Pathway to partnership

Transcription

1 A program for emerging professionals Section 1 Pathway to partnership

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3 A program for emerging professionals Who is this for? If you are using this body of information, you: Are being asked or desire to become a partner in a practice May already be working in the practice May be being recruited to come into the practice May be the first partner from within the firm that the founder(s) have considered May be part of a new wave of partners but your firm has not developed a defined partnership track or roles This information has been designed for: Partner candidates who want to have as much knowledge as possible to facilitate their decision-making The smaller practice the practice that may have never have added a partner before The practice which has only rarely added a partner Practices where the larger issue of succession and exit for the founding or senior partners is in play Practices where there is no well-defined partnership path or process Whatever the case, you must be an active part of the process for your own protection, as well as to ensure a good outcome for everyone. Don t assume that the current partners in the practice have a well-formed idea of how adding new partners should work. In many ways they could be as new to this as you are. Plus, they have very different motivations than you do. You must manage your own process and work to get the outcome you want, keeping in mind that the work you do to determine if partnership is right for you will also make the partnership better and stronger. Before you start digging into the specific information and tools, there are couple of misconceptions that you want to get out of your head before your start. If you can lock on to these realities from the beginning, you will set yourself on a trajectory to get the outcome you want. A program for emerging professionals i

4 Myth Reality Myth Reality Myth Reality We re accountants. We don t run a business. An accounting practice is a business that provides accounting services. Save yourself a whole lot of grief in the partnership process and your life after becoming a partner by accepting this. Many of the anecdotes from accountants we interviewed firmly confirmed this. If you want to succeed, embrace that you are, or are part of a team that is, running a business. I m a partner, not an owner. Excuse me? You have an ownership stake in a legal entity that has all kinds of rights, responsibilities, and risks. That s what being an owner means. In fact, you ll see that we use the words partner and owner interchangeably in this program. Because that s what being a partner means. They re making me a partner because I perform well. I just need to keep doing that. As a partner you are taking on the responsibility, in one way or another, of the health and well-being of the firm. Want to know what happens when partners just assume everyone else is doing their job? Read the history of the fall of Arthur Andersen as a result of the Enron debacle. Be prepared to embrace your oversight role and responsibilities. Get started. Realistically, the information contained here is an overview. As you go through the process you are going to experience myriad details and specifics that relate to your unique circumstance. Get counsel. Find advisers. Ones who understand the issues of professional service firms and accounting practices in particular. This is not the time to be penny-wise and pound foolish. This is a big step and there is risk involved. But it is also a compliment to your hard work and accomplishment. And it has the potential for great rewards both tangible and intrinsic. So, dig in and figure out if this partnership thing is for you. A program for emerging professionals ii

5 The process of becoming a partner An established accounting firm that already has gone through the process of adding new partners will have an established process. When firms have not added new partners, it is unlikely that they have a process. Unfortunately, you will not be able to completely control this process, even if there is one. The existing partners will in many ways set the tone of the process. However, you can manage your own process for deciding if this partnership opportunity is right for you. This document presents a pathway you can use as a template. Section 1: Pathway to Partnership 1

6 Step one The new proposed partners must understand what it means to be a partner/owner You have the opportunity to become a partner one of the owners. You are not being given this opportunity. You have earned it through your hard work, your devotion to quality, and your demonstration of the qualities that are necessary for a person to be a successful business owner. Refer to The Role of the Partner, Its Benefits and Responsibilities and its questionnaire, which explains in more depth what being a partner/owner is all about. review this information and questionnaire, and seriously consider if this is a path you wish to take. Your first step along the pathway is to review this information and questionnaire, and seriously consider if this is a path you wish to take. Remember, partnership is not mandatory. You should only undertake it if it makes sense for you. Step two Understand the financial aspects of partner/ownership If you decide to take the next step, you must understand the financial aspects of becoming a partner/owner. In the simplest terms, you will be buying an interest in your accounting firm. Existing owners will be selling some of their interest. You are making an investment into the firm. This may not happen all at once buying in may be a gradual process. However, you will need to understand: How is the value of the firm calculated? How does the buy-in take place? How is the buy-in financed? How is compensation for partners determined? Is it an eat what you kill model? Shared revenue model? Something else? What kinds of benefits do partners get and will your benefits be different than those of the senior partners? Refer to The Role of the Partner, Its Benefits and Responsibilities that explains the financial aspects of partnership. Have a clear understanding of your financial commitment and do financial modeling to ensure that the assumptions of the buy-in make sense and will work. Get answers to any questions you have. Have a clear understanding of your financial commitment and do financial modeling to ensure that the assumptions of the buy-in make sense and will work. Section 1: Pathway to Partnership 2

7 In addition, a partner/owner s personal financial status can affect the health of the firm. Therefore, be prepared to discuss your personal finances as a condition of being able to review your firm s financial condition. And remember, this cuts both ways. You have every right to know the financial condition of the partners you are about to join. If a partner has an extravagant lifestyle or is very highly leveraged, you might have second thoughts about putting your personal net worth at risk of becoming a part of that partnership. You are now at your second decision in the process. If you are comfortable with the financial aspects of buying into the ownership and wish to continue, move to the next step of the path. If you do not understand or are not comfortable with the financial aspects of becoming a partner, stop. You should not continue with the process. Again, partnership is not mandatory. It is an opportunity. Step three Redefine your role in the firm and set developmental goals As an employee you have exceeded certain standards. You would not be considered for the partner/owner track if you hadn t. As you will have read in The Role of the Partner document, there are many new challenges you will have if you take on this new role. There may be areas where you need development to fill the roles and responsibilities of a partner. You ll get a revised job description. This may be a subtle change, but the new role very likely will require you to take the responsibilities that are expected of a partner/owner: Training may be required in certain areas. If so, establish a timeline for training. If business development is required, determine the specific benchmarks expected of you. Make sure any other requirements have mutually agreed upon timelines and benchmarks. Are you willing to be a leader AND a manager? Developing your new role may not be an easy thing for the founding partners to contemplate. They have been used to doing things in a certain way for a long time. Some things that should be discussed and decided upon include: What roles will you be expected to fulfill now and in the future? Are there senior leaders who will be stepping out of any roles? What transition plans are necessary to make your new role effective? If you decide to continue in the partnership path discussions, your position in the company will be redefined and your compensation will be adjusted to meet those new responsibilities. If you do not understand or are not comfortable with the redefined position, requirements or training required to become a partner, stop. You should not continue with the process. Again, the partnership is an opportunity. It is not mandatory. Section 1: Pathway to Partnership 3

8 Step four Establish a specific timeline The existing partners should establish a timeline for you to complete the partnership buy-in process. Implicit in partnership is open communication. It is important that you discuss your issues, both positive and negative, with the firm. Regular and frequent meetings will take place where you can begin to hear the types of discussions/issues that you deal with as partners. Have regular one-on-one meetings to give you guidance and feedback on where you or are not making progress on the partnership track. If you do not understand or are not comfortable with the timelines for becoming a partner, stop. You should not continue with the process. Step five The legal process of buying-in In your timeline, after you have achieved the agreedupon developmental goals, comes the actual buy-in process. This is a legal transaction, as is buying into the ownership of any business. There are a series of documents that define exactly what is being bought, what is being sold, the price, and terms. There are also documents associated with changing the decision-making structure within the firm as the ownership structure changes. These documents should contain protections for everyone entering into the transaction. They also define how certain events (such as death, disability, exit, or divorce of an owner) are handled. You may not be familiar with these types of corporate governance documents. Your advisors will help you understand what these contractual arrangements mean and how they define your obligations and protections. Once you have a full understanding of the ownership buy-in documents, you will set a closing date. At that time, you become one of the partners of your accounting practice. If you do not understand or are not comfortable with the legal aspects of buying-in to your firm, stop. You should not continue with the process. Section 1: Pathway to Partnership 4

9 This tool was developed by PCPS in conjuction with: 2018 Association of International Certified Professional Accountants. All rights reserved. AICPA and American Institute of CPAs are trademarks of the American Institute of Certified Public Accountants and are registered in the United States, the European Union and other countries. The Globe Design is a trademark owned by the Association of International Certified Professional Accountants and licensed to the AICPA The Podolny Group was formed in 1994 with a simple but powerful goal of helping business owners to achieve outcomes that made all the effort and risk of business ownership worthwhile. It does this with a very logical approach that the most complete evaluation prior to developing a plan and a commitment to creating doable plans that can be successfully implemented.