don’t forget to add what they could make.
by marc rosenberg
how to bring in new partners
accounting firms worldwide are dealing with an enormously difficult challenge today – one that has topped every firm’s list of critical issues since the turn of the century and will continue to be a high priority for years to come. the vast majority of firms struggle with it. failure to solve it causes hundreds of firms to merge out of existence every year.
more: what prospective partners should ask their firm | what new partners should know about buyouts | comp: what new partners don’t know
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the “it” is, of course, succession planning, with difficulties rooted in a perfect storm of causes:
- the huge number of baby boomer partners nearing or reaching retirement age, coupled with …
- an acute shortage of younger people with the desire and the skills to succeed them, accompanied by …
- cpa firms’ historical weakness at retaining staff and developing them into leaders and future partners. evidence of this is that 80 percent of first-generation firms never make it to the second.
how to bring in new partners: one of the hottest issues at cpa firms today
succession planning challenges are causing firms to scrutinize more than ever before their methodology for bringing in new partners. from developing staff into leaders and partners to revising financial models for new partner buy-ins and buyouts for retiring partners to transitioning clients to successor partners, these long-neglected and somewhat dysfunctional issues are increasingly being brought to the front burner.
compounding the challenge of bringing in new partners is the simple fact that few firms have recent experience in doing so. indeed, there are thousands of firms that have never made anyone a new partner. these firms are grasping at straws trying to figure out a coherent plan for bringing in new partners that is a win-win for both the existing partners and the new ones.
undoing firms’ archaic practices
if any of the characterizations below sound familiar, you need to re-engineer your approach to bringing in new partners:
- no handholding. “older” partners often feel they earned their partnerships the old-fashioned way, through hard work and perseverance, without anyone “holding their hand.” they expect nothing less from today’s young people. partners’ attitudes all too often seem like this: “we want to wait until the staff show us that they have the right stuff. staff must come to us first and tell us they want to be a partner. then and only then will we step in and show them the way.”
many of today’s older partners have a tough time accepting that this attitude has shifted in the past 10 to 20 years. hard work, ambition and perseverance are still important. but today, it’s also important to show young people the way by mentoring them and proactively helping them develop, all of which must begin years before a staff member is ready to be a partner.
- lack of formalized criteria for making partner. one practice that greatly hinders leadership development is firms’ reluctance to formalize and communicate to their staff written criteria for making partner. how can staff be expected to aspire to become partners if they don’t know what it takes to become a partner and what it means to be a partner?
- widely varying criteria for making partner. somewhat related to the point above, firms today have a vast range of criteria for making partner, especially in the area of bringing in business. for example, some firms believe that in order to be a partner, a person has to be an accomplished business-getter; these firms will rarely promote anyone to partner without this attribute. on the other hand, some firms have little or no requirements to bring in business to qualify for a partnership. there is no consensus on this in the cpa firm industry, especially at firms under $15 million in revenue.
- inconsistencies in the system. many firms make new partners so infrequently that every time they bring in a new owner they change the system for buying into the firm. this makes for inconsistent and often incomprehensible methods for bringing in new partners.
- prohibitive new partner buy-ins. years ago, buy-ins were huge: several hundred thousand dollars. today’s new partners have neither the financial resources nor the willingness to pay these astronomical sums. today, well over 90 percent of firms – of all sizes – establish a new partner buy-in that is smaller and more affordable than in the past.
- reluctance to use the non-equity partner position. in years past, for the most part, there was only one class of partner: an equity partner. many firms made the mistake of promoting directly to equity partner staff who lacked important talents and experience, primarily in business development and leadership skills, to function as business owners. today, cpa firms are making increasing use of a second tier of partner, the non-equity partner. as a result, they have raised the bar for what it takes to become an equity partner.
where leadership development starts
no matter which thorny practice management issues i’ve been called in to address over more than 20 years of consulting, one consistent observation keeps coming across loud and clear: cpa firm partners really love their jobs!
do partners come to work every morning grinning from ear to ear and shouting to all who will listen how happy they are? of course not. but when they sit back and think about how fortunate they are to be a partner in their firm, they feel very satisfied. opportunities to help clients abound. every day presents a new challenge – and cpas love solving problems. they enjoy the freedom and flexibility of being business owners. and they love making more money than they ever dreamed of. partners in local firms earn, on average, $300,000 to $800,000 a year.
if today’s young people, from students pondering the selection of a college major to staff already working at cpa firms, realized how truly fantastic a job it is to be a partner in a cpa firm, our profession’s succession planning challenge would be more easily solved.
you would think that partners would enthusiastically communicate their love of the game to their staff. but they don’t.
you would think that staff would be dreaming of the day when they succeed in becoming partners. but they don’t because their firm is probably not telling them what it means to be a partner and what it takes to become one.
cpa firms are too secretive
it’s positively maddening that cpa firms tend to be very secretive about two things that would excite young people to no end:
cpa partners make lots of money. a common belief among “older” partners is that money doesn’t mean much to young people. this couldn’t be further from the truth. throughout my consulting career of more than 20 years, survey after survey consistently shows that compensation is either #1 or #2 on the list of what’s important to staff.
i’m quite sure that the compensation of a cpa partner is higher than that of 95 percent of all other jobs. given the importance of compensation to staff, and the fact that cpa firm partners make lots of money, you would think that partners would communicate this motivating fact loud and clear to staff. but they don’t.
partners tend to feel that their compensation is confidential. or that it’s nobody’s business to know what they earn. perhaps they feel that telling the staff what partners earn, on average, would make them appear to be flaunting it – greedy, conceited, overly materialistic. but there are ways to communicate their lucrative compensation without making partners or staff uncomfortable.
what it takes to make partner. we have interviewed hundreds of cpa firm staff. we ask them these questions:
- do you know what it takes to make partner?
- has anyone in the firm had a serious discussion with you about your future at the firm?
- has anyone asked you if you want to be a partner?
- do you want to be a partner?
- if you don’t want to be a partner, why not?
you would think firms would routinely have this conversation with their staff, especially those with partner potential. but they don’t.
partners have a tendency to keep lots of things secret that should be open, formalized and stated in writing, including the firm’s criteria for making partner. the main explanation we hear for not documenting such information in writing is concern that it could backfire. partners fear that staff will prematurely march into the managing partner’s office waving this document, insisting that they’ve fulfilled all the criteria for making partner and demanding a date when the coronation will take place.
so, many firms purposely don’t formalize their criteria for partner. they reason that being less formal gives them more wiggle room to use their subjective judgment (or bias) in deciding who to make partner.
but this secrecy creates problems in leadership development. if talented staff don’t know what it takes to become partner and have minimal conversations with partners on the subject, the firm’s ability to retain great staff is hindered considerably.
what a disconnect! i constantly hear partners complain about today’s young people. their common refrain: “these days staff don’t want to be partner.” my experience in interviewing and surveying hundreds of staff is that they may say they don’t want to be a partner, but the real obstacle is that they simply don’t know what it takes to become a partner, what it means to be a partner and how great a job it really is.