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[EastCoastAgent]

I know that profits per partner are the profits a partner brings in.  However, does this equal that partner's salary, or does the PPP amount go to other things in the firm, such as a cash pool in case of an economic "crisis" (e.g. 2008 to present)?

Thanks for any responses.

[klaviernista]

May depend on the firm.

Traditionally, PPP refers to the average distribution of the firm's profits on a per partner basis.  E.g., A partnership has three partners, A,B,C.  They share the partnership profits and losses equally.  Thus, if the partnership makes a profit of $300k in a given year, the PPP would be $100k. I.e., Each partner would receive 1/3 of the profits.

Note that PPP usually does not take into account the salary of each partner (if they have one).  Salaries are typically classified as payroll/overhead, and are usually a seperate line item on the accounting spreadsheet.

[khazzah]

I know that profits per partner are the profits a partner brings in. 

Not quite. PPP is an *average*. Total profits / number of partners.

Also you don't "bring in" profits, you bring in *revenue*. If partner A brings in 33% more revenue than partner B, it doesn't follow that partner A necessarily has 33% more profit distributed to him than partner B. Instead, it depends on how a particular firm distributes profits.

However, does this equal that partner's salary, or does the PPP amount go to other things in the firm, such as a cash pool in case of an economic "crisis" (e.g. 2008 to present)?

Profits are indeed monies that go into a partner's pocket -- or don't literally go into his pocket but are used to pay items on his behalf (ie, insurance premium, 401K).

If the firm decides to accumulate cash, they do this by reducing the amount of profits distributed to partners.

Salary is something else entirely. AFAIK, salary means something close to "guaranteed income which the firm can't get back".

Some firms pay partners a relatively small base salary, with the bulk of compensation coming from distributed profits. Other firms don't pay a salary at all, instead there is a periodic (bimonthly/monthly) draw against future profit distribution. If your draw is set to high, your profit distribution may be very tiny, or even go negative so that you owe the firm.

[Isaac]

PPP is a kind of measurement of how a firm is performing as a business.   Viewed simplistically, the goal of a firm is to make partners wealthy by offering legal services.  PPP is a rough indication of how well the firm does that.  If a firm maintains a high PPP over a signficant period, that means they are generating a good amount of money without chasing associates out the door or losing malpractice suits.

Salaries are an expense and should not be included in the PPP measurement.  As khazzah has indicated some partner salaries are not really salaries at all, but are a means of managing cash flow for short periods.