Art of Accounting: First-time partners and client equity

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Reducing client load is important for a partner to grow. A problem with this is that the reduction of or loss of the relationship lessens the “client equity” of a partner. It also lessens chargeable time.

In most smaller firms, client equity is a quantifiable value as it is in a practice that likely will be sold at some point. There the price is based primarily on gross billings. Within a stable firm there are other measures valuing the buyout of partners, and individual book of business is not usually one of them.

However, the greater the client relationship base, the more power a partner has within a firm. This is not always clearly articulated or espoused, but that is the reality. Accordingly it becomes important for new partners to reduce their workload while at the same time maintaining their relationships but also creating the opportunities for others to advance. I might suggest that if chargeable time is the primary measure of a partner’s performance and value, the firm either has a current growth problem, or one will be forthcoming.

Reality 1: If the partner doesn’t reduce their workload, they will not be able to grow, nor will staff under them grow. When staff members don’t grow, they will leave—at least the good ones will.

Reality 2: If staff members don’t move up to take over a partner’s work, the partner cannot grow. Without growth partners will either lose their value or remain locked into a dead-end position.

Reality 3: Good staffers want to grow, take over relationships, build bonds with clients and be elevated to partnership. Opportunities must exist for them.

It is a balancing act because each of these realities depends upon the others. Here is a template for what a new partner needs to do:

• Transition the responsibility for the client engagement to a manager.

• Explain the nuances of the engagement, what makes this different, client preferences and distinctions, and client internal staffing issues.

• Let the manager understand you will be available for planning discussions and consultations on new or unusual issues as requested by the manager, but it is the manager’s responsibility to control the engagement.

• Maintain a review and oversight process, but expect to find work with no errors or changes. Work that has changes uncovered by you indicates the manager is not yet ready to assume full responsibility as expected and needed by you and the firm.

• Continue to hold exit meetings with the client and have managers attend when it has been shown they can deliver error-free work to you.

• The object to bringing the manager to the meetings is to introduce him or her as a responsible firm participant in servicing the client and handling their affairs.

• A part of evaluating the manager’s performance is their follow-up after client meetings based on issues raised at those meetings.

• When it has become evident the manager can step up, the partner should skip the third meeting and have the manager run it with the client.

• The partner should attend the next meeting and then step aside.

• The partner should maintain contact with the client through frequent phone calls and perhaps an occasional breakfast or lunch.

• Concurrent with the workload reduction, the partner should be looking to step up to take over relationships from more senior partners, developing additional services from existing clients, getting referrals from them and bringing in new business, and following through on the items on the growth list shown in last week’s column.

Each partner should understand that as the firm grows and is strengthened, each partner’s equity and value will be enhanced. It is no longer about you, but about “us.” The alternative to firm growth is stagnation and sluggishness.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or emendlowitz@withum.com.

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