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how deeply are you investing in your future? how are you treating the \u201cthree levels\u201d of partners?<\/strong><\/p>\n by allan koltin<\/em> the next 12 months will start with a handful of firms breaking out of the pack and substantially raising starting salaries for new accountants in a way never seen before (see e&y\u2019s recent announcement on staff salaries<\/a>). the domino effect will play out here because if you raise first-year salaries to second-year compensation levels, your second-year staff will need to be paid like third-year staff, and this move will go all the way up to senior managers and principals.<\/p>\n editor\u2019s note: every year, the rosenberg national survey of cpa firm statistics<\/a> asks the profession\u2019s top consultants two sets of questions:<\/em><\/p>\n <\/p>\n the firms that are \u201cuber\u201d profitable will have an easier time funding this change than their peers. however, if you want to win the important war for talent (i mean attract, keep and grow future stars!), you will now need to pay up for them in a way we never envisioned (simple supply and demand economics in play). firms that have historically managed firm success by measuring the annual increase in average equity partner compensation will need to learn that we also need to measure the investment we make in building a sustainable and \u201cbuilt-to-last\u201d firm.<\/p>\n an important note to all<\/strong> partners and firm leaders \u2013 i worry about the partner making a great living and getting double-digit increases in compensation over the past five years. to keep this phenomenon going, we must<\/strong> continue to grow and get better and more valuable as partners! if i\u2019ve learned one thing over the past four decades of advising firms on partner compensation, we have three levels of partners, and we must practice \u201ctough love\u201d when compensating them.<\/p>\n the levels are:<\/p>\n the days of all partners being \u201centitled\u201d to double-digit compensation increases are no longer possible, given the investment capital required and the need to \u201cfeed\u201d our stars.<\/p>\n i would be remiss if i didn\u2019t talk about the continuing trend of outside ownership of cpa firms. we are now three years in (the class of 2021 was eisneramper\/towerbrook capital and citrin cooperman\/new mountain capital), and the number of firms combining with private equity continues to grow. interestingly, it\u2019s not just private equity entering the game \u2013 it\u2019s also esops, private capital, wealth management firms, family offices and sovereign wealth funds.<\/p>\n all of that being said, there are many firms (of all sizes) finding innovative ways (not jumping on the pe bandwagon) to fund their future. many of them are thriving and will also be successful. just because trends are growing or changing doesn\u2019t mean everyone should follow the pack.<\/p>\n when i joined the profession in the 1980s, everyone discussed the demise of sole practitioners, bookkeeping shops and generalist practices. guess what? many of them are still here today and thriving! these firms embraced and invested in technology and were passionate about growth, service excellence, efficiency, processes, systems, talent and profitability.<\/p>\n let\u2019s not be afraid of the next five years \u2013 rather, let\u2019s embrace them.<\/p>\n if you have a strategic plan, execute it. if you don\u2019t, get one and let it reflect your people’s passions and potential!<\/p>\n the last 12 months (and the past five years) have produced solid results for most cpa firms. fee and rate increases have continued, and profits have increased as well. firms are better managing their business and, even though they maintain a partnership model, are putting more of a \u201ccorporate approach\u201d into how they run their firms and make decisions. it took decades, but their partners finally empowered leaders to lead and manage their firms. leaders still seek consensus but<\/strong> know that at the end of the day, they must make a decision and continue to move the business forward.<\/p>\n this is the fifth and final year of the \u201cgolden age of public accounting.\u201d in what felt like a disney movie, firms received free money (ppp), lucrative fee opportunities (ertc), the ability to continuously raise rates, cull out \u201cc\u201d and low-margin clients, navigate through the \u201cgreat resignation\u201d and transition to a hybrid remote\/in-office workforce.<\/p>\n now for the bad news. i don\u2019t think we will ever see a period of growth and profit as we have seen over the past five years. while i wouldn\u2019t say we are \u201cfat, dumb and happy,\u201d i worry the worst place to be in business is in a position of strength and think it will last forever. nothing in business is forever.<\/p>\n most firms grabbed the \u201cbull by the horns\u201d and embraced the fourth industrial revolution (yes, even cpa firms are being impacted!) and are stronger and better firms today than ever.<\/p>\n a word of caution, however: it\u2019s graduation day, and the best five years ever are over. but if you think change, innovation and the investment in technology, transformation and talent are also over … guess again! it\u2019s only going to increase over the next five years. if i could only give one piece of advice to cpa firm leaders, it would be to hold back a greater degree of profits and build an investment \u201cnest egg\u201d because you will need it to compete over the next five years.<\/p>\n","protected":false},"excerpt":{"rendered":" how deeply are you investing in your future? how are you treating the \u201cthree levels\u201d of partners?<\/strong>
\nthe rosenberg national survey of cpa firm statistics<\/a><\/em><\/p>\n\n
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more: <\/b>staffing turnover\u2019s down, but why?<\/a> | what\u2019s your firm worth? private equity wants to know<\/a> | the new pipeline: outsourcing and offshoring<\/a> | is this the last year of accounting\u2019s golden age?<\/a>
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\nadditionally, the investment in technology and transformation will continue to accelerate as we move from a compliance-focused business to more of an advisory and consulting business. some will learn that \u201cdabbling\u201d in change and transformation (i call this doing it on the cheap!) will produce minimal positive results. the next five years will reward the firms that truly invest deeply in the firm of the future. this may be a tough pill for partners in their late 50s or 60s looking to maximize their earnings in the twilight of their careers, but it will be the \u201cmedicine\u201d firms need to take to be successful.<\/p>\n\n
\n![\"\"](\"\/\/www.g005e.com\/wp-content\/uploads\/2024\/10\/250_pinkinvestmentillustration_adobestock_971649638.jpeg\")
<\/a>
\nby allan koltin<\/em>
\nthe 2024 rosenberg national survey of cpa firm statistics<\/a><\/em><\/p>\n","protected":false},"author":1359,"featured_media":133608,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[5,3002],"tags":[],"class_list":["post-133399","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-outlook","category-special"],"acf":[],"yoast_head":"\n