Highlights of Managing Partner Panel – Part One

Recently, the Virtual Roundtable Group (VRT), a managing partner group founded by Art Kuesel and Marc Rosenberg, convened an in-person meeting in Austin, TX, to exchange ideas about CPA firm best practices. Kristen Rampe of Rosenberg Associates expertly led the group discussions. The firms ranged in size from $10M to $30M and were located from coast to coast. Many great ideas were put on the table – and this blog summarizes the best.

Partner comp. CPA firms that pay out 100% of the profits may be short-sighted. More than ever, firms need to reinvest some of the profits in staff salaries and bonuses, marketing, and technology. One MP of a $12M firm posited this: “We all make a ton of money. Wouldn’t it make sense if our nine partners reduced their pay by $50,000 each and paid it to the staff?”

Partner buyouts. At a couple of firms, founding partners will soon be entitled to humongous buyouts. How can the firm afford this? Kristen shared four “circuit breakers” that protect the firm’s cash flow and make large buyouts affordable:

1. The math must work. The net of (a) the retirees’ buyout payments, (b) the amount of money saved by not compensating the retirees, and (c) the cost of hiring an experienced replacement must be a positive number. If not, then the buyout needs to be paid out over more years to produce positive cash flow to the remaining partners.

2. Reduce buyout of a retiree with a significant specialty that walks away when the retiree leaves. Shame on the specialist for failing to form a team. Exception: the firm wanted the specialty to increase revenue over a period of many years and is willing to pay a buyout to the retiree, even though the firm will no longer have their specialty.

3. Reduce the buyout if the retiree fails to comply with the firm’s requirements for (a) giving sufficient notice, and/or (b) proactively and effectively transitioning clients to other firm members.

4. Provide an overall cap to annual buyout payments to all retirees. If the cap is exceeded, no one loses benefits. Instead, the buyout payments are stretched over a longer period. A common cap is commonly 5%–10% of revenue.

How CPA Firms Work: The Business of Public Accounting is a primer that explains how CPA firms work as a business. It is primarily intended for staff joining a firm, including new college graduates, experienced hires, and interns. Topics include why working at a CPA firm is a great career • CPA firm economics • industry innovations over the last 20 years • trends in the CPA profession • what it takes for staff to advance • the image of CPA firms • CPA firm management • how firms get clients • what attracts staff to CPA firms. Order your copy today!

Partner agreement provision. Require all partners to promptly inform the firm of serious medical issues.

Teaching the staff how CPA firms are run. CPA firms are much too secretive about what’s going on in the firm and how the firm is performing. Engaging staff in the firm’s business can drive growth and profits because an educated workforce makes better decisions, works more effectively and seizes opportunities faster. The staff feels more engaged in the firm. Several firms share the following with their staff: revenue, payroll in total, benchmarking and KPIs, among others.

Motivating staff to want to be partners. For several years, firms have complained that many of their staff say they don’t want to be a partner. The group identified the following issues and shared ways to address them:

• Workload is too heavy. They feel that partners “work all the time.” Partners need to work less to show the staff that they are not workaholics.
• Ease the firm’s culture of working fast all the time and constantly meeting budgets and deadlines that create high stress levels.
• Establish written thresholds for advancement to all levels, including partner. This should be a main part of mentoring programs. Show staff there are plenty of opportunities to make partner and, more importantly, help them advance.
• Explain to staff the many benefits of becoming a partner, including the wonderful client relationships they enjoy, the ability to function as entrepreneurs, the freedom of being a business owner, and earning high six-figure compensation.