I filmed this short video in Las Vegas a couple of weeks back. Launching my upcoming seminar tour – Future Proof your Accounting Firm. I am doing 12 workshops around Australia & New Zealand – Find out more here.
How much should a partner of a multi partner accounting firm be paid? Should it be equal pay because you have equal shareholding? If it is going to be equal pay then each person my pass the checklist of the ideal partner. Most should not be paid equal.
I have a view that a lot of partners in this industry are overpaid senior accountants. They are doing the work of a senior accountant but getting paid substantially more. There are many partners who are partners because of retention reasons rather than good business reasons. In today’s money you can employ a senior accountant for $150K (or thereabouts) to do the work of most partners.
If I am paying someone $300K – $500K (with dividend) then I would expect them to operate differently to a senior accountant who does the ‘delivery’ side of the work. As a minimum I would be expecting partners to bring in new business from existing and future clients.
High contribution partners should be doing just 3 things:
- High end work for a low percentage of time – advisory work at ‘value based fees’ high margins
- Nurturing existing clients – increasing the average fee per client with additional services sold – priced on value not time.
- Leadership – driving performance of the firm and making sales to new clients
So how much should you pay them?
To start the discussion you need to separate employee vs owner. There is no right or wrong answer (to how much) however I think a rule of thumb needs to be “what would it cost me to replace this person with another employee”?
By nature of the answer it means that there needs to be differing salary levels among partners.
I am talking about rewarding people with a package based on their contribution to the business. It is farcical to think that all employees of a business (partner group) should be paid the same amount if they are contributing in different ways.
As an example, if one partner is bringing in $300K worth of new clients per year and doing $200K of personal chargeable work then they are far more valuable than someone doing $500K of personal chargeable work and not bringing in any new business.
To get it close to right (and the number will never be right) there are 3 considerations to the total salary package of an employee / partner.
- Salary earnings – an amount that it would cost to replace you as an employee
- Bonus earnings – an amount based on ‘above salary’ contribution – it must promote over achievement
- Equity earnings – an amount based on your equity percentage and your dividend policy
Excluding equity, as an overall employee package, you should be thinking about “on target earnings” – OTE.
Today marks 21 years to the day working exclusively with Accounting firms around the world. On May 20 1994 I presented a seminar to the small business clients of Ellis Ryan in Coonamble, NSW, Australia. It’s a small town of 3,000 people literally (for my USA readers) in the ‘outback’. Prior to meeting Ellis I was running a series of seminars for small businesses. I was using all sorts of marketing to get them into the room – TV, Radio, Newspaper ads, Mail, faxing etc. None of it was working and I was going broke a million miles an hour. Ellis attended my very large seminar (8 people only) the month prior and said ‘will you come to my town and do this seminar for my clients?’ Absolutely I said.
So I designed a direct mail marketing system that Ellis used to promote this seminar. His letterhead, my words and his signature. We had 56 people turn up to the Coonamble RSL Club (Returned serviceman’s club). 56 people! He only had a client base of 126. We were amazed. It was the biggest event I had ever done. I made a profit of $2,500 on the night and I thought – wow, these Accountants are really great at filling a room. So from that day I have worked exclusively with Accountants. It’s my birthday so here are some stats that I am proud of:
In the last 21 years…
- Around 150,000 people in live seminars
- Around 30,000 people on webinars
- Around 2,000 speaking engagements of some sort
- Product in 42 countries
- 1 job and 5 businesses (one of the businesses has had 3 brand makeovers)
- Spoken / interviewed or visited Accountants in 8 countries
- 2 books written and published
- Hundreds of articles, white papers & blog posts
- Dozens of media interviews
- Thousand and thousands of Accountants helped
- Around a hundred employees coming and going
- No idea how much new revenue & profit created for Accountants – but a LOT
- 1 brilliant piece of software which will shape the profession globally
I have stuck to Accountants because I believe in them. I believe they are the natural trusted adviser. I believe they can help their clients to run better businesses. I believe that when they have the real time data they can make a massive difference. Pumped!
PWC just released an excellent report (click here to get it) on the future of employment in Australia. They’re estimating 44% (5.1M) of all current jobs will be replaced by technology. Of the jobs at risk Accountants and Book Keepers are No. 1 with 263,348 jobs affected. Why wait for the inevitable to happen? Get involved with Business Advisory services right now. We can help you do this.
To grow and develop an Accounting firm it needs 4 areas of focus – workflow, people, clients & revenue. The challenge is that if you just focus on workflow then revenue growth will not happen. If you just focus on revenue only typically the ‘wheels fall off’ workflow and people development.
The key is to focus on all 4 at all times. You need people who are leading the key areas to focus on the key areas. The outcome is more cashflow, profit, happiness, growth and improves lifestyle. All the good things in life!!