{"id":73003,"date":"2020-05-03t12:00:57","date_gmt":"2020-05-03t16:00:57","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=73003"},"modified":"2020-05-01t09:55:49","modified_gmt":"2020-05-01t13:55:49","slug":"partner-buyout-nuances-queries-from-firms","status":"publish","type":"post","link":"\/\/www.g005e.com\/2020\/05\/03\/partner-buyout-nuances-queries-from-firms\/","title":{"rendered":"three tough questions in partner buyouts"},"content":{"rendered":"

\"\"when firm investment hits your own wallet.
\n<\/strong><\/p>\n

by marc rosenberg<\/i>
\nthe rosenberg practice management library<\/i><\/a><\/p>\n

partner buyout plans can be difficult to navigate. we want to be fair to our partners, and we want to be treated fairly in return. in the process, differences of interpretation inevitably arise.<\/p>\n

more: <\/b>is mandatory retirement a best practice?<\/a> | covid-19: how your firm can respond<\/a> | 8 ways comp systems get partners to do what the firm needs<\/a> | buyers name 20 big merger turnoffs<\/a> | why governing by partner ownership is bound to fail<\/a>
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here are three queries we\u2019ve recently received you may find instructive:
\n
\npartner\u2019s question: <\/strong>as founder and rainmaker of our firm, i have transitioned millions of dollars of clients to other partners with no payment for client value other than ongoing earnings. over the years, i have generously shared earnings with my younger partners.<\/p>\n

our reply: <\/strong>what you describe is, unfortunately, a common unfair practice. when partners delegate clients to other partners for the good of the firm and the clients, this should never result in limiting the originator\u2019s income. in fact, there is a good case for paying even more for delegating clients than retaining them. this does require a system for tracking the delegated clients, both on the delegator\u2019s and receiver\u2019s end.<\/p>\n

if you have delegated millions of dollars of clients to others, your compensation should be significantly higher than your other partners. as such, if you are on the multiple of comp system for buyouts, your buyout would be significantly larger than the partners who received your originated clients. by getting a higher buyout, this is how you get your value out of the firm.<\/p>\n

partner\u2019s question: <\/strong>do you believe the value of the firm for internal buyout purposes should be consistent with outside sales prices for firms? our firm\u2019s revenue is $10 million. recently, we purchased a smaller firm, paying 120 percent of fees, 50 percent down, and the balance over a three-year period. our internal buyout plan values the firm at 80 percent of fees.<\/p>\n

our reply: <\/strong>intuitively, i can see how you might feel that the internal and external prices should be very similar. but they are not. most purchases of firms under $5 million these days are going for no more than 100 percent of fees, sometimes less. very large firms such as regional firms seem to be paying as little as 60 percent of fees. some go a tad higher but never exceeding 100 percent. in contrast, internal retirement plans value goodwill, on average, at 80 percent of fees and have done so for years. why the difference?<\/p>\n