By Rob Nixon
Entrepreneur: “One who takes the initiative to create a product or establish a business for profit. Generally, whoever undertakes on his/her own account an enterprise in which others are employed and risks are taken.”
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Are partners of accounting firms entrepreneurs? This is an interesting question. According to the definition they own a business (although most did not start the business they own), they employ people, they take risks and they provide products and services – hopefully for a healthy profit.
Does this make them entrepreneurs? Would most partners of accounting firms describe themselves as entrepreneurs? Probably not.
So what do they call themselves? Normally they say, “I am a partner in an accounting practice,” or words to that effect. Rarely do they say, “I am an entrepreneur who owns an accounting business.”
In this post I will challenge every aspect of your partnership model and hopefully convince you to operate under a different – more commercial – model.
Why Are Partners, Partners?
Although most accounting firms are operated by sole practitioners (one owner), by my educated guess there are approximately three partners for every accounting firm in the world. And from my basic research there over 1 million firms in the world. So, there are somewhere in the order of 3 million partners. Worldwide it is estimated to be more than a $1 trillion industry. That’s more than the GDP of Australia!
That is a lot of accounting firms and a lot of owners of accounting firms. Far too many of both in my opinion!
So how do the partners become partners? Here are some typical (and perplexing) scenarios.
- As an accountant goes through the ranks and learns their craft, at some point in time they "make partner" – as if it is their given right.
- Sometimes a team member puts pressure on the partners and threatens leaving if they do not become a partner – and the partners cave in.
- Sometimes current partners think they must elevate a team member to partner status just to keep them – so they do.
- I even know of partners who have become partners without knowing the financial situation of the firm they are buying into. Who would want to be in business with someone who did not understand the financial situation of the business they were buying into?
There are too many partners who are there for retention reasons – not good business reasons.
What about the partner who starts his/her own firm? These are the real entrepreneurs in this industry. It’s interesting how they come to be. The individual in question starts life as a junior accountant or graduate, learns how to do that part of the job, stays in the current firm for a few years, gets more experience and then shifts firms. They stay at the next firm for a few years and then maybe shift firms again. All the way observing how each of the partners conduct business.
One day (usually in the person’s 30s) they wake up and say to themselves, “I am sick of being an employee of an accounting firm. I’m a good accountant. I want to go out on my own. I want to start my own firm.” They have just had an entrepreneurial seizure!
Off they (you?) go believing that just because they are a good accountant that they know how to run a successful accounting business that provides great accounting services. Nothing could be further from the truth. Being a technician (knowing how to do the work) and being a business owner (knowing how to run a business that works) are two vastly different scenarios.
Here’s the issue. How did this new entrepreneur learn how to run the business they have just started?
From the partners that they worked for. They learned by osmosis. And where did those partners learn their great (tongue firmly planted in cheek) business skills from? The partners before them. And so on and so forth.
If you want to run a better business you must first become a better business person.
If you stick to the traditional model, the only real way to create wealth in this business is to have fewer partners in your firm and a higher leverage of people per partner.
There are plenty of sole practitioners around the world who hire 20+ people and as such they are making $1 million-plus profit per annum. The issue of low profitability starts when you have too many partners and the leverage (people per partner) is low.
It’s very easy to prop up profits in an accounting firm – just have the partners charge more time. They have the highest (apparently) charge rates, so all time charged by partners is theoretically all profit.
Recently I asked a simple question at one of my coaching club meetings. "If you could wave a magic wand, then the ideal business partner is someone who…?" And then got them to answer the question. This is what the group came up with.
The ideal partner in an accounting firm is someone who…
- Brings something to the table – complements existing partners
- Is a good cultural fit in the firm
- Is a good communicator at the partner level
- Is a good communicator with team members
- Is a good communicator with clients
- Is stable – emotionally and financially
- Is profit- and growth-motivated
- Has a good work ethic
- Is reasonably fit and healthy
- Is at the same stage in life mentally
- Shares similar values and ethics
- Has an ability to respect other partners
- Knows what they want – goal-oriented
- Is supportive of new ideas
- Is flexible in their thoughts and actions
- Is a good business builder
- Is fun to be with
- Shares the vision
- Walks the talk not just talks the talk
- Acts in the best interests of clients and the firm at all times
- Can bring in new business
How many of these 21 can your current partners answer favorably? Maybe some partners you have are not a fit. Do you need fewer, more or different partners?
Maybe some change needs to happen in your firm at the partner level.