Sweat Equity with promise for partnership?

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#1
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New to the forum, stumbled on the website today.

Seems to be a common trend in this industry for higher ups to take advantage of younger inexperienced people.
I entered into a verbal agreement with my current employer to "stay working for less than I was worth, in exchange for building equity in the firm". Then after 7 years of this, and a total of 17 years working for them, they are refusing to give up any equity.

Currently still employed, but have also started my own practice (with authorization from employer) to try and grow my book of business for the eventual transition.

Anyone have any horror stories to share?
 

#2
ATSMAN  
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I am sorry that you were taken advantage, but you should have known that a verbal agreement in such matters is useless. We tell our clients to seek competent legal counsel on such matters of ownership, sale of business etc.
 

#3
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ATSMAN wrote:I am sorry that you were taken advantage, but you should have known that a verbal agreement in such matters is useless. We tell our clients to seek competent legal counsel on such matters of ownership, sale of business etc.


Truth...
 

#4
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I have always taken the position that an employee should treat all bonuses and employer promises as valued at $0 until the money shows up in the bank account. Employers are not your friend... maybe at one time they were but they sure as hell aren't these days. It's unfortunate to hear that you were horribly misled by your employer.

You have been given an amazing gift that not everyone has been given: You do not want to be business partners with these freaks, and you found out before you became partner instead of after. if this firm is going to treat a long-time, experienced CPA and EA this way, then think of how they would treat everybody else, and what hidden liabilities are in this firm!

I realize that my response may seem insensitive in a situation which has probably been crushing to you not just on a professional level, but probably shaken your belief in other people as well. I just hope that in setting up your book of business you can move away from them and step out on your own.
 

#5
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This is heavily dependent on who you work for. I worked for two firms before going out on my own. One I loved, one I didn't love so much.

Be better than them if you're going out on your own. I find the firms that treat their employees poorly have high turnover. Working in tax is already stressful enough as-is.
 

#6
Eduardo  
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I worked for a small two-partner firm for 12.5 years, with the expectation that I'd be able to buy in. About a year before I left, I realized that one of the partners felt I was more valuable doing all of his work than as a potential partner. Finally left the firm to start my own firm and haven't looked back (been 16 years now). I am so happy that started my own practice than become a partner there as from what I heard from a client who has to deal with them on a personal tax matter for his MIL, they're still doing things the same way they did when I was there (paper files, everything pushed to the extended due dates, way behind on billing, etc). I'm able to do things my way (using the cloud, timely billing, avoiding extensions when possible, getting work done timely when possible) instead of their way. They're both in their late 60's now, and the guy who works for them is their age, so he won't be taking the practice over. They're just going to let the firm wind down, waiting for their business clients to either sell or pass the businesses over to family members. I can't imagine working there now.
 

#7
ATSMAN  
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IMHO most small accounting firms have ownership "issues" to begin with and then you add the complexity of working in a junior partner that will dilute their equity. Early on in my career I made the decision that I am not going to fall for "false promises" at job interviews. Pay me what I think is fair based or market wages and work load or I work for the fellow down the street. You will notice accountants have a nasty habit of telling you what you want to hear close to tax season deadline when work is piling up and they are short staffed.

I started my own practice one client at a time. It took me a long time but I am glad I did not fall for the ownership trap!
 

#8
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This is going to be a long post.

First off I want to thank everyone for their replies. Everyone is exactly spot in in their responses.
I did not take my own advice, as far as getting something is writing. This is always something I harp on clients about, and I really should have known better. My boss was like a father to me. He is now 75 years old, I figured after 12+ years I could trust him at his word, but of course I was sadly mistaken. He had made many claims over the years such as I want to make you partner but I have some liabilities to clean up first, and I intend to leave at least half the business (and other assets) to you in my will, etc etc etc. I also was not in the ideal leverage position to make any demands.

So my background. I failed to apply for the CPA exam by 2009 when NY changed the licensing requirement from 120 to 150 credit hours. I went the EA route while waiting to become eligible for the CPA exam again. I became eligible in April 2017, but it took 20 weeks for NYS to approve my application due to a backlog in Albany. August 28th 2017 I was approved to sit for the exams and I began studying immediately, thinking the CPA designation was the only thing holding me back from obtaining my equity position I had worked for. Passed all 4 on the first try, Nov FAR 93, Dec AUD 88, Jan REG 96, Feb BEC 91, and was licensed by mid March 2018. The CPA exam absolutely consumed my life for 6 months.

I began attempting discussions with my employer to obtain my equity. I ended up with a 25k raise to put me at 88k. (I spent the first 12 years here making under $40k because I thought my boss was struggling so I didn't aggressively pursue raises. Another firm I met with in 2015-2016 estimated my worth with 12-14 years experience and the EA to be about 90k/year just for comparison.)
I would attempt to have conversations quarterly for the first year, then monthly, then weekly. My boss kept going in circles saying he was trying to work it out in his head, etc. Keep in mind that in 2017 he was already 73. I was working 7 days a week in tax season and saw him at 2pm on MWF, 3+ on Tu, and 4pm+ on Th. He had cut back his time commitment to the firm, having me carry more than 50% of the billable workload, not counting the behind the scenes stuff. And he was still taking almost 50% of the firm gross in compensation. (It's only me and him, and 2 part time staff/employees.)
I never did get any hard numbers from my boss. He had mentioned that he wanted to start me at 20%, and then work me up to 50% over 3-5 more years. (I thought I had already paid for my 50% plus extra at that point). He would not agree to a more equitable distribution in compensation because he "needs" what he takes to live on. When he was eventually done he would want me to buy the other half at dollar for dollar (vs the 75-80% rate that is more common for internal acquisitions according to industry standards these days). He would never put any hard numbers, or time frames to anything. He can't cut his compensation until he unloads his multiple times refinanced house that he still has a jumbo mortgage on.
In December 2019 after I told him I had other offers, he finally had a conversation with me basically saying it sounds like I can do better somewhere else, and he does not want to stand in my way. I said when I leave people are going to come with me, and he said SOME and there isn't anything he can do about that, that's just the way it goes. (I have no non-compete, or any contract for that matter, and have sought written legal advice regarding poaching clients when I leave.)

I filed my DBA paperwork in Jan 2019. I started meeting with other firms in the summer of 2019. One EA practice that was looking for a transition strategy out. Another firm that wanted to bring me in on fast track to partner. 1 year cinderella clause, etc. They wanted me to up my workload/book from about 200k to 300-400k with staff support, with pay about 140k.
I was doing about 200k/yr, and anticipated if I left about 100k would go with me.

August 2019 I obtained my own computer and PRP license for tax software. 2020 will be my first full year in operation for my side practice.
I was shooting for 30-50k for the first year, and I have already exceeded that. I have a home office and have rented a one room office to meet with clients. Mostly remote work, and completely paperless.

Looking back I am very thankful I did not agree to buy this firm. My boss routinely ignores issues, does not return calls until the client leaves. He's usually 2-3 quarters back on PR taxes and needs the cash flow in tax season to catch up. This is literally a sinking ship.

My long term goal is a sole prop shop doing about 200-225k a year. I figure if I lose 1/3 to overhead, then another 1/3 of what's left to taxes, I can live very comfortably and still save for retirement. I'm about 40 now, and hope to have the saving phase of my life complete by about 50 so I can cut back to working part time to enjoy life more.

Sorry for the long post. Looking forward to contributing to the community here.
Any advice or input is welcome.
 

#9
ATSMAN  
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If you don't have a no compete agreement with your former employer and if you were the face to the client, I say you have a very good chance to make most of the disaffected clients your own.

When I went solo I kept my overhead very low by using part-time seasonal help, buying good used office equipment etc. My first office was in a residential/business zoned corner and I shared that with another professional.

Most common reason for new clients who switched were lack of responsiveness from the prior accountant.
 

#10
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Of course the argument of getting things in writing is correct, but to trust someone for their word is a judgement call and if it's a chance you are willing to take, so be it.

In this case, you trusted them and you were wrong. OK, well, crap happens. I wouldn't beat myself up over it. They seemed helpful and trustworthy, you had every reason to believe that they were, so you went with what you knew at the time.

Now, what can you do? Well, when it comes to building a practice, the world is your oyster. Now you can run your own pirate ship with what you learned "not to do" while working on theirs. So look forward and don't ruminate about what could have been.

If you build it they will come. Your forecast numbers are on the low side, if anything. Taxpayers need good professionals and you will soon see that your goals will be surprisingly obtainable.

This isn't some kind of pep talk. This is a great profession in which to be self employed.
 

#11
wel  
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I'm sorry that you had that experience. I suspect that many of us here have experienced something similar.

This experience reminds me of a quote that I heard many years ago = "You train people how to treat you."
When you allow that type of arrangement to continue, whether it's being underpaid or whatever - it sends the message to the other person that it's okay - and they have no incentive to change. (I made this mistake too.)

I'm sure that doesn't help ease the sting, but it will make you wiser going forward.

Best of luck to you!
 

#12
Eduardo  
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wel wrote:I'm sorry that you had that experience. I suspect that many of us here have experienced something similar.

This experience reminds me of a quote that I heard many years ago = "You train people how to treat you."
When you allow that type of arrangement to continue, whether it's being underpaid or whatever - it sends the message to the other person that it's okay - and they have no incentive to change. (I made this mistake too.)

I'm sure that doesn't help ease the sting, but it will make you wiser going forward.

Best of luck to you!


Agree. With my prior employer, we (the staff of three) were supposed to be paid every other Monday for the preceding two weeks. The partner who handled payroll would always give us our checks late on Thursday. It's not like it was difficult to run three payroll checks - mine was always the same and the other two were hourly. Of course, the draw checks were always timely (not that I was supposed to know that, but don't leave your check on your desk). We never brought it up (and we should have), but now that I have my own firm, staff payroll (have one employee) is always on time.

It's amazing how you learn what not to do when you work for someone else. The only thing I copied from my old employer was the payroll schedule (every other Monday, except that I stick to it). Everything else is different, and it's very efficient for us.
 

#13
ATSMAN  
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Small employers with cash flow issues are generally late in making payroll or they pay less with a promise to make it up later. When I was doing payroll that was one of the factors why I don't do payroll anymore. Employees thought I was the problem! I wonder who told them??
 

#14
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Thanks for all the comments.
Upward and onward! Hopefully I'll have enough clients soon so next tax season can be my last here.
 

#15
jon  
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Whatever Goodwill you have developed, "current office clients", goes with you when you leave.
 

#16
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You went off on your own after this situation, correct?

I'm curious to know where we are now, a year later?

With one year under your belt, do you make enough to cover your personal expenses?

How was new client growth?

Are you happy?
 

#17
CP Hay  
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I hope he or she moved on. 17 years is an awfully long time to chase a carrot.
 

#18
MWEA  
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In my mind, I think of the partnership model as being a relic of the past. A nice office and necessary support staff were barriers to entry and made the model work. Now days, I can start from home with an Internet connection and cell phone, and scale as the growth happens.

Executive office suites, clients willing to work remotely, low technology entry points, and the old low level admin tasks being automated continue to make the barrier to entry low.
 

#19
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ItDepends wrote:You went off on your own after this situation, correct?
I'm curious to know where we are now, a year later?
With one year under your belt, do you make enough to cover your personal expenses?
How was new client growth?
Are you happy?


The last place our "discussions" left off in Dec 2019 concluded with "it sounds like you can do better somewhere else so I don't want to stand in your way" and "you feel you were underpaid, I think you were paid fairly, I'm not going to argue with you about that" and "I'm sorry you feel that way"

Based on me already covering my share of the overhead I tried to work out a deal where I could bill clients directly if I brought in new work - to which I got a verbal okay, but when I tried to get it in writing he told me that if I bring in new work I could get a piece of it, but if I want to bill directly and basically have my own business then I shouldn't do it there "on his time".
According to our talks, my take away was if I want to earn what he's earning working part time, I need to work my day job, plus work for myself on the side - none of it seems fair to me in any form.

So starting in 2019 I did my first returns at home with a PRP license.
2020 was my first full year working full time and doing my own practice on nights and weekends.
2021 was my second full year. Growth has exceeded expectations.

Public forum and all so I'll come back in January and post more details and an update, but change is coming.
2 weeks notice is industry standard right, when you get screwed out of 250-300k?

Answers
1 - Employed and self employed
2-Yes - I've contributed more to my net worth this year than I would have for 3-4 years of W2s work at my current salary, which has not changed since 2018.
3- Client growth has exceeded expectations - depending on how many clients follow me I might have to start firing clients next year
4- Happy is relative. I've worked way more than I wanted to this year, here it is 730pm and I'm still trying to finish returns at home for the 11/20 e-file cut off. Once I am only doing one job and get back into my health routine I am sure my happiness with get back to that sweet spot. I'm not unhappy- per say. Unhappy going to that job everyday and dealing with that boss. Extremely angry, beyond words really.
 

#20
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ReckedCPAEA wrote:2 weeks notice is industry standard right, when you get screwed out of 250-300k?


In some respects, you've given them 2 years' notice. But yes, 2 weeks is still the standard in the US, and even when you've been treated this way it's still best to give that much notice. It's not like the notice period is going to lessen their pain of your departure given the timeframe before tax season starts.
 

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