“ There are no secrets to success. It is the result of preparation, hard work, and learning from failure”. — Colin Powell
While there
are lots of reasons why small and mid-sized CPA firms don’t realize their full
potential and, in some situations, fail or bite the dust, we have found that
the downward spiral of a firm usually starts with a Managing Partner (the heart and soul of
any CPA firm — the shepherd, orchestra leader or quarterback, if you prefer,
of the partner group) who didn’t
fully understand the key objectives and day-to-day responsibilities of the role
and therefore, failed to operate on all cylinders.
By way of background, a few points are worthy of note:
At small and mid-sized firms, many Managing Partners
“grew up” in small firm environments and have had little exposure, if any, to
what it takes to move the firm to the next level. Instead, these Managing
Partners are usually the biggest billers, the best business development partners
or the partners with the most billable hours. At larger firms, particularly at the Top 100, on
the other hand, the Managing Partner usually is a developing professional who has
been exposed to what it takes to operate a complex organization, exhibits the
skills to build and leverage the resources of the firm and, therefore, has the
potential to move the firm to the next level. And while a successful Managing
Partner, regardless of the size of the firm, usually carries a very small
client load to stay grounded in client service and to remain credible with the
partner group, billings and chargeable hours are truly a very small part of the
job. In our view, a Managing Partner’s clients are the firm’s partners; giving
them the opportunity to maximize their strengths while minimizing their
weaknesses. It’s a very challenging and daunting responsibility.
As a leader, every word a Managing Partner says, and
every action taken, has a tremendous impact not only among the partner group
but also throughout the firm. This can’t be overemphasized!
Many firms select a new Managing Partner from their
ranks at an age somewhere between 45 and 53. Candidates are usually excellent
client relationship partners with substantial client service responsibilities.
The thought of giving up a substantial portion, if not all, of the client
relationships that have been developed over years of service, is very scary to
many. For sure, there is a risk in being a Managing Partner. Candidates ask:
“What
happens if I’m not successful? In the spirit of trust, I lose most of my client
responsibilities and begin to lose touch with my outside referral sources. I’ll
have nowhere to go but to exit the firm when I’m no longer Managing Partner”.
This is a very real
concern and we have found many firms do not want to recognize its severity.
Instead firms say, “trust us” and while that is easy to say, history has found
that this trust has been misplaced. Our advice is that firms consider
“protecting” the Managing Partner with an agreement, with compensation and
severance provisions, that ensures employment for two or three years after the
person steps down as Managing Partner. While this is rarely done in today’s
world, we suggest that the absence of such an agreement could very well be one
reason firms have difficulties in attracting effective managing partners and,
as a result, are unable to achieve the next level of success.
In Our
Opinion, Managing Partners at
many small and mid-sized CPA firms would be much more successful if they went
into the job with a better understanding of their key objectives and day-to-day
responsibilities. To provide guidance and to help improve the success rate for
new Managing Partners and for the firms that they lead, we are pleased to
summarize the Top 100 firm best practices to maximize opportunities and
minimize risk. Of course, one size does not fit all and the practicality of
this guidance depends on the size of the firm, number of offices, geographic
coverage and individual strengths of the professionals. This guidance should
prove to be particularly helpful to Managing Partners responsible for multiple
offices or for those with a single office consisting of 15 or more partners.
KEY
OBJECTIVES
Create a one-firm, firm first culture and instill a team
philosophy that client service transcends geographic and office boundaries.
This requires partners thinking “our clients” not “my clients”.
Communicate effectively with partners/staff and the
community.
Take an active role in client service and communication
plans and assure that partners/staff are providing first class, quality client
service that can be measured in a number of ways including:
Timeliness of delivery.
Technical expertise.
Innovative ideas.
Forward thinking strategies.
Frequent communications.
Thought leadership.
Client appreciation.
Establish effective corporate governance.
Ensure a strong balance sheet.
Drive revenue and profitability that results in market
compensation for partners/managers.
Implement best practices for communications, business
growth, and cost controls.
Protect the firm and assure that partners/staff are
appropriately trained, evaluated and adhering to firm policies and evaluating
client acceptance and continuation risk.
Participate in the local community by being an active
leader in nonprofit organizations.
Function as the firm’s spokesperson with business and
financial outlets and publications.
Mentor future leaders.
Maintain relationships with the leaders of other small
and mid-sized CPA firms and nurture potential M&A activities.
DAY-TO-DAY RESPONSIBILITIES
Design and develop a strategic plan and direct its
implementation.
Work with Firm’s Executive Committee (strategy, firm
and partner matters) and Management Committee (day-to-day execution).
Be readily available for big opportunities or problems.
Create an environment of trust among the partners.
Walk the talk and lead by example (“do as I do, not as
I say”).
Ensure that partners set stretch goals and that they
are held accountable for progress.
Ensure that partners receive the appropriate
compensation for their contribution to the firm’s success.
Coach and/or outplace ineffective partners.
Develop relationships with major clients and potential
clients.
Market and sell the firm’s products and services to
clients and potential clients; an effective developer of new business is very
desirable.
Assure compliance with firm policies regarding capital
expenditures and operating expenses.
Prepare and internally communicate an annual operating
budget and be held accountable for its achievement.
Ensure an effective personnel plan for current and
future client service needs.
Seek laterals who can beef-up bench strength and
diversification.
Oversee key internal go to market and functional
partner/staff meetings.
Hold monthly partner meetings to discuss financial
performance and other firm matters. Topics usually include:
Financial performance, billed hours, collected rate
per hour, personnel costs, utilization, etc.
Firm operations including key issues and opportunities.
Developments at major clients.
Marketing and business development activities.
Business development and pipeline reporting.
Personnel updates.
Functional (Audit, Tax and Consulting) updates.
Risk management.
Scheduling and staffing capacities.
Ensure an effective utilization of administrative
management and financial information systems.
Resolve significant professional disagreements among
the partners.
Implement and maintain effective client billing and
collection protocols.
Promote diversification of services by introducing new
products and services.
Work with the HR Department on significant office
personnel hiring and termination matters.
Monitor partner/manager fee realization vs. plan and
recommend actions for improvement.
Oversee client service transition planning for
retiring partners.
IN
CONCLUSION
Firms need to be very careful in selecting and
developing their Managing Partner. The goal should be to ensure a high
probability of success. That’s not only good for the Managing Partner, it’s
also good for the firm and for future managing partners.
Don’t short change the
importance of the role; too many firms fail when the Managing Partner doesn’t
have the capability to move the firm forward. We strongly encourage firms to make
the necessary investment in an effective Managing Partner.
**********************
Dom
Esposito, CPA, is the CEO of ESPOSITO CEO2CEO, LLC — a boutique advisory firm
consulting to leading CPA and other professional services firms on strategy, succession
planning and mergers, acquisitions and integration. Dom, voted as one of the
most influential people in the profession for two consecutive years by
Accounting Today, authored a book, published by www.CPATrendlines.com.,
entitled “8 Steps to Great” which is a primer for CEOs, managing partners and
other senior partners. In Our Opinion, is a continuing series of
perspectives for leading CPA firms where Dom shares insights, experiences and
wisdom with firm leaders who want to “run with the big dogs” and develop their
firms into sustainable brands. Dom welcomes questions and can be contacted at
either desposito@espositoceo2ceo.com or
203.292.3277.