When we first met with the managing partner, we asked him numerous questions to make sure we understood the issues. We explored:
• What is your biggest fear right now? • How aggressive are you willing to be with your planning while staying within the rules? • When are you planning to admit the new partner?• Are there goals over the next few years we should consider and start planning for now?
Once we had a chance to discuss the questions above, we came up with an immediate plan to help the Managing Partner manage the cash flow. We also helped devise a plan to bring in the new partner and help evaluate the different moving pieces as the firm grew larger and more complex to operate. We decided to do the following:
• Rather than rely on the prior year numbers as a basis for estimates as the prior accountants were doing, we developed a method for annualizing the firm’s income and then allocating to the partners to determine their quarterly tax estimates based on actual cashflow for each quarter.• We developed a plan for bringing the new partner in, taking into consideration the cash flow needs and receivables of both parties in an effort to streamline the merger. As the collections came in they were able to manage the allocations to each partner much better.
We first met with the managing partner 18 years ago. Since then, the then four partner firm has grown into a 25 partner firm. They still employ the income annualization strategy for cash flow management and tax estimates we developed. We work with 80% of the partners on their tax needs from basic to complex. We also work with many family members of the partners and assist them with many tax and cash flow questions they have. There is not a week that goes by where we do not discuss a tax or business issue with someone from the firm. It has been a great and successful relationship for both sides.
