeds the quality you would get from doing it in Excel.
Digital transformation—i.e. automating the slow and manual parts of the process—opens up the door to complete more studies, take on more clients, and significantly grow your business.