Today I was speaking with a 7 partner, $15M firm and the question was asked “what’s the best use of partner time”. Here is my answer…
Most current Partners are technical accountants. They started there life as an Accounting graduate, went through the ranks and then 15 or so years later they’re become a part owner in the firm – a Partner. The behavior of being a technical accountant is different from the behavior of a Partner is a high performing Accounting business. The assumption under the ‘Accounting Practice’ model is that a good technical Accountant makes a good Partner. Typically a Partner of an Accounting Practice has the highest charge rate so they think that to grow the business the Partners should ‘crank out more hours’ to get more revenue. This may be right for the behavior of an Accounting Practice but nothing could be further from the truth for an Accounting Business.
As Accountants become Partners they need to realize that if they are not going to change their behavior and come business builders then they are overpaid Accountants. Why would I pay a Partner a salary of $150K plus dividend of $250K (total $400K) when they are doing the work of a $150K Accountant? It just doesn’t make sense.
Most Partners in Accounting firms are overpaid Accountants and are there for retention reasons not good business reasons.
It’s not about a Partner cranking out more chargeable hours. In fact it’s about less chargeable hours – for the right Partners.
So what should is the ideal time allocation of a Partner in an Accounting business? I think Partners of an Accounting Business should only be doing 3 things:
- High end chargeable advisory work (no compliance) for no more than 500 hours for the year. Ideally all value based fees Approximately 25-30% of time on high end client work.
- Sales meetings for approximately 1,250 hours for the year. Real sales meetings with existing clients or prospective clients. Approximate 60% of time allocated to sales meetings.
- Leadership – driving performance of the business, strategy and ideas for improvement for around 100 hours per year. Approximately 10% of time allocated to leadership.
Let’s do the math on 2 different scenarios:
Accounting Practice – Scenario A. A Partner of an accounting firm is doing 1,250 hours of client time and super busy with team work and administration work in the firm. Probably working 2,400 hours for the year. If the Partner has a charge rate of $400 then this Partner has personal revenue of $500,000. Of course they will have team revenue as well which might equate to $1.75M total revenue for them and their team – maybe $1.25M from the team and $500K from the Partner. Pretty typical result for the vast majority of multi-partner Accounting practices around the world.
Accounting Business – Scenario B. A Partner of an Accounting firm is following my ‘3 best time uses’ above and doing 500 hours of client time, doing no administration work and is investing 1,250 hours per year in structured sales activities. Client time of $400 per hour (this is not value based fees) = $200K of personal revenue + the new revenue from the sales meetings. If a sales meeting takes 2 hours, follow up of 1 hour and implementation plan (proposal) writing is 1 hour that’s a total of 4 hours per sales meeting. 1,250 hours available / 4 hours = 312 sales meetings for the year. If the conversion rate is a low 50% that’s around 150 new sales per year from this Partner. If the average sale (existing or new client) is $5,000 then that’s $750K of new revenue from sales + $200K of personal time + $1.25M from the team. Total $2.2M of revenue from this Partner.
The kicker on scenario B is that the $750K of new revenue could be recurring revenue and the vast majority of it could be delegated to someone else to do it. That’s how you build business value.
Your choice which scenario you pick.
You see, what you do with your chargeable time will produce an income today. What you do with your non-chargeable time will create wealth for the future.