The Danger of Book of Business – Part 2

As I stated in my last column, Balancing “Book of Business” is one of the largest stumbling blocks for CPA firms.  It is difficult to resolve because it is symptomatic, for most firms, of some real trouble brewing.

As a Quick Repeat: Optimal Book Size

The optimum condition for firms to flourish is for Books of Business to be balanced throughout the firm.  As firms grow, often, so does the gap in book size between the partners with the smallest to the largest book.  If a partner wants to be very hands on with each project, then that partner will hit a natural book-size ceiling far earlier (around $650k) than the partner who delegates the project management (around $2M).

For clarity, a $2 million dollar partner book ceiling applies to firms that serve individuals, small to medium size businesses and are generally less than $10 million in net fees.  If you are a top 100 firm, this ceiling doesn’t apply because one partner might have a client that has fees in excess of $50 million.  So, obviously, a book ceiling is more complex than just dollars; it is reached at a saturation point that comes from a combination of number of client accounts, projects and complexity/scope of those projects.

Negative Contributions of the Large Book Partners:

(As you know, my January column focused on the negative consequences caused by small book partners)

Larger book partners are able to manage more work because they tend to delegate the project management.  Therefore, they spend far less time working on the projects -- which frees up more time to work on developing client relationships.  In turn, this additional time spent developing client relationships expands the book gap even further as this extended client focus generates new business (both through additional services and a higher number of referrals).  In my opinion, managing the client is the most critical role and responsibility of any partner.

With this as a backdrop, large booked partners tend to have a better philosophical approach as to where they should spend their time.  However, this is where the good news often ends.

The reason why most large-booked partners can pull off this ability to delegate is because they are the senior partners of the firm.  And rather than approach this delegation correctly by having managers and staff perform the work, they tend to use younger or junior partners to manage their projects.  While this might not sound that bad, it is one of the most stifling and damaging acts that impacts the long-term success of the firm.

Let me go on record … anyone can delegate work to another partner.  This does not create reasonable leverage.  Leverage is the ratio calculated, simply speaking, by dividing the net billings on a book of business by ALL partner billings on that same book.  The higher the number, the better a partner is delegating the detail work to management and staff … and obviously, the greater the leverage.

Unfortunately, this problem typically starts with a misaligned compensation plan.  Because so many firms heavily pay partners for the size of the book managed, partners are not inclined to ever pass client responsibility to other partners and managers.  In other words, partners hoard client management.  This sets in motion a number of damaging results.

The first is that hoarding partners have account responsibility for more clients than time allows them to manage.  Therefore, many clients are underserved.  This not only stifles growth (because clients willing to pay for additional services are ignored), but it puts clients at risk (under-served clients will eventually look for help from other professionals).

Second, because senior partners are often able to manage large books of business by passing the project management to younger partners, the younger partners are relegated to the role of “manager” on those clients.  Therefore, instead of doing partner level work themselves, they spend a great deal of their time doing the detail work instead of passing it down to managers and staff.  This move destroys leverage, undermines engagement realization and profitability as well as demotes those partners to “managers” when serving those clients.

Third, because younger partners don’t have a large enough book to fully occupy their time from a client management standpoint, and because the firm won’t take steps to shift clients around to close the gap in book size, young partners tend to enhance their personal compensation by performing the detail work on their own book of business as well.  Once again, this move negatively impacts the firm.

Fourth, because the younger partners do too much detail work themselves, an entire layer of management is never developed below them.  This creates a very large gap in talent between partners and all other staff (producing the “up-side-down staffing pyramid.” we discussed in a previous column).  Long term, this approach cripples the firm.

And if all of this was not bad enough, because the younger partners are so busy acting like managers since the senior partners are hoarding client management (with the trickle down of managers acting like staff, staff acting like interns, etc.), the younger partners get criticized for not developing a larger book even though a great deal of their time has been tied up by the senior partners inappropriately delegating work to them in the first place.

So, there you have it and it is ugly.  While small booked partners are not as profitable as they should be, and small booked partners typically act more like managers than partners, it is the large booked partners that are often the reason this system starts to fail in the first place.

In conclusion, your bottom line will improve almost instantly as soon as the partners in your firm understand that, “ALL CLIENTS ARE FIRM CLIENTS … not a partner’s.  Shift clients around to close the book-size-gap and start requiring all partners to fill their time acting like partners.”