Adamson Advisory

Too Many Firms Are Still Top Heavy

Although many firms are doing a good job with transitioning long-time partners into retirement, a large number of firms are still dealing with top heaviness. These firms have continually brought people into the partner ranks because they are good technicians or because the older partners did not want to lose a manager who had many close relationships with a significant number of clients.

Firms also have a history of promoting people to manager just because they don’t want to lose them. What eventually happens is that the firm becomes top heavy. There are way too many partners and managers and too few staff.

Then a common scenario evolves where partners are doing manager work, managers are doing staff work and staff are looking for work.

Because the firm is top heavy, younger accountants, with great potential, get discouraged and leave the firm. Headhunters are calling them regularly and it is very easy to get a great deal at another firm in your market.

Read my full article on how to begin the journey in prioritizing and tackling the top heaviness inside your firm.


Get A Coach

Wouldn’t it be great to have someone help you perform at a higher level than you can achieve on your own? Get a coach. Even experienced managing partners need someone to push them to their potential.

Given what we know about top athletes who achieve great things because of their coach, it would seem logical that we could also expect a similar experience in the business world.

In public accounting, true performance coaching seems to be the exception rather than the rule.

Leaders in accounting firms are prime candidates for a coaching process. Does the following sound like you?

  • You are busy taking care of your clients, working hard and meeting deadlines.
  • You don’t get a lot of direction or guidance from the firm but that’s okay.
  • You either don’t have any personal goals or if you do they only see daylight once a year.
  • No one is pushing you and things are going pretty well (as far as you know).
  • Life is good.

All of this describes most partners in accounting firms.

Seek out a coach. There may be great candidates inside your own firm but don’t be afraid to go outside to seek help.

Read my full article on this topic here.

Read about my coaching services here.

2016 Is The Year To Review And Update Your Partner Agreements

One of the first questions I ask when I interview the managing partner of a potential CPA firm client is, “When was the last time you updated your partner agreements?”

In almost every case, they tell me that it has been quite some time ago. Partner agreements seem to be the type of thing that accountants don’t worry about until a crisis is upon them.

One of my on-going goals is to give you tools and tips that you can use in your firm, and hopefully nudge you into action before that “crisis” happens.

Here is a short checklist that you can use to review your firm’s partner agreements. It contains some guidelines that will get you started. We’ve also included some of the latest information on retirement provisions and current thinking that the profession is embracing.

If you’re like most firms and it has been quite a while since you updated your agreements, make it an important goal for 2016.

Requirements Of The Job – Managing Partner

Last week’s blog post provided you with a very simple job description for the managing partner of an accounting firm. However, I am sure many of you find it quite a bit more complex. I must admit, sometimes it seems like the role continually expands.

Gary Boomer of Boomer Consulting has written much about the various aspects of the role of the managing partner. In his Boomer’s Blueprint column in the December issue of Accounting today, Boomer gives us “the more important requirements of the job”.

Here’s Boomer’s list:

  • Grow the firm
  • Build a unique ability management team
  • Provide and develop leadership at all levels of the firm
  • Stay connected with peers and the profession’s leaders
  • Attract, retain and develop quality people
  • Make timely decisions
  • Develop a strategic vision
  • Build consensus and commitment to the vision and core values
  • Teach and learn
  • Allocate and manage limited resources to strategic (priority) initiatives
  • Counsel partners and staff — accountability

Be sure to read his article. He also provides 13 initiatives that should be on the managing partner checklist. This checklist can be very valuable to the many new managing partners that are beginning to take the role from a long-time, retiring MP.

Here’s one I think is very important:  Focus on improving revenue per full-time equivalent – Charge hours are not a measure of value. Benchmark the past two years by taking total revenue and dividing by the number of FTEs (total hours divided by 2,080). Just like in golf, improvement should be your focus. This one metric summarizes utilization, realization and pricing.

Managing Partner Job Description – Keep It Simple

January 11, 2016GaryPartner Issues, Retreats1

During my many years in the role of managing partner of a growing, progressive CPA firm, I had many variations relating to my position description.

As part of my consulting engagements, I have also had the opportunity to see many examples of MP job descriptions from other firms around the country. Some are quite extensive and involved. Others are straight-forward and look like most other MP job descriptions in the CPA profession.

One year, I made a simple request to my partners….. “Tell me what you expect of me.” This resulted in a retreat exercise that was worthwhile for them and valuable for me. They made it brief and to the point.

Maybe your partner group should consider sharing their exact expectations of the managing partner.

Here’s what my partners wanted:

Role of the Managing Partner

(Keeping it simple)

  • Bring new ideas to the Partners of the firm
  • Provide guidelines and hold individual Partners accountable for goals
  • Be a coach/mentor to the individual partners and director of administration.
  • Maintain profitability
  • Maintain firm image
  • Concentrate on the big picture – less detail
  • Develop a three-year plan for the firm

Three Steps to Valuing Your Practice for Partner Retirements

There are 76 million Baby Boomers in the United States, defined as those of us born between 1946 and 1964. Accounting firms across the country are full of Boomers with 61% of all partners now over the age of 50, all marching toward retirement.

Consider these three steps in valuing your practice for partner retirements.

Step One is determining the value of your firm. Remember we are describing an internal structure, not an external sale or merger. Also, this is a process/transaction that is between the firm and the retiring partner; not a deal that is done outside the firm between individual partners.

There are two pieces to value – accrual basis capital and goodwill. The goodwill is almost always expressed as a multiple of revenue and the generally accepted value historically was one times revenue.

The surprise for many of us Baby Boomers may be that the overall average goodwill value out there has been about 80% of revenue for several years. The latest 2014 Rosenberg MAP survey of 364 firms puts the average at 81%.

So, once we get our heads around what is perhaps a lower value for our firms, Step Two is determining how we split up the firm’s goodwill among the owners. The choices here include allocating it based on ownership percentages or books of business which you tend to see in smaller firms. But the direction that the profession is trending is to allocate the goodwill based on owner compensation.

Step Three is the process you utilize to pay out the value to the retiring partner. The capital is usually paid out in cash or over a short term with interest. The vast majority of firms are paying out the goodwill in the form of deferred compensation (ordinary deduction to the firm and ordinary income to the partner). We see terms ranging from seven to ten years, with no interest. Ten years has become the norm.

It is probably time to pull those agreements out of the drawer, dust them off and take a look! Read the full story on this topic here.

How Much Time Does It Take To Be An Effective Managing Partner?

Most CPA firm partners ask the question a little bit differently. It goes something like: “We have X amount of revenue and Y number of partners, so how many chargeable hours should our managing partner have compared to the other partners?” And the next question usually is: “How big should the managing partner’s book of business be compared to the other partners”. If these two questions aren’t a topic of conversation among your partners, they probably should be.

First, it is much more important to make sure that you “manage” the managing partner’s charge hours than it is to manage the size of their book of business. Most managing partners that we work with continue to maintain relationships with key firm clients as their firms grow and their duties as the managing partner grow. Those clients typically stay in the managing partner’s book; but, they have to leverage the work differently than they used to and rely upon more involvement of other partners and staff to get the work done.

The much tougher metric to manage is the chargeable hours of your managing partner and the time that is left to run the firm. How do you know where those numbers should be? It truly is a function of the size and complexity of your firm. The problem is that we don’t adjust quickly enough as our firms grow and most managing partners are spending too little time leading and managing, and too much time serving clients.

This is not an exact science but you need to consciously bring down the hours as the firm grows. It won’t happen unless you plan for it. Most managing partners enjoy the client work, they’re good at it and are sometimes reluctant to give it up.

We see numbers all over the map depending on the firm and the makeup of the individual in the managing partner chair. Your goal should be to reduce the client service hours of your leader to free up time to serve what is your number one, most important client – the firm. Read the full story on this topic here.

Building Your Bench for Succession – A Few Ideas to Help You

Thousands of firms are working through the succession and retirement of senior partners and deciding along the way whether or not they can pull it off internally and stay independent. The single most important factor for success is what we see when we look over our shoulder – is the bench of people there to succeed us? Here are some ideas to recruit and keep employees on your team:

• Make recruiting a constant effort in your firm meaning that you are always looking for people, not just when someone leaves. If you make the commitment to hire more than you need another very healthy thing will likely happen – you will actually be able to make choices and outplace the weaker players, strengthening the team along the way.

• Firms having the best success building their bench almost always have a commitment to grow their own. That means a commitment to a campus recruiting process and not being afraid to compete with the larger firms.

• Create an internship program in your firm. It is a tremendous way to get a test drive before you actually hire someone.

• Make sure that you have a staff bonus program for recruiting experienced people. You want your team talking to friends about how great it is to work for you and with some skin in the game, they will be more inclined to send you quality candidates.

• Do a better job in defining your position descriptions and what it takes to advance to the next level in your firm.

• Make it clear what the career progression is in your firm and what the ladder looks like. It is important that everyone else in the firm knows who is on the partner track and who is not. You will lose younger “stars” who want to move up if they think the ladder is clogged by too many people above them.

• The college grads that you are hiring today want to be “a part of it”. Short of putting new hires on the Executive Committee, there are things that you can do to make your people feel more engaged. Here are a few examples:

1. Find opportunities to talk about your mission and vision often and how the firm’s actions and direction are consistent with them.

2. Put young people on task forces and committees of the firm. Better yet, form an Inclusion Committee to get their ideas on how the firm can improve communications with and involvement of the team.

3. Create opportunities to communicate with the team especially from the firm’s management/leadership group. For example, meet with your manager group after partner meetings to keep them informed; hold an open forum lunch for staff with your managing partner a couple of times a year.

Building your bench is a big job and it involves several different fronts. For smaller firms it is much more difficult to devote the resources to get it done. With that said, it is the answer to perpetuating your firm and accomplishing internal succession. Read the full story on this topic here.

Admitting New Partners – Succession Best Practices

January 23, 2014GarySuccession Planning0

As we work through the succession and retirement of senior partners in our firms, a lot of us are also reviewing and updating our internal documents and agreements. A key part of the update should be focused around how we bring new partners into the firm to replace the “old guys”. There have been changes in valuations and process that we really need to be aware of. Following are some of the best practices you should consider:

• How many partners do you really need?

• Do you have a PIT (Partner-in-Training) program?

• Should your firm use Non Equity or Low Equity partner positions?

• Have you looked at how you’re calculating the buy-in?

• What percentage of ownership does the new partner get?

• Financing the Buy-In. How should it be structured?

Regardless of whether you change anything or not, the Baby Boomer succession wave presents an opportunity to review and challenge how we bring new partners into our firms. Read my latest article which discusses the above topics in more detail.

Cover These Bases For Every Retiring Partner in Succession Planning

October 31, 2013GarySuccession Planning0

Every firm is working through the succession maze and dealing with the exit of key partners in the firm. These partners leave holes in the firm that we have to fill. We need to recognize that our plans to fill them will be different depending on the role that the individual partner plays in the firm. With that said, there are four areas that you must cover for every partner. And each one deserves a plan of its own. They are:

Technical Skills and Expertise – Remember to focus on shoring up both service and industry knowledge for the firm.

Leadership – Leadership transition is one of the most difficult succession issues facing firms. Take a look at an article on my website for some ideas for the M.P. spot: Managing Partner 101 – Just What Exactly is the Job?

Hours – Because we need to move a particular client relationship, that doesn’t mean that we also have to replicate and move all of the partner hours intact to one individual. Make it a focus to leverage preparation and review time if you can.

Client Relationships – The client transition plan needs to be orchestrated over at least two years, it needs to be written and it needs to be supervised and managed by the firm’s managing partner. For the close personal relationships which are always the toughest to transition, you should plan on shadowing for at least two year-end cycles.

The retirements that we are just beginning to focus on are key to the future of our firms. Covering these bases will give you a better shot at a successful outcome. Read my full article on Succession – Cover These Bases for Every Retiring Partner.