Non-equity Partners Play a Key Role in CPA Firms

Source: The Marc Rosenberg Blog

The following blog entry by Marc Rosenberg is reproduced in its entirety with permission.

In a CPA firm, the equity partners are the “drivers.” They bring in business, keep clients because of great service, lead others, and develop staff into leaders. They “drive” the firm's revenues and profits. Their talent, leadership skills, personality, and work ethic enable the organization to achieve excellence.

All organizations need drivers to excel beyond the competition, to avoid being average. Sports teams, governments, charities, orchestras and yes, CPA firms, all need drivers.

An organization that lacks drivers will slide to average, or worse – mediocrity.

But to be successful firms need a second type of partner – those who have the skill and personality to play a leadership role in servicing and retaining clients, but haven't yet attained the “driver” level. Many firms call these important players non-equity partners.

The two most common reasons to have non-equity partners are (1) to provide younger CPAs with an extended track to equity partnership, giving them the time to develop their technical and business development skills, and (2) to retain critically important staff who otherwise might leave the firm, but lack the skills to be an equity partner.

Many firms make the mistake of promoting staff directly from manager to equity partner, without first considering the intermediate stage of non-equity partner. To clients, staff, and the community, a non-equity partner is a “partner.” Non-equity partners attend partner meetings, manage a client base, have access to the firm's financial records (excluding partner earnings) and are eligible for a share of the firm's profits in the form of an incentive bonus.

The 2011 Rosenberg Survey showed that 78 percent of firms over $20 million have non-equity partners, as do 61 percent of firms from $10 million to $20 million, and 39 percent of firms under $10 million.

We strongly encourage the non-equity partner concept and the creation of this position in the partnership agreement.

For the original entry, read “Equity vs. Non-equity partners.”

From The Marc Rosenberg Blog, April 24, 2012, http://blog.rosenbergassoc.com/.