Hope is Not a Strategy – Particularly When It Comes to Growing

By Dom Esposito

Dom Esposito

Dom Esposito

There are several things that we find to be particularly curious about small and mid-sized CPA firms?

We are curious about:

  • Why so few firms share with staff (or, at a minimum, potential partner candidates), who see how hard partners work (i.e. “the pain”), the average, mean and high / low range of partner compensation (i.e. “the gain”).
  • Why very few firms share with the staff what it takes to become a non-equity partner and eventually an equity partner.
  • Why scarcely few firms make the necessary investment to develop the next generation of partners.

When it comes to the silence small and mid-sized CPA firms have around partners compensation, it appears that the firms believe that, if they share this information, the staff, in turn, will negotiate for more money for themselves. We guess that is human nature but, in our view, it is not sufficient enough reason to closely guard against compensation disclosure and to keep staff in the dark. Personally, we like staff who want to earn more money. As we see it, the more money they earn, the more they produce and that production results in more profits for the partners. Further, we believe that CPA firm partner compensation, while not comparative to the huge amounts earned in the tech or investment banking industries, is not anything to sneeze at or be embarrassed about. Partners earn handsome sums of money and live very comfortable lives with their families. They should be very proud of it as they work hard enough for it. We have found that disclosing partner compensation statistics to staff is a great carrot for those who aspire to be future partners.

While firms have recognized long ago that marketing, selling and identifying new clients are important activities to sustain growth and therefore spend lots of time and money in these areas, we find that many firms do not make similar investments in attracting and retaining talent – particularly when it comes to “growing” new partners.

In our opinion, it is very healthy for firms to develop a roadmap as to what it takes to get promoted to non-equity partner and then from non-equity partner to equity partner. We also believe that firms will reap considerable benefits if they developed a partner candidate development academy.

Presented below are examples of what is being provided in these areas by some very successful firms.

Not many staff want to become partners at small and mid-sized CPA firms. It is their perception that work and life are not balanced to their liking. Having said that, usually there are a good number of staff at small and mid-sized CPA firms who do, in fact, have an interest in becoming partners. But, again, large numbers of firms are not very helpful in “educating” staff as to what it takes to get the promotion.

On the other hand, there are successful firms who do provide a promotion roadmap for staff. In it they clearly indicate that the path to move to non-equity partner typically is considered after functioning two, perhaps, three years as a senior manager, principal or director. It is made very clear that the key question addressed when a firm is considering a professional for promotion to non-equity partner is: Does the non-equity partner candidate contribute to perpetuating and growing the business of the firm, maintaining and enhancing technical excellence and driving client and staff retention?

In addition to this key question, other criteria and guidelines, all designed to determine if the candidate has demonstrated a track record of performance, used in determining if someone qualifies for promotion to non-equity partner include detailed questions regarding:

  • Client Relationships and Client Service Excellence
  • Technical Capabilities and Distinctions
  • Personal Attributes
  • Staff Development
  • Business Development (a combination of new business and cross selling)
  • Office Leadership / Firm Management
  • Communications
  • Administrative Responsibilities

When it comes time to consider someone for promotion to equity partner, the more successful firms make it clear that they have financial and economic guidelines (including firm per partner standards for revenue, profits and billable hours) that recognize that practices generate different results and, therefore, depending on the candidate’s area of expertise, might require different standards. As a result, firms customize financial guidelines for a candidate’s applicable role and what the candidate needs to do to meet them.

The promotion roadmap also indicates that moving from non-equity partner to equity partner is a consideration after functioning two, perhaps, three years as a non-equity partner. The key question that is addressed when a firm is considering a professional for promotion to equity partner is, has the equity partner candidate significantly contributed to perpetuating and growing the firm’s business, maintaining and enhancing technical excellence, and driving client and staff retention? Further, has this contribution been demonstrated by a track record of steady and increasingly improved performance in the eight areas referred to above?

Finally, to develop the next generation of partners, we encourage firms to launch a partner candidate development academy. It provides an opportunity for partner candidates and senior management to get to know each other better and creates glue for the organization. Perhaps most important, it provides tools to the partner candidates that enable them to maximize their strengths and minimize their weaknesses.