Four financial considerations for accountants before becoming partner
Steve Deutsch, CEO Wesleyan Bank and Syscap, outlines the four key financial considerations accountants in practice need to think about when considering an equity partnership opportunity.
Making partner remains the Holy Grail for many accountants who sacrifice work life balance for several years to finally reach their goal. Yet upon reaching the pinnacle of their profession, many remain unprepared for the life changing impact that this transition invariably involves. The following top tips from Wesleyan Bank outline the key financial factors accountants should consider before taking up an equity or non-equity partnership position.
1. Understand the different agreements
Equity partners own the business, share in the profits, have greater managerial influence and enjoy better employee benefits. But they assume greater financial risk and are required to make capital contributions based on the equity interest they hold.
A growing number of firms prefer to adopt the non-equity partnership agreement as typically this model is more cost effective and they can evaluate potential partners with a view to promoting them. In contrast to equity partners, as an employee they can continue to take advantage of company benefits such as healthcare, medical insurance and retirement planning at no extra cost.
2. Spread the cost of capital contributions and tax liabilities
The transition from salaried employee to profit share can have a major impact on an equity partner’s personal finances. Partners are generally required to make ongoing capital contributions and while these costs will vary by firm, initial payments can be significant depending on the equity interest they hold.
An easier and more affordable way to fund required contributions is to spread the cost over time. Trusted financial partners can provide short and long-term partner equity loans to facilitate new partner buy-ins and buy-outs for partners who are nearing the end of their career and looking to sell their share in the firm to an associate. Specialist alternative finance providers also offer a range of flexible products to enable partners to bolster the substantial working capital they have invested and preserve vital funds to grow the business.
3. Reduce risk
Making the quantum leap to partner is not a decision that accountants should take lightly. Before taking the plunge, it’s important to perform the necessary due diligence so you can be satisfied the timing is right. Key areas to evaluate include a practice’s historical and projected profitability, profit sharing ratios and whether contingency plans exist for partner succession issues and consultancy arrangements.
4. Consider the firm’s future plans
An equity partner’s income can be greatly affected depending on the success or failure of their firm so it’s important to understand the business’s growth plans. Do you plan to invest in new equipment or technology to overcome productivity barriers and generate more fee income from your clients? Is the best chance to grow your business through acquisition, and if so, how will this be financed?
Specialist alternative lenders offer tailored asset finance products to help spread the cost of new equipment or IT investments by incorporating hardware, software and associated fees in one affordable package.
Whatever your borrowing needs, look for a lender who has knowledge of the accounting profession and who will be able to guide you through the process to ensure your progression to becoming a partner or selling your share in a practice is a smooth one. Wesleyan Bank prides itself on having an intimate knowledge of the accountancy sector and ensure its flexible finance solutions meet your own unique requirements.
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About the company
Steve Deutsch is Chief Executive Wesleyan Bank Ltd & Syscap Ltd. Steve has been a key member of the Wesleyan Group's Executive since 2005, undertaking a number of roles in that time across the Group including Operations Director, Commercial Director and COO - Sales. Since late 2012 he has been responsible for driving the growth of Wesleyan Bank, including the acquisition of Syscap in 2015. With near 30 years experience in Financial Services across a range of roles Steve leads a strong team who together are seeking to significantly develop and grow an already successful specialist business.
Part of Wesleyan Group of Companies, Wesleyan Bank provides commercial finance for accountancy practices. Whether you're looking for competitive spread payment solutions for tax or longer term finance plans for new equipment, office refurbishment or even the latest version of your accounting software, Wesleyan Bank is here to help. When it comes to short-term cash flow or investing in major acquisitions for your accountancy practice, Wesleyan Bank can help you acquire the funding you require to flourish and grow so all you have to worry about is serving your customers and meeting your business objectives.
As a Member Discount Partner of ICAS, we pride ourselves on our expertise of the accountancy sector and can help to tailor our flexible finance plans directly to your own unique requirements. We also provide special offers to ICAS members who utilise our finance facilities. We can also work with you to provide our commercial finance products to your own clients, supporting you in providing added value and additional services to your portfolio.
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.