Time Tracking: A Partner-Candidate Asks If It’s Worth It
We previously shared Part 1 of this series. Read it here.
We occasionally receive lengthy replies to our blogs and like to share our readers’ perspectives. A senior manager of a three-partner firm in the Midwest wrote to us, following my April Fool’s blog on raising the minimum retirement age to 85, articulating frustration with a relentless focus on billable hours. This is Part 2 of a 2-part series.
Reader: We need to think about this profession differently. (Not like SALY!) We need to consider the fact that nobody likes working 80 hours a week and tracking billable and non-billable time. That is silly (unless you are only billing by the hour). Much of our work is not by the hour but by the engagement; however, we still put emphasis on the time tracking and recording XX billable hours per period, yada yada… It is so arbitrary. A senior partner may say, “During tax season everyone needs to have XX billable hours”… as if billable hours were the ultimate measure of success.
Ron Baker is rejoicing in your words, as are firms that are shedding the billable hour and time tracking initiatives. That said, recording and billing by the hour still remains common in the vast majority of firms.
Tracking time and hourly billing certainly has its flaws. One professional thinks about a thorny client issue on the drive home and makes some headway on solving it, then decides this is valuable to the client and the project and charges the time. Another professional would argue that’s not working and it shouldn’t be recorded. One person is slow and methodical, taking 2x the time to do tasks than most professionals would. But an hour’s an hour, no matter the outcome in the time-tracking world. Unless you pad your hours… or bury them. But, you know, the numbers don’t lie.
One time-tracking mechanism firms appreciate is well-followed guidelines as what to record and how. Then one can then compare costs applied to any particular engagement to gauge profitability.
And there are other important metrics to pay attention to: How much revenue did you produce? At what realization? Do clients remain with the firm? Do billings to clients grow? Are your billing practices strong or are there write-offs because “our clients would never pay for that”? Are clients happy with your work, and do they refer you to their colleagues? Not to mention the critically important areas of staff development, recruiting and retention. Increasing the visibility of these metrics and measures would be of benefit to many firms.
The subject of total work hours (the reader mentioned 80 hours a week) certainly deserves attention, too. One of the larger challenges in succession planning today is fewer and fewer Gen-X, Millennial and Gen-Z have any appetite for hours like that. They’re quite content to make less (though it doesn’t have to be, if they design the right practice) in exchange for a certain lifestyle.
Many retiring partners do the work of three people. Finding a number of successors to take over the work is essential, which reduces the profitability picture of their book of business. Eighty hours a week for $400k income isn’t worth it to younger generations.
Our book How to Bring in New Partners is written for firms fortunate enough to have staff with the right stuff to be a partner. But firms don’t know how to develop staff into partners. They don’t have an established financial and operating process for bringing them in as new partners or have outdated approaches for doing so. And staff who aspire to be partners don’t have a clue about what it means to be a partner. This book addresses all of these areas and more, including: ►what a partner is these days, ► why it’s unbelievably fantastic to be a partner, ►the path to partner, ► skills that partner candidates need, ►best practices and key concepts in the financial and operating aspects of bringing in a new partner such as buy-in amount, ownership percentage, compensation, capital, and how voting works, ►the non-equity partner position and how it compares to an equity partner, ►what a new partner gets for the buy-in, ►non-compete and non-solicitation agreements, ►and how the firm’s partner retirement/buyout plan works.
Reader: There is a big flaw in this. When you bill based on value but manage based on billable hours, you are placing value on a metric that is disconnected from success. Young professionals talks about this, while the partners send reports that show billable hours as a top line metric. Revenue generation, client satisfaction, and quality of work all are much more impactful to a successful practice, but the almighty “billable hour” is how we tell young professionals (either directly or indirectly) if they are succeeding. It is so backwards!
I agree that if a firm’s disproportionately rewarded (directly or indirectly) measure of performance is billable hours, this is a misguided way to run a firm. Firms that harp on hours, hours, hours will quickly find themselves without anyone interested in doing the hours.
Reader: Young professionals are forgoing becoming partners, not because they don’t value the work, but because the senior professionals have told them how the ownership process works (based on what they did…”SALY”). Young leaders are not accepting of this way of doing things. As a result, they pick an alternative.
It is too bad many senior leaders are thinking about tomorrow by starting with SALY.
In any free market, this is the moment of decision. Is the requested buyout worth it to the successor partner? If so, fantastic! If not, fantastic! May the best deal prevail for both sides.
No one is hostage to any past way of doing things. If your firm has parameters you don’t like, I guarantee there’s another firm keen to take on a new partner-candidate to serve their retiring partner’s book of business. See what their offer is to best evaluate your options.
As partners approach retirement age, they naturally focus on who can take their place and eventually write their retirement checks. Prospective new partners often have a lot of questions about what becoming a partner entails. Many firms either aren't sure how to bring in new partners or have outdated approaches for doing so.Learn More