Prefunding Partner Buyouts

Source: Journal of Accountancy

Authors Joel Sinkin and Terrence Putney offer guidance on making partner buyouts self-funding. All too often, potential successors are reluctant to become partners because funding a retiring partner's buyout would mean injecting new capital into the firm or taking a pay cut. To motivate successors, firms should ensure that their retirement plans are self-funded.

Using case studies, the authors describe several strategies, including reducing the revenue multiple used to calculate the buyout price; stretching out the payment periods for retirement and capital account payments; and capping the amount of payments that can be made to all retiring partners at one time, typically six percent to eight percent of revenue.

For the complete article, read “Planning and paying for partner retirements.”

From Journal of Accountancy, American Institute of Certified Public Accountants, April 2012, http://www.journalofaccountancy.com/Issues/2012/Apr.