nine reasons you need another partner

plus nine reasons they should want to be.

by marc rosenberg
the rosenberg practice management library

before we get too far, we must answer a basic question: why would a cpa firm ever want to make someone a partner in the first place? why would it want to share profits with more people?

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the short answer is that it must be beneficial to both the firm and the new partner. a win-win, as the saying goes.

here are nine reasons why firms are compelled to make someone a partner. many are interrelated.

1. new partners deserve the promotion to such a great extent that the firm can’t afford not to award it. these are managers who have consistently demonstrated their ability to significantly increase the firm’s revenue growth, profitability and overall success, both currently and especially in the future. the firm needs to recognize these talents by admitting such managers to the ownership group, thus sharing profits and the firm’s value with them. if the firm fails to recognize and reward partner candidates, they will eventually leave and find someplace else that appreciates their value. the firm’s success and performance would be substantially hurt if the firm lost this person.
2. growth demands expansion of the partner ranks. the firm’s growth requires an increase in the number of partners it has. for example, a firm may decide that it wishes to maintain an average revenue per partner of $1.5 million. currently, the firm has eight partners and revenue of $12 million. the firm may need to approach $13.5 million before it feels justified in adding a ninth partner.

however, the firm also reasons that there is a limit to the size of a client base that a partner can manage while providing world-class service. so, many firms limit the size of each partner’s client base. they need to bring in new partners to keep the base from growing too high.

3. the firm must replace a retiring partner. a partner with a healthy client base retires and the other partners are too busy to absorb the retiree’s clients. the firm is fortunate to have a manager on board with the skills to manage the retiree’s clients. also, the manager may already have solid work experience with many of the retiree’s clients. in cases such as these, partners often promote the manager to partner.
4. a partner offer rewards a longtime manager with solid client service and technical skills. the person is loyal and hard-working and has earned credibility with partners and staff. he or she may not have all the leadership and business development skills that the firm prefers its partners to have, but the partners nonetheless feel the person deserves the partner promotion. in many instances, the partners would have heartburn if the person left because of being passed over for promotion. in these cases, the partner promotion has been earned and is a staff retention tactic.
5. people are needed to write the partners’ retirement checks. eighty percent of all first-generation firms never make it to the second because of weak succession planning, including an insufficient number of younger partners to buy out the existing partners. by promoting a competent, loyal, skilled, hard-working manager to partner, the firm acquires one more person to share in the partner buyout burden.
6. partner promotions send a signal to the staff. when the staff sees people promoted to partner periodically, it sends a message that if they work hard and smart to acquire partner-level skills and experience, their efforts may eventually be recognized and rewarded with ownership. caveat: firms should never promote people who lack these partner-level skills to partner simply to send a message.
7. it provides a spark to the partner group. some firms evolve over a long time without making any new partners. the result is an aging partner group that lacks energy and innovation and may be somewhat stagnant. injecting deserving, skilled young people into the partner ranks may be just the shot in the arm the firm needs.
8. the firm needs technical partners. in an ideal world, a major criterion for promotion to partner is a track record of bringing in business. this is the most difficult trait for aspiring staff to acquire. some firms find it a useful practice to periodically promote non-business-getting staff to partner because the firm needs technical partners to function at a very high level, supporting the other partners who are adept at business development. the person promoted must have demonstrated other valuable skills, such as client handling, loyalty, a strong work ethic and an ability to train staff.

firms usually find that there is a limit to the number of technical partners they can afford.

9. it’s part of a merger strategy. when buyers merge in smaller firms with partners who are “younger” (i.e., not close to retirement) but possess skills similar to those of the buyer’s existing partners and manage sizable client bases, the only way the seller’s partners will agree to the merger is if they become partners in the buyer’s firm.

why staff should want to become partners

partners have it great. if a staff person really gets a proper, thorough understanding of why it’s fantastic to become a partner in a cpa firm, there are almost no reasons for not wanting to be a partner. well, there are a few, but we’ll discuss them another time.

1. the money. sorry, i probably shouldn’t have led with this one. i struggled with where to put it. if i put it first, you may think i’m saying that money is everything, but i certainly don’t feel that way. if i put it last, some might think it’s the least important, but that is not the case either. if i bury it in the middle, it might not get your attention.
   

in 2020, the income of equity partners in cpa firms under $20 million in revenue (99 percent of all multipartner firms) averaged $300,000 to $500,000, depending on their size and location. this number is substantially higher for firms larger than $20 million. this is more money than 95 percent or more of all people in north america earn and is almost always substantially higher than their parents earned. no question: the money is wonderful.

as parents, we try to counsel our children on a career to pursue. some parents advise their kids to pursue their passion, regardless of the hurdles. others advise their children to pursue a noble career that will enable them to earn a nice living. i always have advised young people, including my own children, that it is quite possible to have both: a career that you are passionate about and that pays well. that’s the overarching reason why staff should want to be a partner. if you are not passionate about the profession of public accounting, that may be a good reason not to pursue a partnership.

2. ownership, from two points of view. first, as a partner, you will be an owner in a business (for 99 percent of you, it will be a small business) that is almost guaranteed to increase in value over time. for new partners, this increase may be three to 10 times its original value. second, as an owner of a small business, you will be an entrepreneur. as such, you will have virtually unlimited freedom and flexibility to run your part of the firm and decide how you spend your time.
3. challenging, interesting work. the work performed by partners is much more sophisticated and challenging than staff-level work. the focus of partner work shifts to solving people’s problems, planning and relationships, as opposed to the more technical work of staff. summary: partner work is cool!
4. relationships with your clients. it’s been well-documented in numerous psychological studies that the happiest people are those who have healthy relationships with other people. relationships improve the quality of their lives and bring them joy. when you are a partner, the major relationships in your life, besides your family and friends, are the clients you work with. partners love their clients and clients love them back. life doesn’t get much better than that.
5. responsibility. virtually all partners manage a sizable client base. this could range from several hundred thousand dollars to several million dollars. most partners find this high level of responsibility very satisfying. it’s frustrating at times. stressful at times. but it’s enormously satisfying to be an owner in a cpa firm with the responsibility for acquiring, retaining and growing a client base.
6. prestige. many partners have told me that it became easier to bring in business when they were able to tell people they were a partner in such and such a firm. it’s the classic chicken or the egg argument. were they more successful at business development because of their maturity and self-confidence, and the partner promotion was merely the icing on the cake? or was the development of these traits possible only once the person was promoted to partner? this is one of those questions that have no answer.
7. staff to delegate to. certainly, people who are promoted to partner were delegating work to staff before their promotion. but when someone becomes a partner, the amount of work delegated to staff increases considerably. evidence of this are these metrics from a recent rosenberg map survey: managers average about 1,400 billable hours a year, while equity partners are around 1,100, lower at bigger firms. that’s a 300-hour gap, a 21 percent difference. it’s kind of nice to have an army of people at your beck and call.
8. tenure. this one is a bit tongue-in-cheek. nowhere is it written in firms’ partner agreements that partners can never be fired. but as a practical matter, unless someone commits egregious acts, there is very little chance of being terminated. cpa firms are very lax at holding partners accountable for their performance or behavior.
9. lack of accountability. pardon the sarcasm, but it would be an understatement to say that there is very little partner accountability at the vast majority of cpa firms. in #2 i wrote that partners have tremendous flexibility in how they work. probably too much. if you are a manager asking yourself, “what’s so good about being a partner?” does a low amount of accountability appeal to you?

partners: sell your staff on what a great job you have!

talk to your young staff about why being a cpa firm partner is an awesome career. but don’t stop there. describe the benefits of being a staff person at your firm: the interesting, challenging work they’ll be assigned, the excellent compensation potential and advancement opportunities, their own personal baptism to the world of business. then watch what happens.

a star will be born.

give your stars access to cutting-edge technology. provide constant training and feedback and flexible work options, especially for people who want to combine careers with raising a family. build team spirit and go beyond it to a team orientation to servicing clients. make your staff understand how their work contributes to the overall success of the firm, and more than that, why they should care.

posted on march 9, 2021