If you’ve been putting off starting or updating your succession planning, I’d like to share a stark reminder I experienced a couple of years ago: It’s important to act now. My 10-person, Windham, N.H., firm was considering buying a CPA firm from a sole practitioner who had an interesting practice in a good location. We had several positive meetings. But just as we were formalizing a deal, we heard the sole practitioner had unexpectedly passed away. Although the next of kin wanted to continue with the sale of the practice, we had to decline since we knew that many of the firm’s clients would have already moved on by the time we took over. The CPA’s failure to plan for transition made the firm less valuable to us.
We all have short- and long-term goals for our firms, and succession planning can help us establish how to meet them. I have found from my own firm’s experiences that there are several strong benefits to planning, regardless of your firm’s size or how far you and your partners are from retirement.
- A formal succession plan is a great attraction and retention tool. A good staff member often wants to know how they can grow in your practice. A succession plan that details future leadership intentions can answer many questions.
- A strong partnership agreement is the foundation of any plan. An agreement made in conjunction with your succession plan can set forth how a partnership works — from becoming an owner through retirement. It can establish and facilitate the transition to new ownership and make decision-making and overall management more efficient. We encourage potential future leaders in the firm to make suggestions to improve or update the agreement because we want to be transparent with them and encourage their participation in the process.
- You can get a clearer sense of how to add value to your firm. I’ve met with many CPAs who put off updating their technology, but outdated systems may deter potential buyers who won’t want to spend time and money upgrading them. The process of succession planning forces you to think about what would make your firm attractive and valuable to a future internal or external buyer, making it more likely owners will get the deal they want when they leave.
- It’s always beneficial to know where you stand. As we’ve all seen this year, disruption can upend our expectations about the future in ways we would never have imagined. We may have to make some detours because of the challenges we face, but it’s easier to deal with the unexpected and reach your goals in the end if you’ve clearly established your firm’s plans for the future.
The 2020 PCPS Succession Survey
The good news is that there’s a tool that can help you jump-start your succession planning and benchmark your firm’s progress against your peers: The 2020 Succession Planning Survey. Fielded in partnership by the AICPA’s Private Companies Practice Section (PCPS) and the Succession Institute, this comprehensive, unique study will offer insights you won’t find elsewhere. The results will reveal details that include:
- How firms of various sizes are planning, with separate results for sole proprietors and multi-owner firms
- Details on equity ownership and leadership development
- How sole proprietors are using practice continuation agreements
- What CPAs expect in terms of payouts and what firms are receiving
- The age that CPAs in firms like yours expect to retire
- How they transition client relationships
- The current mergers and acquisitions environment
Completing the survey is easy for anyone familiar with firm policies since it requires no detailed financial information. It should take fewer than 15 minutes for solo or sole practitioners and 15 to 45 minutes for those in multi-owner firms. It can be a valuable exercise, too, since the survey provides a roadmap to all the factors to consider in succession planning. In addition, those who participate in the survey will receive a free comprehensive report of today’s succession landscape and be entered into a drawing for one of four $100 gift cards. The deadline to participate is Oct. 8.
You can find additional succession planning resources and other valuable practice management tools on the Private Companies Practice Section (PCPS) page. PCPS is an add-on firm membership section within the AICPA. At only $35 per CPA, and a maximum of $700 per firm, it’s a great investment for the wealth of resources you can use in your practice. Register for a free PCPS web tour to learn more.
Joel Olbricht, CPA, CGMA, OSGroup CPAs. Joel Olbricht is a partner in a successful business consulting CPA firm in N.H. He’s involved in the CPA communities-- local, national, and international; serving on many local Boards, active in the N.H. Society of CPAs, advising local practitioners via networking groups and CPE, and currently serving on the AICPA Board. He was chair of the AICPA PCPS Executive Committee and became very interested in succession planning and talking to many CPAs looking to retire and sell with the best insight possible.