Somewhere in the region of 30 years ago Arthur Anderson, UK (remember them – pre-Enron?) announced that their revenues per partner (RPP) averaged £1m. I had been managing my own accountancy business for about 5 years and up until that point it had not occurred to me to track this metric. I soon came to understand the significance of RPP.
2020 Accounting Firm Survey Results
Looking at the top 100 UK firms, (and omitting the Big 4) a recent Accountancy Age (AA) survey made interesting reading. BDO (6th) are declaring RPP of £2m. Thomas Westcott (50th) report RPP of £490k. Toward the foot of the table is Maths Partnership (99th) with £650k.
The lowest RPP is Whitley Simpson at £440k while the highest RPP outside of the 7 largest is Frank Hirth £2.56m. Interestingly, not all UK firms subscribe to the AA survey, and I know a number of firms that would appear in the top 50 where RPP is below £400k. The consequences of this? Partner dissatisfaction. Partners relocating to better performing firms. Further, I have witnessed clear evidence of low morale, not only at partner level, but also among managers and senior staff.
The AA survey does not report on net income per partner (NIPP), but previous surveys have shown a clear corelation between RPP and NIPP.
Key Point: The greater your RPP, the greater the possibility for higher NIPP.
In our previous 2021 blogs on ‘important to manage numbers’ we have reported on time on (billable hours) and realisation rates. This article takes a look at RPP.
What is your RPP?
The reality is that you can easily calculate your RPP but not easy, in the short term, do anything to effect an increase. Each one of your co-owners has at some point accepted the invitation to become a partner. The reasons may have been due to partner retirement, firm growth or even longevity of service as a manager. You may even have made someone from outside the firm a partner; perhaps they bring specialist experience into your firm’s capabilities.
When an individual makes partner, their firm contribution will most likely change over time. Initially, they may continue serving the same clients as when a manager. They may also have been given responsibility for clients that are transferred from a partner with a substantial client portfolio (this could also serve as a recommend). They may also now have a range of firm administration responsibilities (I recommend that this be avoided). While their charge rate may have increased, realisation rates may have headed south somewhat. This can arise due to a number of reasons including: (1) the realisation that ‘the buck stops here,’ and taking more time to be extra careful as a result of this responsibility. And (2) they now have more clients but less work for each client compared to when they were manager.
Three solutions – short term (1 year max.)
- Accountability partner. Maybe find another partner of similar age who has been in the same situation, experienced the challenges of the responsibility of being a firm owner and successfully graduated. This person can listen, encourage, coach and monitor. But make sure that this is a confidential relationship so that mutual trust can develop.
- KPIs. If not already, each partner should have clear performance targets. Time on. Realisation. Billing per month. New clients. Revenue from additional services to existing clients.
- Training. The difference between a good firm and a very good firm? The difference between a profitable firm and a very profitable firm? The answer, and I accept there is more than one… is management acumen. Yes, high quality firm leadership is also a key factor, as is the firm’s vision, mission and culture. Most qualified professionals have engaged in about 16,000-20,000 educational hours before becoming a firm owner. But few of those hours will be about how to be a better manager. Experience demonstrates that applying best management practice can make a whole world of difference in the areas of personal performance, team awareness, client service delivery, results, career satisfaction and firm progression.
How do I know? I embarked on an intensive programme of management training when I realised that applying what I had learnt by observing others (what I call osmosis) was leaving me short on my business management skills.
Key recommend: See my observations below regarding the highly impactful online IGNITE Practice Management training programmes.
Solutions – medium term (2-3 years)
- Establish your goal for RPP. It is important to be realistic. You could set a 10-year target and create subset goals for each two year period. That will give you the ability to reset based on each two year period.
- Understanding that you may wish to promote internally then, when the time is right, why not make upcoming stars the offer of a salaried partner position? Their compensation package could include a salary uplift (10-25%) and sharing in a bonus pool for target attainment.
- Training. Management training for upcoming partners is essential. Many firms have established mentoring and external training programmes for future firm owners. Many partners have found that my IGNITE Practice Management training provides proven results in terms of improved performance, motivation and results.
- Finally, and this is where the rubber hits the road. Your firm’s profit sharing should be structured to incentivise and reward performance. The lockstep system which still exists in about 70% of accountancy firms is very 20th century – in other words, put simply – it is out of date. This article would be far too long to give this topic the depth of analysis it deserves. I will, however, return to it in forthcoming issues of this IGNITE management blog. But, and I trust I am not letting you down, this is a medium-term solution and not one that can be changed instantly.
Solutions – long term (4 years +)
There are none. Start planning now how you will increase your RPP and watch your NIPP improve.