both tax and audit partners can achieve margin goals, but in different ways.
by bill penczak
i was leading a midyear review of the 2023 strategic plan for one of my cpa firm clients, one that has experienced exponential growth (you’re welcome) in the past few years but simultaneously is facing the positives and negatives that accompany rapid growth. as we delved into the goals and objectives in the six strategic areas, it dawned on me that partner focus – and the ensuing measurement and related compensation – should be narrowed to just two things, which i will address in a bit.
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the polar opposite of this kiss approach was the managing partner of a $100 million-plus firm that wound up being gobbled up by one of the supernationals almost 10 years ago. he was brilliant – he could look at an excel spreadsheet and, in “rain man” fashion, immediately identify wrong entries or formulas. (for those readers on the younger age spectrum, “rain man” was an academy award-winning film from 1988 starring dustin hoffman and tom cruise.) being the king of excel, this managing partner had created a 20-column rating sheet for each partner to measure their performance. in the words of one partner at the time, “there was so much detail, we didn’t even know what to focus on.”
time for wapner, indeed.
the approach to partner accountability needs to be more in the fashion of an effective sunday sermon – keep it to a few key points so people can actually remember. i have concluded that maybe less is more when it comes to partner accountability and measurement.
the two things that matter most: margin contribution and employee retention
as i was reviewing the aforementioned strategic plan, i was simultaneously trying to lead the conversation and sketch out a chart that wound up providing absolute clarity. of the six strategies and four to five actions and kpis in that firm’s strategic plan, 80 percent were subsets of margin contribution or employee retention. here are some examples:
margin contribution covers
- top-line growth
- new service lines
- new geographies
- adding luminary practice leader
- acquisition
- culling clients
employee retention covers
- training
- coaching program
- career path
- market or better compensation
- identifying leaders of tomorrow
there are obviously a lot of nuances to running a successful firm. the first, of course, is defining success. most firms’ missions and visions are equivalent to what tom cruise’s character in “rain man” said about autism (a bunch of #$@^). at the end of the day, cpa firms are businesses, but i have witnessed a remarkable lack of focus on sound business practices, as one would find in a well-run commercial endeavor.
one of the problems is too many cooks in the kitchen, with each partner acting as if they operate their own restaurant. the only two things that really matter approach allows for some flexibility and, dare i say, creativity on the part of individual partners in achieving these goals, which allows for true ownership and accountability. it’s no different than the dichotomy of profitability of the typical audit and tax departments – audits are higher-dollar engagements with lower margins than tax, with lots of time that goes to die in wip and other write-offs. tax practices are typically higher volume, lower value per engagement than audit, but with a typically higher margin. both tax and audit partners can achieve margin goals by doing so in different ways.
and that’s okay.
keeping things accountable
one firm with which i consulted is considering a very different partner comp model, in which each of the non-equity partners receives a lower than their current base (25-30 percent), which can be increased by their achieving specific goals. for the highest performers, according to the rough projections, achieving or exceeding these goals would result in significantly higher income – and the house still gets paid first. while that might be a bit radical for some firms, it would definitely incent the right kind of behavior and maybe cull some of the partners who are not carrying their weight. perish the thought.
whether tied to the “earn it back” program i just cited or within the parameters of a firm’s current partner accountability and compensation program, the only two things that really matter approach allows partners to “win” using a variety of tools and techniques that fit their style, personality and temperament. this approach allows for little interpretation of what is expected – a certain level of net margin contribution in dollars and the degree to which the partner kept their people engaged enough to stay at the firm.
what would it take at your firm to simplify the processes of how you operate, how partners are held accountable and how you foster a sense of well-being across the firm?
perhaps it’s like another scene from “rain man,” in which raymond, played by dustin hoffman, says “lights out at 11.” to which tom cruise’s character, charlie, replies, “yeah, well, new rules.”