retirement

how to transition clients from retiring partners

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older businessman shaking hands with businesswoman across deskdon’t make this common but potentially expensive error.

by marc rosenberg
retirements & buyouts

i have done extensive polling of firms in recent years on client transition and offer here some of their practices.

the best transition practice of course falls under the category of “the best way to solve a problem is to never let it happen to begin with.”

more on retirement: retirement plan funding? what funding? | vesting can cover part-timers, too | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | why you’ll get less from your partners in a buyout than you might by selling the whole firm | eat what you kill? then maybe ‘book of business’ is for you | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

said one mp: “the ‘transition’ process should start as soon as the firm gets a client (some start even sooner – on the sale pitch). clients should be assigned a team, including a backup partner and a manager. the client should be told who the team members will be. some call this institutionalizing the clients. if you do this, there is very little else that needs to be done when a partner announces his/her retirement.”

some other points: read more →

you want goodwill payments? give proper retirement notice

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older man and younger man having meeting at deskno transition – no goodwill.

by marc rosenberg
retirements & buyouts

if there is one takeaway in retirement planning, it would be this: “no transition – no goodwill.” here’s what i mean.

more on retirement: retirement plan funding? what funding? | vesting can cover part-timers, too | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits? | three ways to calculate goodwill payable in partner buyouts, none of them great | eat what you kill? then maybe ‘book of business’ is for you | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

the best of times and the worst of times…

with apologies to charles dickens, who famously opened his classic “a tale of two cities” with the above, here are two real experiences i had regarding transition, one of which was the best example of retiring partner transition i’ve ever seen and one the worst.

read more →

retirement plan funding? what funding?

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young businessman clipping hedge into dollar signweighing 2 pros… and 6 cons.

by marc rosenberg
retirements & buyouts

ninety-nine percent of all cpa firms’ retirement benefits are unfunded. (this excludes the many instances where firms carry life insurance on partners because it only covers retirement in the case of death).

more on retirement: vesting can cover part-timers, too | retirement vesting: the devil’s in the details | compromise is in order for some goodwill payouts | if clients leave, do you reduce retirement benefits? | why you’ll get less from your partners in a buyout than you might by selling the whole firm | the multiple of compensation method, fully explained | clients leaving? time to reduce retirement benefits | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

there are two types of funding:

read more →

vesting can cover part-timers, too

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businesswoman with piggy bankpartial credit is an option for those whose schedules vary over their careers.

by marc rosenberg
retirements & buyouts

full vesting age is different than mandatory retirement age.

more on partner retirement: retirement vesting: the devil’s in the details | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits? | three ways to calculate goodwill payable in partner buyouts, none of them great | the ins and outs of aav for goodwill | clients leaving? time to reduce retirement benefits | how to set terms and limits for goodwill payouts | partners may balk at guaranteeing retirement obligations

these two ages are similar, but most firms treat them differently. for instance: read more →

retirement vesting: the devil’s in the details

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money rolland two common methods fully illustrated.

by marc rosenberg
retirements & buyouts

vesting of retirement benefits is not unique to cpa firms. but vesting concepts for accounting firms are somewhat unique and are important to understand.

more on buyouts: compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits? | why you’ll get less from your partners in a buyout than you might by selling the whole firm | three ways to calculate goodwill payable in partner buyouts, none of them great | eat what you kill? then maybe ‘book of business’ is for you | the multiple of compensation method, fully explained | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

employee retirement plans are intended essentially as “savings programs” that people can take with them when they leave the firm, even if they depart well in advance of a normal retirement age. when there is employer matching, vesting provisions are common, and vesting is fairly rapid. in contrast, vesting in partner retirement plans is intentionally slow.

read more →

when compromise is in order for some goodwill payouts

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businessmen standing on dollar billtwo ways to deal with the loss of a major client.

by marc rosenberg
retirements & buyouts

sometimes you need a creative compromise for dealing with the issue of linking client retention with goodwill benefits.

situations that could cause a firm to factor in lost clients in calculating goodwill benefits include:

  1. client loss, regardless of who is at fault.
  2. non-traditional services that were not institutionalized and hence, left the firm with the lead partner.
  3. loss of a significant client.

read more →

when retiring partners take a specialty with them

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businessman sitting on scales with stack of coins in other traynon-traditional services must be ‘institutionalized’ to be valuable.

by marc rosenberg
retirements & buyouts

the only reason firms pay goodwill-based retirement benefits is to retain the clients managed by the retiring partner.

more on partner buyouts: if clients leave, do you reduce retirement benefits? | why you’ll get less from your partners in a buyout than you might by selling the whole firm | eat what you kill? then maybe ‘book of business’ is for you | the multiple of compensation method, fully explained | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | partners may balk at guaranteeing retirement obligations

if a firm were 100 percent certain that all of a retiring partner’s clients would leave the day after the partner settled in at the retirement community, i doubt the remaining partners would be terribly motivated to sign any retirement checks. read more →

if clients leave, do you reduce retirement benefits?

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burning money dollarphotoclub_69980042.jpgwhy today 1 in 5 firms links client loss with payout reductions.

by marc rosenberg

many things have changed during the history of the cpa profession. twenty or more years ago, the majority of firms valued their goodwill at one times fees and at the same time, had a provision in their retirement plan to reduce the goodwill benefits of a retiring partner if her clients left when she exited the firm.

by contrast, today the average goodwill valuation is roughly 80 percent of fees, and only 20 percent of firms have a provision that links client loss with benefits.

let’s analyze each of these two changes. read more →

why you’ll get less from your partners in a buyout than you might by selling the whole firm

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toy soldiers battle on and for dollar billshow to determine partner retirement payout terms and annual limits.

by marc rosenberg

the vast majority of firms pay retirement benefits over a 10-year period, according to our research.

more on retirement: three ways to calculate goodwill payable in partner buyouts, none of them great | eat what you kill? then maybe ‘book of business’ is for you | the multiple of compensation method, fully explained | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

we occasionally see five to seven years at lower payout levels. and some firms under $10 million adopt five-year payouts for goodwill, reasoning that because five-year payouts are common for the purchase of a cpa firm, the same term should apply to their own buyouts.

but external purchases of firms are quite different than internal buyouts. read more →

three ways to calculate goodwill payable in partner buyouts, none of them great

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pen, eyeglasses, calculator and magnifying glass on financial reportssome methods can damage the firm.

by marc rosenberg
retirements & buyouts

cpa firms use a number of methods to calculate the goodwill payable to a retiring partner.

here are three less commonly used.

1. ownership percentage

this method has clear detriments. firms should look at goodwill benefits as deferred compensation. both current and deferred compensation should be performance-based; ownership percentage is not performance-based and is often highly illogical.

read more →

eat what you kill? then maybe ‘book of business’ is for you

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a big golden tiger looking out for any disturbance during his mealthree common and painful scenarios.

by marc rosenberg
retirements & buyouts

the book of business method of allocating goodwill benefits is most often used by “eat what you kill” firms. essentially, retiring partners “sell” their client bases back to the firm.

more on retirement: the multiple of compensation method, fully explained | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

in almost all cases, the retired partner gets paid only to the extent that the firm retains her clients throughout her payout term.

the major flaw with this method is that a partner will never, ever delegate or transfer clients, for the good of the firm, to other firm members because this would lead directly to reduced retirement benefits. read more →

the multiple of compensation method, fully explained

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those who aren’t rainmakers still need to have their contributions recognized.

by marc rosenbergextreme close up of female hand with pen pointing on cash flow document.
retirements & buyouts

there are numerous methods used to calculate the goodwill payable to a retiring partner.

multiple of compensation is the most common method, especially among firms with five or more partners. each partner’s retirement benefits are equal to their compensation immediately prior to retirement times a predetermined and approved multiple.

read more →