In this blog post I answer the question, “how much do I need to buy-in at a Big 4 firm. From the Big 4 (KPMG, PWC, E&Y, Deloitte) down to the smallest firms, acceptance as an equity partner means you will need to resign as an employee, become self-employed, and invest some capital into your firm. This capital is often called ‘buy-in’. In return for this capital stake, if the year is a profitable one, you will make significantly more than if you were employed. Of course, the big question is:
How much will I need to buy in to be a Big 4 partner? (Or actually in any firm?)
It may surprise you that the amount you need to invest in a firm is more dependent on how well-capitalised the firm is, rather than the size of the firm. For the top 6 accountancy firms, including the Big 4, this amount can be between £50k and £300k. It can change year-on-year, and will really depend on the state of the firm’s bank balance.
Many firms will make their partners sign a non-disclosure agreement to stop them from discussing buy-in values and compensation. This may or may not apply to your firm.
You may find that your firm expects you to contribute more capital to the firm over time. This could be to carry on buying your equity share or if the firm needs to ask partners to contribute more capital to the business. This could be that working capital is running low, the firm is concerned about the future trends, the firm needs replace the capital being taken out by partners leaving the business or the firm has some large investments to make.
And how do I find that much money?
Probably the key difference between a Big 4 and a small firm is how efficiently and effectively this capital investment is handled. An established and well-run partnership will probably have arrangements with banks to loan you the amount you need for the buy-in.
Therefore, you don’t suddenly need to find £50k on the day you become an equity partner.
A Big 4 firm (and any other well-run firm) will set up the partnership loan with the bank for you, and automatically deduct your loan repayments from your partnership drawings. These loan repayments will normally cover the interest and capital repayments. Most people in your position, i.e. needing to buy into their big 4 firm, will use a partnership loan to fund the buy-in amount.
A good way to think of this partnership loan and arrangement is like a mortgage. Instead of a long-term loan to buy a house you are buying a stake in the business.
Don’t forget, most partners don’t earn a salary. Remember that your drawings are not the same as a wage or salary. As a partner you are self-employed, so your drawings are profits that you take out of the partnership. As a junior partner in a Big 4 firm, it may feel like you are still getting paid a salary. This is because you will typically be guaranteed a certain amount of drawings and then given a bonus on top depending on how well you, your part of the practice and the business overall have performed.
It’s not unusual to find that when you make partner your first year or so of drawings are not much more than what you were paid as a director. This is because your drawings – before they get paid to you – will have a number of deductions taken out of them. E.g. partnership loan repayments, pension contributions, national insurance contributions (UK people) etc
If the firm is having a lean time, your drawings may be less than the higher paid directors and salaried partners in the firm.
However, it is very unlikely, unless you are a junior equity partner, for you to be in this situation at a Big 4 firm.
What are the risks of buying in?
It is widely known that the real financial rewards only come when you make partner in a Big 4 firm. If the firm does well, that initial investment might just be the best financial decision you’ve ever made! But let’s chat about some realities of this whole partnership thing, so that you’re in the know.
First, your investment isn’t exactly like having cash in your pocket. Instead, it goes into your capital account, where it pretty much stays put in most cases until you decide to retire or move on from the firm. So, it’s not like you can just dip into it whenever you feel like it. Plus in the current savings climate, it’s safe to assume that the money in your capital account will earn little or no interest.
Now, there’s also a bit of a risk factor involved. As a member of an LLP, your personal liability is generally limited to the amount you’ve invested in the firm. However, if things go a bit sideways—like the firm faces financial troubles or there’s a negligence claim that goes beyond the professional indemnity insurance cover—your contribution could be in jeopardy. We haven’t seen a large professional services firm like Andersens collapse for a number of decades. But that doesn’t mean to say it is never going to happen. For example, what happens if your service line is considered non-core, sold, or spun off into a new business? When this article was updated in 2023, KPMG and EY in Europe were facing hefty fines and some restrictions on some audit failures. So, it’s important to be aware that buying into a Big 4 firm is not a completely risk-free investment.
When you decide to leave your Big 4 firm, your capital investment should be repaid. However, there are normally rules in your firm’s partnership agreement for when your capital will be repaid. There is no guarantee that you will get it paid back on the day you leave. For example, your firm may not have the money to do so. Or it has an option – as per the partnership agreement – to delay this repayment. This isn’t going to help you to repay your partnership loan, OR if you are moving to a new firm, buy into the new firm.
Typically, partners have their entire working careers to pay back the loans they’ve taken, using the profits they earn. By the time they retire, they should get back their initial capital investment and any money piled up in their partnership current account. Since these amounts can be quite substantial, it’s common for partnerships to spread the payments over a period of two to five years. Keep in mind that, in some instances, capital gains tax might apply to the total amount if the goodwill value they acquired as a partner has gone up by the time they depart.
We’ve heard from quite a few soon-to-be new partners who are understandably nervous about the idea of taking out a loan as big as a mortgage just to join the ranks of partnership. Even a partnership as secure as a Big 4 firm. However, the real issue isn’t borrowing the money for the buy-in. The key is understanding that this partner equity loan is actually a debt you’re taking on to get your foot in the door, and you won’t see that cash again until you decide to leave. It’s all about having the right perspective!
You have to get offered partnership first!
You’ve probably come to this page because you have heard about the Big 4 partner buy-in amount. Hopefully, this article has allayed your fears that whatever your circumstances, your firm will likely help you buy in by helping you get a partnership loan to cover the Big 4 partner buy-in amount.
But before you can get to the point where you sign away your capital, you need to actually get offered partnership in your Big 4 firm.
This means:
- Getting noticed as having partnership potential and put onto your Big 4 firms’ long list for partnership track. Our Progress To Partner membership site can help you get noticed for the right reasons. Annual membership is as little as £35 + VAT. Included within Progress To Partner are (amongst others):
- Game plans to help you get noticed and navigate the tricky transition from being on partnership track and then making it to partner
- Courses to help you put together and pitch your Business Case
- Creating a cast-iron Business Case for partnership. Our sample Business Case template is free to download and will take you through a step-by-step process to put together your Business Case. This is what have used with the many hundreds of people from the Big 4 who want to create their Business Case. Use our template, and you’ll know exactly what to write. But most importantly, you will get started on your Business Case. Download the sample Business Case template here.
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