The Future of Accounting: Rosenberg Survey Insights on Partner Buy-In and Buy-Out

In my first article on The Future of Accounting as reflected in The Rosenberg Survey—a comprehensive annual survey of the accounting profession that The Growth Partnership has authored—I examined emerging patterns we’ve seen regarding partner compensation systems. In this article, I’ll address the related issues of partner buy-in and buy-out and what recent trends we’ve observed.

Partner Buy-In

We’re all keenly aware of the succession crisis currently gripping the accounting profession. The shortage of experienced CPA employees in our profession has created a shortage of potential partners. At the Growth Partnership, we deal with accounting firms exclusively—and in our experience with the firms we work with, we have noted that they’re trying to make it easier to become a partner, by decreasing buy-in amounts and making terms more favorable.  

 

Partner Buy-Out

In The 2020 Rosenberg Survey, looking back at 2019, we reported the percentage of firms that offer mandatory retirement provisions:

The number of firms that have mandatory retirement provisions in their partner agreements remained relatively steady, after an upward trend for the past few years. In working throughout the industry, we have noted a general acknowledgement of the importance of mandatory retirement provisions. Mandatory retirement does not mean it is mandatory to stop working. It means the partner must relinquish their equity and begin the capital and goodwill payment process. A well-structured succession strategy allows for a partner to continue working so long as it’s a win-win between him/her and the firm.

 

How Are Partner Buy-outs Being Funded?

From the table below, taken from our 2020 survey, it’s visible that the multiple of compensation method has become the gold standard in the industry at all firm sizes, particularly at firms with five or more partners, as the basis for calculating partner buy-outs. 

 

A rather disturbing note, as we see in the bottom row, that in 2019, 13.5% of all firms had no retirement provision (compared to 12% last year). Why wouldn’t a firm have a buyout agreement in place? From our experience, agreeing on the terms is a very sensitive  subject, one that’s difficult for partners to address. As a result, they postpone the development of a   plan.

 

In Closing

From our experience with the firms we work with, it’s clear that firms of all sizes are struggling with partner retirement. First, many firms are realizing their existing partner buyout arrangements aren’t viable: payout terms are too short, and amounts too high. Second, there an insufficient number of CPAs on the “partner-to-be bench” to replace retiring    partners. Consequently, firms are struggling with client transition, responsibility transition, and oftentimes leadership transition, asking themselves, “Who is the next Managing Partner?” While it may be difficult, we feel it’s critical that partners engage in these discussions and put together a viable succession plan or update the existing one.

 

We’d like to know how your firm has been doing the past year. The 2021 Rosenberg Survey (covering 2020) is now open, and we’re canvassing CPA firms and soliciting their input until July 15, 2021. If you’re a CPA firm, how do you participate in The Rosenberg Survey and learn its findings? 

Simply go to www.rosenbergsurvey.com to begin the process. The survey is open and will remain so until July 15.

Recent Posts

grant support

Finding the Secret Door to Grants Support

Searching for grant support can feel like wandering through a maze, right? You spend hours online, only to find dead ends, hidden costs and unresponsive providers. It’s enough to make anyone want to throw in the towel. But what if we told you there’s a better way? The experts at ETS Grant Services recently did

Read More »
retroactive cost segregation

Unlock Profits With Retroactive Cost Segregation

Real estate, with its potential for appreciation and passive income, has long been a cornerstone of wealth building. However, maximizing returns goes beyond finding the right property; it requires savvy tax planning to keep more of your hard-earned income. This is where retroactive cost segregation emerges as a powerful, yet often overlooked, strategy for property

Read More »
aerospace field

R&D Tax Credits for the Aerospace Field

The global aerospace industry invests billions of dollars in research and development each year, driving groundbreaking advancements in technology and innovation. This massive investment underscores the industry’s commitment to pushing the boundaries of what is possible in aviation and space exploration. One way aerospace companies can offset these substantial R&D costs is through R&D tax credits.

Read More »

Contact Us