CPA Firm Leadership Tips From a Top MP
Randy Nail is the Managing Partner (MP) of Hogan Taylor, a $50M Oklahoma-based firm in Tulsa and three other locations. Randy got a unique baptism to managing the firm in several respects. In 2009, Hogan Taylor was created from a merger of two equal $10M firms. One of the two firms’ MPs initially served as MP, but Randy succeeded him two years later.
As one might expect when two successful, highly competitive partner groups merge, the integration of personalities, culture and the potential for conflict is no small challenge. The firm more than doubled since Randy assumed his role. Though not personally responsible for all that growth, it’s noteworthy that it occurred on Randy’s watch.
Randy spoke to our Chicago Managing Partner Group recently and brought the house down with his thoughts, ideas, experiences and energy in managing a CPA firm. Here are some of his gems of knowledge:
ROLE OF THE MP
The MP’s job is to decide what kind of firm we are going to build. Not just saying it, but doing it.
Randy gave up all his clients to be MP. Wasn’t he worried about his status and compensation in the firm if he stops being MP? Randy’s response was, “No, you have to have the confidence that you will find another role.”
“I’m a culture-based leader, not a metrics-based leader,” he explains. “Our firm has to have the kind of culture that people want to live in.” Randy defines culture as the collective beliefs of a firm. He says his firm’s culture is to constantly innovate. Their attitude is “if you can find a better way of doing bank recs, go ahead and do it.” There is so much innovation in the firm that as MP, he doesn’t even know all the initiatives going on.
Mergers are in our DNA. Our criteria for merger candidates are the strength of a seller’s current leadership, their talent bench and the quality of their clients. It takes us a long time to complete a deal because of all the time we spend assessing sellers’ people and their culture. Purchase multiples we are paying for compliance firms are going down well below one times fees because of the likelihood of these services going away in the near term.
When we acquire a firm, we pay on collections for the first year and freeze the billings thereafter. We won’t pay a purchase price to the seller that includes increased revenue due to selling new services from our firm. However, if the seller’s personnel sell our services to their clients, we reward them with higher compensation.
First-generation firms like to maximize their profits. Randy tells sellers that he’s going to take x% of their profits and invest it back into Hogan Taylor.
The Role of the Managing Partner is the only CPA-firm-specific resource for MP success. The book addresses ►how the MP manages partners ►how a good MP impacts profitability ►the MP’s role in managing staff ►how MPs enforce the partner agreement ►essential organizational skills for MPs►the MP’s job description►how MPs should be evaluated
HOW HOGAN TAYLOR INVESTS IN THE FUTURE
We asked a partner to give up all his clients to focus on firm-wide innovation. We asked another partner to get rid of all his clients to help build a wealth management practice.
DEVELOPING AND INVESTING IN PEOPLE
Lateral hires don’t work well for us. It’s very hard to find people in our profession and change their behavior from another culture to ours. We pay more for staff than most other firms.”
“We moved to a closed system shortly after our merger. With a closed system, you get greater unity when people stop comparing their incomes to each other. At the end of every year, we tell our partners ‘here is how you performed and here’s what we need you to do for the firm going forward.’ An integral part of our partner comp system is goal setting and self-evaluations reviewed with the comp committee.
If I can’t have a closed comp system, I won’t be MP. I don’t want to have conversations with each partner about their comparative comp.
OTHER HOGAN TAYLOR PRACTICES
Our practice is to maximize client touches. Once you add a second partner to a client, the stickiness goes way up. Add a third, wow!
We stopped monitoring billable hours. We still record them for cost accounting purposes but we stopped billing based on hours. It’s a terrible metric for building revenue. It stands in the way of being advisors. When we stop managing the firm by looking at people’s billable hours, it moves us from measuring performance based on hours worked to what was produced. How can we make a difference for our clients if we are burdened with pounding out compliance billable hours?
On day one, everyone is taught that they have a role in business development. We tell new people that everyone is different and that we will find a role that suits them.
Hogan Taylor develops people as business-getters by:
- Working in teams
- Partners taking staff on sales calls (too much business development is done alone)
- Training them in having “conversations”
- Sending people to multi-year external leadership development organizations
- Creating the Hogan Taylor university that stresses soft skills from day one
- Lots of lunch and learns
Our goal is to move consulting from 15% to 40% of revenue. That’s the future of CPA firms.
We created our own charitable foundation. We believe in serving the community. We give our staff 24 hours a year during the workweek to volunteer for non-profits.
BEING THE BEST MP FOR YOUR FIRM
Randy gives us a host of best practices that Managing Partners can learn from. The best firms in terms of profitability and growth have strong MPs to lead the way and this doesn’t happen without effort, learning and continued refinement of leadership skills by the MP.
Best practices for managing and structuring the leadership group; descriptions of both partnership and corporate styles; role of the managing partner and firm administrator; decision making; voting; the role of a partner and how the organization changes as the firm grows.Learn More