Why We Need a New Approach

In case you missed it, Allinial Global President and CEO Mark Koziel recently joined LumiQ Co-Founder, CEO, and Host Michael Kravshik for an illuminating and impactful podcast episode focused on fixing the broken partnership model in CPA firms. Their conversation was so packed with helpful insights that we decided to create a short blog series highlighting some of its most thought-provoking moments.

What’s Wrong with the Partnership Model?

Between new technologies, unprecedented M&A activity, demographic shifts, and increasingly complex client demands, the accounting profession is facing a sea change. But while today’s CPA firms are operating in a radically different environment, their infrastructures and approaches to governance have seen a lot less change over time.

Many firm leaders continue to cling to the partnership model that they grew up with, but more and more are finding that this approach eventually results in significant growing pains. So, what should growth-focused firms be doing to ensure their success and longevity? In this three-part series, we’ll review the limitations of the partnership model, contrast it with the corporate model, and share some practical action steps to help growth-focused firms move forward.

Decision-Making

If you’ve ever participated in a partner vote, you’re most likely familiar with one of the biggest drawbacks of the partnership model: decision-making. With major decisions requiring consensus among partners, firms operating under the partnership model can be notoriously slow to approve changes.

Much of this is because the partnership model pits personal interest against the firm’s interest in a problematic way. Depending on their level of experience and tenure, partners may have wildly different opinions about the best direction for themselves and the firm in both the short and long term.

Whether conflicts arise from competing priorities or a simple difference of opinion, it takes time to hash out major decisions under the partnership model. This inertia can seriously impede a firm’s ability to adapt to rapid changes—which is fundamental to achieving sustainable growth in today’s market.

Serving the Changing Needs of Clients

As client needs continue to change, it’s increasingly important to understand what provides the most value for your clients. But just as the element of personal interest can complicate the decision-making process, it can also slow a firm’s progress in embracing a more client-centric approach. Under the partnership model, firms tend to push the services their partners know rather than adapting to what the industry or client dictates.

Instead of trying to sell the same service to everyone, today’s most successful firms are opting for a more holistic approach to client service. But to succeed with this pivot, they have to think differently about infrastructure, often creating a separate client service coordination role that can focus on fully understanding client needs and structuring service lines accordingly. This can be difficult to accommodate within the typical framework of the partnership model.

Succession and Transition Issues

Another key area where the partnership model falls short is in succession and transition issues. As if there weren’t enough legal, financial, and operational challenges to consider when passing the reins to the next generation, the partnership model can exacerbate these issues by introducing conflicts of interest relating to compensation.

As long as retirement is based on compensation, for example, senior partners will tend to focus on maximizing their comp by holding onto clients precisely at the time when they should be preparing to transition out. While it may have made sense to encourage partners to take on more work earlier in their careers, proactive succession planning requires a very different approach to metrics and incentives for partner accountability.

Resistance to Changes in Pricing

In a similar way, the partnership model’s reliance on billable hours also goes directly against the evolution of pricing. On the surface level, billable hours may seem more transparent, fair, and familiar. But they are absolutely the wrong metric when clients require a more value-based, transparent, and predictable approach. Firms that insist on clinging to chargeable hours struggle significantly with the shift to value pricing and subscription models that free staff up to focus on satisfying all client needs as a trusted advisor.

Where Do We Go from Here?

With all of these limitations in mind, what other options do CPA firms have? In our next post, we’ll explore the corporate model as an alternative for firms seeking sustainable growth and longevity. But if you can’t wait, you can check out the full, CPE-eligible podcast episode now. It’s a great introduction to our strategic partner, LumiQ and their convenient podcast platform.

If you’re new to Allinial Global or LumiQ, visit our Strategic Partners page on AGConnect first to learn more about LumiQ and how it can help your firm offer staff a fun and flexible way to meet continuing education requirements. And stay tuned for Part 2 of this blog series coming soon!