{"id":83148,"date":"2021-04-15t12:00:53","date_gmt":"2021-04-15t16:00:53","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=83148"},"modified":"2021-06-01t06:56:01","modified_gmt":"2021-06-01t10:56:01","slug":"how-a-good-managing-partner-impacts-profitability","status":"publish","type":"post","link":"\/\/www.g005e.com\/2021\/04\/15\/how-a-good-managing-partner-impacts-profitability\/","title":{"rendered":"how a good managing partner impacts profitability"},"content":{"rendered":"
<\/a>10 best practices.<\/strong><\/p>\n by marc rosenberg<\/i> i have compared a \u201ctrue\u201d managing partner to an administrative partner. both are important positions. both share many common duties and expectations. but true managing partners are more valuable because they function like corporate ceos and thus make a bigger impact on the firm\u2019s overall performance than admin partners.<\/p>\n more: <\/b>the 9 biggest merger pitfalls<\/a> | the managing partner\u2019s role in mergers<\/a> | five ways to evaluate partners<\/a> | manage partners with goal setting<\/a> | overarching authority that managing partners must have<\/a> these three duties differentiate true managing partners from admin partners. true managing partners<\/p>\n is it foolish to expect the managing partner to drive profitability?<\/strong><\/p>\n many partners at cpa firms for ages have thought it’s foolish to expect the managing partner to drive profitability. these old-school people are repulsed by the corporate style of governance, prefer a firm where the partners mostly function as sole practitioners and, if they are honest, don\u2019t want anyone<\/strong> holding them accountable for anything<\/strong>. they aren\u2019t bad<\/strong> people. they simply have never seen how prosperous a cpa firm can be with effective leadership at the top.<\/p>\n old-school partners reason that how a cpa firm works is simple. all it takes is a group of partners doing what partners are supposed to do:<\/p>\n they question why the firm needs to have one person manage the firm. they reason that it\u2019s simply not realistic or fair to expect a managing partner to improve profitability.<\/p>\n this post is devoted to debunking the above and<\/strong> showing you how a good managing partner can improve the firm\u2019s profitability.<\/p>\n what is profitability at a cpa firm?<\/strong><\/p>\n first, let\u2019s take a step back and make sure we’re all on the same page regarding the definition of a term you might think is as straightforward as it gets: profitability.<\/p>\n let\u2019s start with an illustration. assume a firm has revenue of $10 million with eight partners. further assume the partner profit percentage is 40 percent and the partners were paid an average of $450,000. here is how the firm’s income statement might look:<\/p>\n revenue: $10,000,000<\/p>\n expenses:<\/p>\n total expenses: $9,600,000<\/p>\n profit: $400,000<\/strong><\/p>\n what\u2019s the firm’s profit? it\u2019s the combination of what the partners were paid and the income remaining after their salaries were paid. in our example, total profit for the firm is $4 million minus $3.6 million plus $400,000. this equates to $500,000 of income per equity partner (ipp).<\/p>\n as accountants, i\u2019m sure you know the possible reasons why the firm didn\u2019t pay out the $400,000 left over: fluctuations in wip and receivables, retention of profits for investments in acquisitions, technology and marketing campaigns, etc.<\/p>\n what does it mean when we say a firm is profitable? for cpas, the gatekeepers of the financial world, you would think this would be straightforward. but such is not the case.<\/p>\n in common practice, profitability is more judgmental. it\u2019s what you want it to be. when a firm says it’s \u201cprofitable,\u201d it could mean any of three things:<\/p>\n
\nthe role of the managing partner<\/i><\/a><\/p>\n
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\nthis post drills down on how a good managing partner can improve profitability.<\/p>\n\n
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