how firms decide the goodwill payable to a retiring partner.
by marc rosenberg
retirements & buyouts
there are five factors that need to be taken into account when computing the goodwill benefits due a retiring partner:
- the gross benefits payable.
- reductions due to (a) non-traditional services that will leave when the partner retires (examples include business valuations and litigation support) and (b) penalties assessed for failure to transition clients and/or provide the required notice period.
- vesting.
- reductions caused by expulsion, violation of the firm’s non-compete/non-solicitation provisions or the departing partner joining another cpa firm.
- reductions relating to amounts the departed partner owes the firm such as loans, advances, etc.
overall calculation of goodwill payable to a retiring partner
+ gross goodwill payable based on one of 6 methodsminus possible reductions for:
= net goodwill payable, before vesting x vesting percentage = net vested goodwill payable – minus loss of benefits due to:
– minus amounts the departed partner may owe the firm = final, net goodwill payable
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6 methods used by cpa firms to calculate the goodwill payable to a retiring partner*
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method usage by percentage of firms |
|||||
|
method |
2–4 ptrs, 90 firms |
5–7 ptrs, 84 firms |
8–12 ptrs, 63 firms |
13+ ptrs, 44 firms |
all firms |
| multiple of compensation |
32% |
50% |
50% |
46% |
43% |
| aav |
19% |
12% |
24% |
27% |
19% |
| book of business |
15% |
12% |
9% |
5% |
11% |
| ownership percentage |
21% |
18% |
8% |
7% |
15% |
| fixed |
12% |
7% |
8% |
11% |
10% |
| equal |
1% |
1% |
1% |
4% |
2% |
| firms with no retirement provision |
39 firms
|
12 firms
|
4 firms
|
2 firms
|
57 firms
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* based on a recent edition of the rosenberg map survey of nearly 400 firms.
