{"id":56475,"date":"2018-11-02t12:00:10","date_gmt":"2018-11-02t16:00:10","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=56475"},"modified":"2023-10-05t09:19:10","modified_gmt":"2023-10-05t13:19:10","slug":"time-to-pull-the-trigger-on-unproductive-partners","status":"publish","type":"post","link":"\/\/www.g005e.com\/2018\/11\/02\/time-to-pull-the-trigger-on-unproductive-partners\/","title":{"rendered":"how partners fail"},"content":{"rendered":"
<\/a>and why: the metrics every cpa needs to know. by domenick j. esposito<\/i> \u201cstatus quo, you know, is latin for the mess we\u2019re in.\u201d<\/p>\n \u2013 ronald reagan<\/p><\/blockquote>\n you have heard it many times before. worse yet, you are living it today.<\/p>\n more on strategic planning: <\/b>ineffective management is hazardous to your firm\u2019s health<\/a> | why do we accept poor new business results?<\/a> | the link between strategy and winning on value<\/a> | focus on an enhanced client experience<\/a> | 22 things leaders must do<\/a> | 21 questions to help unlock accelerated growth<\/a> | m&a candidates: valuations and vetting<\/a> today, many small and midsized cpa firms are being challenged by slow organic growth coupled with:<\/p>\n as if that weren\u2019t enough, firms also are trying to put their arms around evolving business and operating models \u2013 changing from a traditional accounting firm model and partner\/staff pyramid to a professional services firm model, which mandates a flatter organization. it has become very obvious that management consulting and advisory services are where a cpa firm\u2019s growth and margins are today as mid-market clients continue to outsource non-core, but nevertheless, critical business processes in an attempt to improve ebitda and working capital.<\/p>\n on top of all this, soon firms will be facing competition from disruptors such as google and microsoft as they buy market share by slicing and dicing real-time financial data that also deliver value-add from immense databases that benchmark best practices in a quest for enhanced market valuations.<\/p>\n how are firms addressing these challenges?<\/p>\n many of the giant four and the next six are embracing artificial intelligence and are aggressively trying to grow both organically and through mergers and acquisitions. i applaud those efforts particularly as firms such as cbiz, crowe, bkd, and cla rapidly transform themselves into professional services firms by making big bets on additional advisory and consulting capabilities and services. at the same time, the giant four and the next six are continually evaluating partners and, when necessary, counseling out unproductive partners.<\/p>\n many small and midsized cpa firms are slowly transforming their firms into professional services firms. kudos! and the aicpa is launching an artificial intelligence effort to help small and midsized cpa firms compete. again, kudos! i applaud that effort. on the other hand, these firms are very slow (if they are acting at all) in counseling out unproductive partners.<\/p>\n small and midsized firms need to take a hard look at their partner numbers (what they are versus what they should be) and decide if it is time to pull the trigger on unproductive partners. it\u2019s long overdue at many firms.<\/p>\n to that end, i would like to share some financial guidelines that are commonly used by both the giant four and the next six. now, i am not in any way suggesting that these are the guidelines that small and midsized firms should adopt. not at all. instead, i believe it is probably beneficial for small and midsized cpa firms to have an insight into what\u2019s going on at the larger sustainable brands, so they can benchmark against them as they struggle with the decision to pull the trigger on unproductive partners or not:<\/p>\n revenue per audit\/tax equity partner: $2 million<\/p>\n earnings per audit\/tax equity partner: $600,000<\/p>\n revenue per consulting equity partner: $3 million<\/p>\n earnings per consulting equity partner: $1.3 million<\/p>\n these guidelines are just that \u2013 guidelines, not bright lines. if they aren\u2019t met, firms put up a red flag and decide what they need to do about it.<\/p>\n in addition to the financial guidelines, the mandate, with the exception of those partners tasked with quality control, at many of the larger firms is that an existing equity partner must demonstrate a track record of creating new business originations and by achieving actual results, net of losses, in the minimum amount of $250,000 each and every year. further, there needs to be evidence that the partner is consistently cross-selling new products and services to existing clients.<\/p>\n again, if these criteria aren\u2019t met, an underperforming partner is coached with the understanding that if improvements aren\u2019t achieved, he\/she will be counseled out of the firm. to provide a soft landing, many firms permit departing partners leave with a small number of clients who have been serviced in the past.<\/p>\n i am very aware that this analysis might appear foreign to some firms and perhaps very harsh to many others. please understand, i am not looking to offend any firms. rather i hope to open eyes to the realities of our business. if your firm isn\u2019t actively addressing underperforming partners, i suggest that you are looking at the world through rose-colored glasses. in addition to being over-partnered, your firm probably is facing a number of undesirable outcomes including:<\/p>\n all of these outcomes can be effectively dealt with if you do a gut check, understand your reality and your probable future, and deal with it with proper prudence. i know it\u2019s tough out there, but things are not going to get better if you put your head in the sand.<\/p>\n we have a great profession (yes profession; not industry) built upon the cornerstones of trust and integrity. let\u2019s capitalize on the \u201cmarket permission\u201d we enjoy and the franchises we have developed. let\u2019s grow our firms in a way we can be proud of. remember, hope is not a strategy. a strategy is a strategy.<\/p>\n","protected":false},"excerpt":{"rendered":"
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\nwow! it certainly isn\u2019t the good old days before the financial crisis (circa 2002 through 2006) when the giant four firms were the greatest referral sources for mid-market firms and sox created significant demand for services. pricing power was at an all-time high. many firms were figuratively printing money and were afraid to answer the phone because they would have to turn away new business as production and utilization exceeded 100 percent of capacity.<\/p>\n\n
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