Every business experiences some type of “life cycle”. Our approach with a client is somewhat dependent on the client’s stage in the business cycle. One of the most critical times in a business cycle is when there is a transition of management, which may result from a merger or just internal maturation.
Our client is a professional service business formed as a partnership going through this transitional stage. Many of the founding partners have reached retirement age, and the next wave of management are young professionals who will be taking on more of the leadership role. The new Managing Partner was taking a fresh look at operations and the compensation structure of the firm. We were contacted to assist in analyzing current operations, revenue generation, and the existing compensation model.
The existing compensation model had been in place since the inception of the firm. Not all partners worked the same number of hours or generated similar gross revenues for the firm. A multi-year trend analysis of revenues, production and time incurred by each partner was developed. Discussions were held with the Managing Partner reviewing our findings to determine concerns and goals for the upcoming year. Two areas were identified as high priority: (1) how to motivate the younger leaders to produce more revenues and (2) how to allocate profits more equitably among the hardest working.
By listening to the client's goals and analyzing a trend analysis, we developed several compensation models. Instead of allocating profits solely on ownership/equity as the original partnership agreement called for, several criteria were identified and assigned a weighted allocation. The new model was ultimately implemented and resulted in net income being allocated more favorably to those partners working harder and creating more profits for the firm. Simultaneously with this process, we assisted and identified other operational issues that needed to be analyzed and restructured.
As businesses go through various stages of their life cycle, it is important to periodically analyze the goals of the business and determine if the existing infrastructure supports those goals. We have the tools and knowledge to assist you in identifying and managing through these transitional periods.