By Marc Rosenberg
Bringing in new partners is vital to keeping your firm strong. Here are some key concepts that are important to understand:
- Criteria for making someone a partner. As I focus mostly on how to bring in new partners, I assume that you have already decided that they qualify to be partners. Nonetheless, criteria for making someone partner are listed below. These criteria have been prepared based upon best practices at the finest firms in the country.
- Eliminate the term “ownership percentage” from your vocabulary. This term has wreaked havoc in CPA firm ownership structures for decades. Whenever firms are asked how their ownership percentages came into existence, blank stares invariably result. And in those rare cases where rational explanations exist, ownership percentages usually cause problems in many ways.
- The value of a CPA firm is accrual basis capital PLUS goodwill. This total value should not be “given away” to someone without it being paid for. Bringing someone in as an owner in a profitable, viable business, for little or no buy-in, makes little sense.
- Large buy-ins for new partners is out of vogue. Many years ago, buy-ins were much larger than they are today. Many of today’s young people don’t have the financial resources to afford a large buy-in. Even if they could afford it, they feel that a large buy-in is too risky.
All this said, there is no law that prevents a firm from requiring six-digit buy-ins. In a recent survey by The Rosenberg Associates, 11 firms out of 348 had their buy-ins set at $500,000 or more. If this is what you want and you can get it, more power to you.
- Partner compensation should be determined primarily by what a partner contributes to the firm’s growth, profitability and success each year, not by what his/her ownership position is. A CPA firm operates differently than many other organizations in this respect: The value of the firm, today and tomorrow, as well as the profitability of the firm, today and tomorrow, is linked strongly and directly with each partner’s efforts to maintain and build the firm every year.
Bringing in a New Partner: Thresholds and Core Competencies
- Integrity, honesty and sound ethical behavior/judgment
- Credibility with partners and staff
- Encourages client confidence: Clients are comfortable calling the partner-potential first rather than the originating partner
- Strong work ethic
- Loyalty and commitment
- Team player
- Able to pass the “wine” test
- Communication and interpersonal skills
- Leadership skills
Financial and legal
- Is willing and able to buy in
- Is willing to take on retirement obligation
- Is willing to sign a non-solicitation agreement
- Demonstrates personal financial stability
- Originates X amount of business
- Constantly pursues meetings with clients, prospects and referral sources to get new business
- Actively seeks opportunities to cross-sell additional services to existing clients
- Has been active for at least several years in building up network of business contacts
- Has distinguished him/herself as an expert in at least one service or industry
Production and client management
- Manages X number of clients (billing, relationship and engagement management)
- Achieves X billable hours…
- …at X realization
- Demonstrates a high level of analytical and problem-solving skills; solves clients’ problems
- Exhibits high level of technical skill so the firm is comfortable that once the partner candidate has finished a client project, no one else needs to review it to make sure it was done right. Candidate has proven his/her ability to complete highly technical projects with minimal assistance from others
- Has solid experience supervising staff
- Is a delegator
- Is able to develop others
- Follows and complies with all firm policies, procedures and deadlines