How to Admit New Partners

Is your firm ready for the future? Admitting new partners from within is one way to move your firm toward long-term health and viability. Prepare your firm for the path ahead by assessing your current bench and identifying obstacles your firm could face in the admission of new partners.

There are four primary obstacles to internal succession. Is your firm facing one of them? 

1. Decision deadlock or unready candidates. Your firm leaders remain uncertain as to whether new partners should be added from within the firm or undecided about whether your firm’s existing candidates are ready. In short, your firm is stuck. 

2. Lack of growth; firm volume per partner is too low. Your firm isn’t growing and does not have the capacity to bring in new partners. 

3. Bad owner agreement or terms of admission. Your existing owner agreement may have been written too long ago (for previous leadership) and won’t motivate or entice new candidates. 

4. Uncertain future. Your firm has no exit strategy for senior partners or timeline in place to transition those partners’ books of business and clients. The firm’s future feels uncertain, including any consideration of when or how to add new partners. 

Balancing readiness: Ideally your firm and your partner candidates are ready for transition at the same time, but you might find that your firm or your candidates are unprepared for a number of reasons. For example, your firm might: 

• Have excellent candidates on the bench but is still not ready to add new partners due to a lack of growth or a lack of transition planning. 

• Have non-equity partners in waiting without a clear path to equity partner. Firm leaders must ask themselves how long non-equity partners will wait to find out if they are going to make equity status. 

• Leave some partner candidates in limbo without investing in them. Qualified partner candidates will likely lose interest and possibly leave the firm if the steps to becoming partner are not defined and communicated by the firm. 

Is your firm ready to admit new partners? Find out. 

• Capacity: Determine if your firm has adequate capacity for new owners that will also allow for minimal profit dilution among the existing partners. Can your firm transition from a four-partner firm to a six-partner firm? 

• • Volume per partner: Establishing a target volume per partner will help determine your firm’s capacity for new partners. Each firm will set its own standard and requirements but comparing your firm to a benchmark such as the Rosenberg Survey results can be helpful. 

• • Benchmark Volume/Partner (2021 Rosenberg Survey)

Under $2m in volume - $654,313

$2m-$5m in volume - $1,101,949

$5m - $10m in volume - $1,645,417

$10m - $20m in volume - $1,906,064

Over $20m in volume - $2,437,830 

• Timing: When will you need new partners? Knowing your senior partners’ succession plans is critical to the timing of adding new partners. 

• Growth: If your firm is not growing, it will be difficult to bring in a new partner unless a partner is leaving at the same time. Growth is essential for a firm’s long-term viability. Large firms plan for two-thirds of their growth to come from mergers and acquisitions. Small firms should have a similar mindset. Whether your firm plans to buy a book of business from a retiring partner or engage in M&A, planning for and enabling firm growth is critical to a firm’s ability to add new partners. 

• Non-equity partners: If your firm has a potential candidate that isn’t quite ready for full partner status, one way to move your firm forward is to offer that candidate non-equity partnership to see how they perform. 

Are your candidates ready to become partners? What key elements should you consider? 

• Timing: Ideally, a new partner will have two years to settle into the role before taking on the retiring partner’s clients. Two additional years should be allowed for the full transition of clients to the new partner. In total, your firm should plan for four years to add a new partner and transition the retiring partner’s clients to the newer partner. 

• The right candidates: If your firm has not defined the type of new partners it needs, the time to do so is now. Developing clear new partner criteria equips firm leaders to confidently identify the right candidates. Most firms have the following four basic expectations of new partner candidates: 

• • Leadership: Provides guidance and is a role model for other partners and staff 

• • Client management: Manages an expected level of client relationships and has a loyal following of clients 

• • Personal productivity: Productive in providing services to clients 

• • Growth: Able to develop new client relationships and expand services 

When a firm only applies the previous four requirements, a lot of conditions and characteristics are excluded. Following are examples of valuable criteria that should also be included: 

• • Firm management: Participates in the overall management of the firm and has a passion for the firm 

• • Technical skills: Has developed technical skills and is known as an expert in an important area of service 

• • Teamwork: Puts the firm’s interests ahead of their own interests 

• • Staff development: Assists in recruiting new talent for the firm and in the development of staff (How do the staff relate to this person?) 

• • Community involvement: Is the face of the firm in the community 

• • Professional involvement: Involved in the profession 

• • Passionate: Unwavering loyalty to the firm — doesn’t see this role as just a job 

• • Communication skills: Excels in both written and spoken communication skills 

• • Personal investment: Is on a constant journey to improve 

Identify candidates and bridge the gaps: Once your leadership has finalized a list of characteristics that works for your firm, apply the criteria to partner candidates and identify areas where individuals need to grow. The next step is to bridge the gaps between where candidates are and where they need to be. Following are options for investing in your firm’s future leaders: 

• Mentoring: Have one-on-one conversations with the team members you have identified as potential candidates. Find out if they are interested in the role. If so, begin to work with them individually, communicating what is required to become a partner and helping them grow into and prepare for the role. 

• Generic competency development: Prioritize external training for your potential candidates, such as CPE courses, in which they will strengthen their leadership potential and add soft skills. 

• Firm culture-specific development: Provide on the job training. Stretch candidates to achieve at a higher level. Know that they will make mistakes and be ready to help them learn. 

For example, if the candidate’s gap is the inability to bring in new business, apply these tools in the following way: 

1. Mentoring. Share what you did to become successful in practice development.
2. Generic competency development. Provide them with outside training that teaches the skill of bringing in new business.
3. On the job training. Take the candidate with you to meet new business development leads or to lunches you’re having with your referral sources. 

Additionally, you can invest in your candidates with a program devoted to partner development, such as: 

• P3 Leadership Academy, Boomer Consulting
• Transformational Leadership Program, ConvergenceCoaching
• The Leadership Academy, The Rainmaker Companies 

Is your firm ready for internal succession? Start today by identifying your firm’s challenges, opportunities, and next steps.

Terry Putney, CPA, is a partner at Whitman Transition Advisors. Terry is a frequent speaker and author to the accounting profession. He has been providing consulting to CPA firms since 2004.

More from Terry Putney: Owner Agreements: Barrier or Pathway to Succession and Transition?

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