Alternate Partnership Arrangements on the Rise

Business Brokering Wednesday 28th of October 2020

With cost of housing up and uncertainty all around it's not surprising that professionals seeking partnerships might hesitate at taking on more debt for an equity purchase. But some practices are solving the issue by offering a different take on the traditional partner package.

Attracting and retaining the best talent within a firm has always been one of the key tenets underpinning long term growth and profitability within accounting firms. 

I have seen a lot of changes in the way potential partners are admitted to firms since commencing work in the accountancy M&A and partner recruitment space 20 years ago.

These days a prospective partner candidate is likely to already have a high level of debt on board thanks to the increased cost of housing (the national median house value has increased by 412% in 25 years). It’s not surprising that many are reticent to add to this load in order to purchase an interest in a practice.

The result is that while the partner equity model has been utilized very effectively in the past it can be  far less attractive to the current generation of high-performing practice leaders. 

Many of them will feel resentment over the perception that their role as the new partner is to fund the retirement of the senior partners while shouldering more of the workload.

To their eyes the “traditional” model seems to offer them:

  • Unrealistically long-term commitment
  • Lock-in to a scenario offering limited control
  • High levels of debt for risk profile
  • Uncertain succession plan
  • 7 to 10 year pay back periods net of tax
  • Siloed political culture and work ethic contrary to team development

Seen in this light it is not surprising that both practices and partner candidates are willing to embrace different approaches.

One example I’ve seen recently that doesn’t rely on the purchase of equity but rather on a more performance-based program provides:

  • Remuneration of approx. $350K plus a short-term incentive (STI) and long-term incentives (LTI). 
  • The STI takes the form of a percentage of profit based on performance KPI’s of up to 30% of fixed remuneration.
  • The LTI occurs each year of service and is payable annually after a qualifying period based on sustainable KPI performance and growth of the business. The LTI will be in the range of a further 30% of the growth of the business (assessed as a percentage of revenue introduced or incremental profit to the practice).
  • The LTI is also represented as a performance equity stake in the capital of the firm, earned from participation in the sustainable growth of the practice.

This is just one example, of course – different firms offer different terms according to their individual goals and requirements.

The take-home message is that there is a much broader range of offers available to professionals who are in a position to consider partnership.

If you are in such a position, or if you are a firm seeking a partner candidate, feel free to get in touch with me for a confidential chat.

Mark Witt CA

Mark is the Head of Brokering at Business Exchange with over 20 years experience and 400+ completed transactions


Read more articles

Bank Lending Policies Are Shaping the Way Equity Changes Hands in Accounting Firms

In today’s accounting practice acquisition market, the pathway to ownership is increasingly shaped not only by valuation or deal terms but by access to finance — and specifically, how banks are assessing risk in these transactions.

Read More
Exploring Mergers and Sell-Down Strategies: Strategic Pathways for Growth and Pre-Retirement

Navigating the evolving landscape of the accounting and financial planning industry requires strategic foresight and decisive action. Mergers and structured sell-down strategies have emerged as powerful tools to drive significant growth, enhance service offerings, secure capital for retiring professionals, and ensure a sustainable future for your firm.

Read More
Unlocking Growth: Lending Insights for Accounting and Financial Planning Firms

Unlock the potential of your accounting or financial planning firm with expert insights into bank credit policies. Discover how to leverage your firm’s goodwill to secure the financing you need for sustainable growth.

Read More
The Role of Equity Participation in Retaining Talent and Productivity

Equity participation - whether through full partnership or employee share schemes - emerges as a crucial strategy for "locking in" key team members and adding deeper meaning to their professional endeavours.

Read More
The Strategic Advantage of Off-Market Mergers for Small Practices

For small practices, off-market opportunities – strategic mergers with larger firms - offer a pathway not just to expansion but to a redefinition of what small practices can achieve when they leverage the right partnerships.

Read More
The Business Exchange Network - Transforming Business Brokering

The sun is fast setting on the old way of business brokering. The privileged position of a business broker as a gatekeeper to information and connection is under threat in a world where clients can now find each other via searches on smartphones, LinkedIn etc., and that means the most fundamental adage of business survival applies: adapt, or die.

Read More
The Importance of Allocating Time for Navigating Client Relationships Post-Sale

Client relationships within an accounting practice portfolio are anchored on mutual respect, trust and understanding. They can take a professional lifetime to build. As you near retirement, the onus is on you to ensure a smooth transfer of these relationships to guarantee continued success for the practice.

Read More
Timing is Everything: Guarding Your Practice's Value at Retirement

Retirement, while a celebratory milestone, presents unique challenges for accountants. Successful transition demands a precise strategy to secure the value built up over a lifetime of professional practice.

Read More
Capital Partners Versus Banks: A New Paradigm for Financing Expansion in Accounting & Fin Planning

Capital partners are emerging as a potent alternative to banks for financing expansion via acquisition, especially within accounting and financial planning practices.

Read More
Choosing Your Legacy - Thoughts on the Empty Chair

Some practitioners are comfortable with the assumption that they will continue working until the end of their life, what might be considered the 'die at your desk' model. Fair enough, but there are big problems if you arrive at this position by default.

Read More
Merging to Retire - Is this an Option for You?

Succession can take many forms depending on your situation and goals. Considering a merger can give you options beyond a simple all-or-nothing sale.

Read More