Finding the “Success” in CPA Firm Succession Planning

The results of the AICPA’s 2008 PCPS Succession Planning Survey are official.  While the number of firms and sole proprietors with a written succession plan in place has increased since the 2004 survey, the profession still has a long way to go.

Change is a constant. It isn’t something that will happen when certain partners retire; it’s something that occurs in firms now, every day. Although the retirement of founding or current partners at some point in the future seems like a milestone event, it will be only one detail in the life of the firm. Succession planning is about sustaining the firm throughout constant change; it should be a regular and ongoing practice.

Creating a written succession plan is a prudent step in the succession planning process. However, few firms have accomplished this goal. In the 2008 Succession Survey, 35 percent of multi-owner firms and nine percent of sole proprietors (sole owner firms and sole practitioners) had a written succession plan in place, compared to 25 percent of multi-owner firms and eight percent of sole proprietors in the 2004 survey. While this is an improvement, the profession still has a long way to go. Many firms appeared, however, to understand the importance of succession planning. A total of 67 percent of multi-owner firms and more than 50 percent of sole proprietors believed succession planning would be a significant issue for them in the near future.

Why is Succession Planning So Hard?

James C. Metzler, CPA, the AICPA’s vice president of Small Firm Interests, offers two reasons:  “First and foremost, it’s the notion of ‘I am the worst client I have,’” Metzler says.  “It’s a case of the shoemaker’s children.”  The second reason firms avoid succession planning discussions is that it nearly always involves conflict.  “When you get around the partnership table, difficult conversations need to take place, and CPAs tend to avoid conflict.”

One problem, Metzler says, is that there isn’t a core business process called succession planning.  “Succession planning should be happening when people come in the door,” he says.  “It’s not just about retirement; it’s about if you’re hit by a truck.”  Succession readiness should be part of overall readiness planning Metzler adds, and part of your core business process just like services delivery, sales and marketing, human capital, and strategic planning. 

Getting Started

How can your firm begin tackling succession? Try these guidelines to start the process:

•  Recognize the need to plan. Every action that owners take today builds a foundation for what will happen to the firm five or 10 years from now. As a result, it’s better to have a strategic plan for where firm leaders would like to be in 10 years — and how they will get there — than to wait passively to see what will happen next.

•  Treat succession planning as an everyday business activity, not one more item on the firm’s “to do” list. Succession planning encompasses many other areas, including leadership, recruiting and retention, compensation, and more. It’s simply good business to address all of these issues, and this can be accomplished under the umbrella of the practice’s succession planning efforts.
Succession Planning continued . . .

•  Put together a corporate structure. In some firms, owners make decisions about their own parts of the practice on an ad hoc basis. When a practice plans for the future, it becomes clear that transition in particular will run more smoothly if there are firm-wide procedures in place addressing such topics as hiring and firing, compensation, and other administrative issues. Practices also may want to consider putting together a board of directors. Even the smallest firm can benefit from a board’s advice and oversight.

•  Create a written succession plan. The process of putting the plan together helps practitioners to address issues in an orderly fashion and organize their thinking about succession. It also documents firm policies. A firm can begin by outlining these important aspects of succession planning:

•  Retirement. What’s the required retiring age, if any? How does your firm handle retirement funding? What’s the compensation for retiring owners?

•  Client transition. When and how will owners relinquish control over long-standing clients and engagements? How will younger staff become involved in existing accounts?

•  Developing future leaders. What’s the career path for promising prospective owners? What kind of training should they receive? What requirements will there be for new owners?

Each firm will have its own set of issues to address, but this list provides a draft outline for an initial written plan. For each strategic area, a practice can add its own questions, like the ones above, until it has a list of topics to discuss. Then, the firm can begin to form its answers to all of these questions. Once the answers are formulated and put in writing, they become a firm’s succession plan.

For more information on succession planning, check out the following resources:

Preparing for Transition: The State of Succession Planning and How to Handle the Process in Your Firm, a free PCPS white paper at pcps.aicpa.org/NR/rdonlyres/D1C10A9F-6592-4315-B686-FD27CB55B6BA/0/PCPSWhitePaper_SuccPlan.pdf

Securing the Future: Building a Succession Plan for Your Firm, by Bill Reeb, CPA, and issued by PCPS, cpa2biz.com/AST/Main/CPA2BIZ_Primary/PracticeManagement/PracticeAdministration/PRDOVR~PC-090486/PC-090486.jsp.

Other free resources are available at the PCPS Firm Practice Center at pcps.aicpa.org/.

Clients Need a Succession Plan, Too

When creating a succession plan for your firm, consider these practical guidelines for a successful client transition.

Be sure to ask yourself these questions:

•  When and how will the managing partner and other executives give up control over major clients and engagements?

•  How will younger staff get involved with the business your firm is currently attracting?

•  Have you defined retirement, including whether it involves consulting work by retiring partners on an as-needed basis and what kind of client contact they will have?

•  Will retirees continue to represent the firm to the public?

•  How can the practice encourage the owner and other partners to provide staff with client contact?

•  What other client transition policies should your plan include?

Set a mandatory retirement age and stick to it.

•  While it can be difficult to ask firm leaders to retire at a certain time, practice management experts agree that this step is crucial to the health of any firm. It not only assures future leaders that they can count on taking control at a set point but also makes client transition easier.

Chart your firm’s skill sets.

•  What are your staff’s talent and experience?

•  Do they practice and reflect the firm’s strategic goals? In other words, do you have or are you developing the proper staff to support current and future client needs?

Get partners actively involved. 

•  Many firms avoid this step because partners want to maintain their client relationships. While this may seem prudent in the short run, it’s not a practical long-term policy. The practice will stagnate if younger CPAs aren’t introduced to existing clients and taught how to bring in new ones. If it turns out younger staff are unskilled at building those relationships, it’s better you learn that early than in the last months before a partner retires.

• CPE Courses
• Pay Dues
• Ethics Courses
• Classified Ads
• Scholarships
• Peer Review
• Useful Links
• FAQs