Firm Insurance Without a Premium 

by Casey D. Lynch, CPA 

I’ve been a sole proprietor for the last ten years. Before going out on my own, I was in a 12-person firm with several partners. After retirements and attrition, the firm was left with myself and one other partner. He had several health issues, so I bought his portion of the practice. Now, my wife and I operate the firm working from our home office.

After the process of buying out my previous partner, I began my firm with the topic of succession in mind. A few years into running the firm, I attended the AICPA’s Practitioner’s Symposium and Tech+ Conference where succession planning is often a recurring discussion item. At the conference I learned about practice continuation agreements, and decided I should try to create an agreement for my firm to offer protection for my wife and family should anything unexpected happen to me.

Find a Solution That Fits Your Firm
After returning from the conference, I began talking to several local CPA firms, including other small firms and larger firms. I started with firms in my area that I already had personal connections with and was able to form a group of 9 interested firms. Together, we created a written agreement stating that if one of the members of our group is unable to serve their clients for some reason, the remaining members will divide the workload to ensure that the clients are still receiving high quality work. When signing the agreement, member firms are committing to take on anywhere from 30-50 clients at half price if someone in the group becomes unable to work (half goes to the CPA who is unable to work). If the member returns to work within a year, they are able to retain all of their original clients. If the arrangement lasts 2 years, it is in effect a buyout.

The members of the group get together on an annual basis to review the agreement and sign up for another year. Members can always suggest new firms who would like to participate or they can opt out of the agreement if they feel like the terms no longer meet their needs. Ideally, I would like for the group to keep growing. Larger firms are a real plus as they could absorb 30-50 additional tax returns easier. The more firms that are involved, the more protection each member has. Having more participating firms also makes it easier to balance the workload should anyone need to utilize the agreement. This practice continuation agreement has been in place for almost four years, and while luckily, we have not needed to use the agreement, we have peace of mind if it’s ever needed.

I realize that the type of arrangement I have developed is not traditional and is not necessarily the best solution for everyone. When forming a practice continuation agreement, you need to be sure you are making the choices that are best for you and your firm and that you are able to fully commit to the terms of the agreement. Workload compression is a big issue for sole proprietors and smaller firms and I’m no exception. If a member of the group utilizes the agreement, I would be increasing my workload by 20 to 30 percent and I would certainly have to make sacrifices in order to fulfill my portion of the agreement terms. However, for me, the protection offered by the agreement is worth those sacrifices, should I have to make them.

Succession Planning
As I am now nearing retirement age, a more formalized succession plan is certainly top of mind. Ideally, I would like to sell my firm in the next four to five years and remain as a seasonal employee of the acquiring firm and work during busy season. Since my firm is 100 percent cloud based, I hope that this type of transition process would be fairly easy to accomplish since I am not limited to acquisitions in only my local market. With so many CPAs on the verge of retirement, I think that practitioners like me, who would be willing to continue working in a limited capacity, are a widely underused talent pool for firms who are looking to hire experienced CPAs.

A recent article in the Journal of Accountancy stated that only seven percent of single owner firms have a practice continuation agreement in place. My advice to other sole practitioners is to ensure that you have some kind of plan in place, even if it differs from traditional plans.

A practice continuing agreement like mine may not work for everyone, but you need to be thinking of how to protect your firm, your clients, and your family even if you are not nearing retirement age. The agreement also creates a relationship with other CPA firms that could lead to a future relationship and possibly a succession plan.  I would encourage practitioners to leverage the personal networks they have created and to talk to other firm owners and partners whenever possible. They will likely be able to provide ideas or advice, and that could make all the difference in preparing and protecting your firm for the future.

Casey D. Lynch is a sole proprietor based in Durango, CO.


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