Equity vs. Non-equity partners

In a CPA firm, the equity partners are the “drivers.”  They bring in business, keep clients because of great service, lead others and develop staff into leaders.  They “drive” the firm’s revenues and profits.  Their talent, leadership skills, personality and work ethic enable the organization to acheive excellence.

All organizations need drivers to excel beyond the competition, to exceed being average.  Sports teams, governments, charities, orchestras and yes, CPA firms – all need drivers.

An organization that lacks drivers will slide to average or worse – mediocrity.

But to be successful firms need a second type of partner – those who have the skill and personality to play a leadership role in servicing and retaining clients, but haven’t yet attained the “driver” level.  Many firms call these important players non-equity partners.

The two most common reasons to have non-equity partners are (1) To provide younger CPAs with an extended track to equity partnership, giving them the time to develop their technical and business development skills, and (2) to retain critically important staff who otherwise might leave the firm, but lack the skills to be an equity partner.

Many firms make the mistake of promoting staff directly from manager to equity partner, without first considering the intermediate stage of non-equity partner.  To clients, staff and the community, a non-equity partner is a “partner.”  Non-equity partners attend partner meetings, manage a client base, have access to the firm’s financial records (excluding partner earnings) and are eligible for a share of the firm’s profits in the form of an incentive bonus.

The 2011 Rosenberg Survey showed that 78% of firms over $20M have non-equity partners, as well as 61% of firms from $10-20M and 39% of firms under $10M.

We strongly encourage the non-equity partner concept and the creation of this position in the partnership agreement.