INTRODUCTION TO THE EAT

WHAT YOUKILL MODEL

VS.THE BUILDING

A VILLAGE MODEL

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Bill Reeb, CPA, CITPDom Cingoranelli,

CPA, CMCSuccession Institute,

LLC

Learning Objectives

• Recognize differences between the Eat What You Kill and Building a Village business models at CPA/CA firms.

• Identify operational modes commonly found at CPA/CA firms and their correlation to the Eat What You Kill and Building a Village business models.

• Recognize pros and cons of the Eat What You Kill and Building a Village business models.

• Identify practice management considerations associated with business model selection.

• Review a short Case Study as to why managing equity is critical to the firms future success

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“Eat What You Kill” Model

• Natural Hunters• Strong Personalities• Add People to Assist the Hunters• The Classic Entrepreneur – they

want to have their hands in every aspect of the process (hunting, skinning, food preparation, cooking)

• Only the Strong Survive3

“Building a Village” Model

• Focus on making the mostout of the talent within village

• Specialization of Roles and Responsibilities

• Constantly narrowing the roleof the Hunter and removing him/her from as many processes as possible

• Building more processes, support, methodology and infrastructure

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Time for a Polling Question

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CPA FIRM MODES OF OPERATION

SM

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From Survival to Continuation

Modes

Eat What You Kill and Building a Village

A TYPICAL PROGRESSION FROM “EWYK” to “BAV”

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Eat What You Kill

CPA Firm Modes of OperationSM

Mode Drivers Characteristics Owners’ Roles

Survival Pay for necessities; make a living

Find work, get the work done, bill it, collect it

Work hard, depend mostly on own skills to build sustainable client demand

Safety Net Pay off debt, build some savings and a cushion

Start to build an organization strong enough to give more financial security

Work hard, depend mostly on own skills, begin building support structure that leverages their time

Success Protect the firm as an entity; create a nicer place to work

More to life than money; core values are in place; firm is identified with its owners

Create positions around specific skill sets, including the founders’; enhance image and efficiency

Continuation Create a business with its own identity as an institution

Build infrastructure and an organization that transcends founders and install governance that can survive ownership changes

Roles & responsibilities for key players; give up some control, make others better, faster, stronger and hold all accountable

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The Struggle: Between Success & Continuation

Eat What You KillEat What You Kill Building A Village

Building A Village

SurvivalSurvival Safety Net

Safety Net SuccessSuccess ContinuationContinuation

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Distinctions between theEat What You Kill & Building a

Village Models

• Developing Leadership

• Creating a viable & enduringchain of command

• Developing systems toreward desired behavior

• Developing a culture thatfocuses on developing people and closing competency gaps at every level

• Making it everyone’s job to be grooming their replacement. Without a replacement, everyone gets stuck in their current role

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MAKE SURE YOUR

GOVERNANCE MODEL

SUPPORTS THE CHANGE

YOU NEED TO MAKE

Who Decides What and How

Do They Decide?(Who Is in Control?)

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Governance Is So Critical

• The biggest single weakness of many small to midsize firms is lack of effective governance

• This is all about decision making authority– Who decides what, and how do they do it?

– Are the right people making the decisions based on the roles they fill, or can everybody act as managing partner for any particular day?

– And who can hold whom accountable?

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Decision Making Authority

• Force accepted change through mandate?Voting ControlOrganizational infrastructure (roles,

responsibilities, organizational chart)

• Distributed individual authority, powers and limitationsBoard of Directors – (establish

strategic direction, budgets, policiesand procedures)

Management Team/CEO-implement plan 13

BOOKSOF

BUSINESS

Issues and Obstacles

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Book of Business Obstacles

• Gap in Book Size should be minimized (Small Book):– Very little leverage ($600-$750k typically). Partner does a

great deal of the technical work

– Lower Realization because wrong person is doing the work

– Little staff development and inconsistent utilization because partner is the work horse

– Partner does not spend enough time developing client relationships

– No excess capacity to take on more work (can’t grow if everyone is maxed out/often add new partners when shouldn’t)

– Over-served clients (teaches small clients their work is worthy of a partner doing it – creates transition problems)

– Few firms will want to buy these over-served books or when they do, they will do so at a deep discount

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Book of Business Obstacles

• Large Book partners tend to delegate the project management and spend more time developing client relationships across all services

– They tend to abuse delegation. Rather than develop managers and staff, they typically delegate their project management to a junior partners which sets in motion a stifling and damaging environment

– These partners tend to hoard client management even though they have passed off almost all of the responsibility to others which then creates the situation where many of their smaller clients are underserved or even ignored (stifles firm growth and puts the client relationship at risk)

– Younger partners are often relegated to the role of manager because of the workload passed to them by senior partners. This destroys realization and leverage because of improper resource management

– Because junior partners often fill the role of manager, the real seniors and managers are poorly developed and too large a gap in talent evolves between partners and staff.

– The younger partners always get criticized for not acting like a partner when it is the senior partners that set them up and perpetuate the system

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Book Management

• The Firm must Focus on Closing the Gap between Partner’s Books.

• This means Partner Compensation Has to be Addressed for this to Happen

• You Need to Believe that, Purely because of Demographics, it is time to Start Building a Business Infrastructure that Will Support Partners Being Able to Manage a Doubled Book Size in the next 5 Years and Being Able Manage a Tripled Book Size in 10.

• You Need to Address What a Partner’s Roles and Responsibilities are

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Time for a Polling Question

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PARTNER ROLES AND

RESPONSIBILITIES

What Should Partners Really

Be Doing?19

Classifying Clients

• An “A” client is often defined as one of 15% to 20% of the clients that make up 70% to 80% of the firm’s revenues.

• A “B” client is one that you are right now most likely under-serving, but has an opportunity to generate sizable revenues for your firm.

• A “C” client is a client that does not have much additional service opportunity other than what you already do, and the revenues generated are small.

• A “D” client could seemingly fall into ANYof the classifications above.

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Basic Partner Roles & Responsibilities

• Partners are responsible for client account management, including:

– Maintaining client satisfaction with, and loyalty to, the firm

– Continuously updating their understanding of client’s priorities

– Meeting with “A” clients at least 4 times a year, “B” at least 2 times a year

– Identifying additional services that would be beneficial to those clients

– Provide a high-level oversight of the work performed for those clients

– Pass down the regular contact and billing/collecting responsibilities of “C” clients and potentially some low level “B” clients to managers

– Pricing projects above firm established minimum levels of realization

– Billing and collecting fees

– Focusing on developing people and building a right-side up Pyramid

– Maintain a constant connection with key referral sources

– Implementing firm strategy

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Partner Responsibility

• Relationship Management is the Primary Responsibility of A Partner!!!!!!

• Because if the Partner is Not Doing this … who is?

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Technical Partners Roles & Responsibilities

• This is a person in the firm that is highly technically competent and their professional focus is on:

– being the firm’s preeminent resource in specific technical areas,

– providing advice and council to other partners (and staff) in those technical areas,

– taking on the oversight and project management of the firm’s most complex technical work,

– oversight of quality systems, processes and training to ensure technical standards are maintained regarding the firm’s work product.

• Can a partner be both a technical partner and a client relationship partner? “Yes”; 2/3rds CR, 1/3rd T

• As firms grow larger, they can begin to afford the overhead of maintaining technical-only partners.

• Unfortunately, the reality of most CPA firm partners is that they provide lip service to their role of client relationship partner and bury themselves in their role of technical partner.

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Time for a Polling Question

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COMMON SOPS

DRIVINGCHANGE

Standard Operating

Procedures25

What is Your Client Acceptance Process?

• Who can decide what business you take on?

• What process is followed to insure you are taking on profitable business?

• Who verifies the availability of staff/resources to avoid constant workload compression?

• How is all of this information communicated, and to whom?

• What about new work from existing clients?

• How are you weeding out marginal clients? Who can make that happen?

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Without Marketing SOP, You are Looking for Problems

• Without systematizing marketing and investing in marketing processes, your firm will find a difficult time breaking through that barrier to the next level Service businesses, especially professional

service businesses, are predominantly referral driven1) New clients through referrals from clients, friends or

professional relationships.2) Educating your clients as to the diversity of service you offer

so you can increase “share of wallet” when appropriate

It takes more of a firm-wide effort to make an impact with every new dollar of growth

It’s about partners and managers being required to live up to the firm’s job descriptions rather than their individual definitions 27

Services Offered

• Your firm CAN’T afford to ALLOW partners to build island services

– Services need to be synergistic

– All services need to be built to support staffing, or shut them down now

• Technology

• Wealth Management

• Litigation Support

• Business Valuation28

Compensation Systems Framework

• Compensation should be based on firm strategy and changed accordingly.

• Compensation systems should be built to reward behaviors you want, offer incentives for changes needed, and penalize actions you want to stop.

• Compensation systems should highly-compensate exceptional people, reward good people, and drive off marginal ones.

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CRITICAL SUCCESS FACTORS

Common SOPs Driving Change

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Critical Success Factor

• You have to unbundle:– Ownership (voting and governance)

–Compensation, and

–Retirement

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The Stronger the Individual usuallythe Weaker the

Organization

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Critical Success Factor

If the Only Person you can develop is Yourself, You are

of Limited Value to an Organization

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Critical Success Factor

Basic Issues

• The roles and responsibilities need to be defined

• Client Service Partners versus Technical Partners; Supervisory Managers versus Technical Managers

• Goals – both objective and subjective need to be establish annually

• Someone has to be empowered to hold the everyone accountable

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STAFFINGAND

ORGANIZATION

Taking Care Of Your People

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Most Organizations Build Systems:

• That are designed around each individual in the organization

• Each person is like a puzzle piece – the puzzle doesn’t work without each person filling their role

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• That fail when key people leave

• That are built around short-term efficiency rather than long-term effectiveness

Time for a Polling Question

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What Firms Look Like from a Capacity Perspective:

• Some firms look like a funnel froma capacity standpoint, with partners/owners atthe top, managers in the middle and staff at the bottom.

• Some firms look like an hour glass froma capacity standpoint, with partners/owners,then it shrinks to the smallest size aroundmanager, then larger for staff

• The organization that has the mostleverage and flexibility is kind of apyramid, with capacity growing witheach level from partner/owner on down.

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Staffing

• You have to understand the organization’s strategy to manage the people function.

• This applies to developing:– Skills, abilities, competencies required of people

at different levels within the organization– Where to find/how to develop those people with

the desired skills, abilities, competencies

• Without this context, how do you decide where to put your resources?

• Without this context, how do you decide to structure the organization?

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Steps Normally

Taken

To Get From Here To There:

Moving from EWYK to BAV

04/21/23 40

Moving from EWYK to BAV

You Typically Have to Address

Retirement If You Want the

Power-Brokers to be Willing

to Change

Create The Security Needed to Embrace

Change

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Why?

Because if you do away with the importance of generated book, which often drives the current retirement benefit calculation as well as heavily impacting compensation, it will never get the votes to pass without putting in some protections for the effort/work that has already occurred under the current system

Equity Reallocation

is Often a Requirement

to Move Forward

Who Should Own What Share of Your

Equity?

04/21/23 44

Why?

• Because you want Client Service Partners driving the firm, not Technical Partners

• Marketing runs business. It doesn’t matter who has built the best mouse trap; it is about whether your clients and prospects know that you have a quality mouse trap available to sell them

• In the end, long-term success is always about client service and client satisfaction. Today’s client expects far more from their service professionals than just being technical competent

Cingoranelliand Reeb

A Small CPA Firm

in Texas

A Case Study

Cingoranelli and Reeb Case Study

Current Information•Founded in 1983•Currently about $4.2 million in Revenues•25 Full Time Equivalents•5 Partners (2 founders, 3 junior partners)

Cingoranelli and Reeb Case Study

Cingoranelli– Well known, constantly networking– Passes off a lot of his clients– Okay technically, but relies on other partners

to do the work– The managing partner, but passes off almost

all of the day-t0-day work to the firm administrator

– Good client developer, visionary, and motivator

– Has a book of $1.8 million– Is 65 years old and going to retire in the next

year

Cingoranelli and Reeb Case Study

Reeb– Has a great reputation and well known in

the community– Walking tax library– Clients love him– Only works with a couple of hand picked

people in the firm and does the rest himself

– Works a lot of hours– Has a book of $1.1 million– Is 63 years old, planning to retire at 66,

but would like to work until his mid-70’s

Cingoranelli and Reeb Case Study

Cameron– He is good technically and a workaholic – Practically lives at the firm during tax season– Even outside of tax season, he logs more

hours than anyone else (Reeb a close second at times)

– Tough on people, but is excused because of the stress and workload he carries

– $600k book (mostly transferred to him by Cingoranelli), but is key producer on at least $500k additional from Cingoranelli’s book

– Expects to be MP once Reeb is forced to retire– Is 53 years old

Cingoranelli and Reeb Case Study

Winters– Showing real talent working with clients– Has done a good job networking and has

brought in a number of new clients (Cingoranelli gave her about 100k, she brought in the rest)

– She spends a lot of time developing staff– Staff tends to go to her first with questions

even thought Cameron is more technically proficient

– Has a book of $450k– Is 44 years old

Cingoranelli and Reeb Case Study

Martz– Was quickly fast-tracked to partner– Good technical skills (about the same as

Winters)– Reasonable people skills (between Cameron &

Winters)– Not shown any interest in developing new clients– She brought in about $100k of clients when she

joined; Cingoranelli has given her the rest– Martz just had a young son, part-time at 30

hours a week, committed to full time when her boy starts school

– Has a book of $250k– Is 42 years old, currently part time (about 30

hours a week)

Cingoranelli and Reeb Case Study

Current Partner InformationName Age Book Size– Cingoranelli (Client Service Partner) 65$ 1,800,000– Reeb (Client Service Partner, with

Technical Partner tendencies) 631,100,000

– Cameron (Technical Partner) 53600,000– Winters (Client Service Partner) 44450,000– Martz (Part Time Partner) 42250,000

Cingoranelli and Reeb Case Study

Current Equity Ownership StatusName Ownership

–Cingoranelli 35%–Reeb 35%–Cameron 15%–Winters 10%–Martz 5%

Cingoranelli and Reeb Case Study

Pro rata Distribution when Cingoranelli RetiresName Ownership

–Reeb 53.85%–Cameron 23.08%–Winters 15.38%–Martz 7.69%

Cingoranelli and Reeb Case Study

Pro rata Distribution after Reeb RetiresName Ownership

–Cameron 50.01%–Winters 33.33%–Martz 16.66%

• It’s about finally takingthose steps you haveknown you needed totake for years

• It’s about making“you” less important

• It’s about choosing thebest model and mode for your organization and making it work

• It’s about constantly managing change and providing the appropriate leadership

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It is About Working “On your Business”

Thank You For Your Time!

Bill Reeb, CPA, CITPDom Cingoranelli, CPA, CMCSuccession Institute, LLCPhone: 512-338-1006Bill’s Email: bill@successioninstitute.comDom’s Email: dom@successioninstitute.comWebsite: www.successioninstitute.com

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