signals, sparks and strategies.
by marc rosenberg
how to bring in new partners
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?
more: tell potential partners what it takes
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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.
- 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.
- 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 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.