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Practice Tips - partnership accountability

15th Jul 2005
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It's my guess that very few accountants are in practice just for the love of it. They work for money. And there's no shock in that.

It's also true that most practicing accountants do not, at least at some point in their career, work by themselves. They commonly set up businesses with other professional people, and most commonly with other accountants, whether it be as partners, co-directors of a limited company, or whatever.

In my experience partnership is the most complex working arrangement anyone can enter into. It's also in many ways the least accountable. The two issues are related of course. And they are so wide that I certainly could not cover all the issues that arise in one comment. What worries me though is much of what is written concentrates on the first issue, and little on the second. It’s easy to get advice on partnership agreements and so on, but what about the day to day issues? In my experience these are more important.

Let me give some examples. I’ve seen a few partnerships in my time, and also been a partner in a firm for 11 years so these are all real. Like the firm where one partner was not happy with any reasonably complex tax return unless he’d done it. Which was OK, but he had a whole tax department who were at least as good as him at the job. He drove his partners round the bend. Not only did he want equity parity for doing a job that justified a managers pay (at best) he didn’t have time to manage enough staff, attract enough work, or get the work he did delegate out on time because he was always bogged down in the detail of some return or other. That is a typical recipe for disaster.

So too is the partner who sits on their post and never answers it. One partner like that ruins the reputation of a firm for efficiency.

Just as the partner who thinks CPE a bit of a waste of time threatens its PII record.

And the one who will never chase its bills is a threat to cash flow.

All these situations are common. In fact, they’re far too common. And as a matter of fact, they cause stress whilst threatening the economic well being of the firm. So why do people tolerate them? Why is it that partnership seems one of the last bastions of “non performance pay” in so many firms when profits are split in accordance with a ratio negotiated long ago and quite unrelated to the value added of the partners? Is there really any excuse for that?

If a partnership, in whatever legal form, is to survive then modern appraisal techniques in all their forms, including simple value added as well as those issues that are commonly used for staff have to apply to partners more than anyone else in the firm. But who is up to the challenge? If you’re not – should you be in partnership?

Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone



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