Leaving It to Chance? Succession Planning Is Not a Spectator Sport 

    Sponsored Content: Reconsider your point of view with a recent report on the state of CPA firm succession planning. 
    by WealthStar Alliance®/KPMG 
    Published June 28, 2010

    Children’s stories are not typically the stuff of serious business communication, but the starting point for this report recalls the story of the shoemaker’s children. As the fable goes, the shoemaker was so busy producing footwear for his clients that his own children went without.

    The story highlights one of the key findings of a recent survey by WealthStar Alliance® firms across the United States. When it comes to succession planning for small business, CPAs make it their job to counsel clients on the pitfalls of leaving their business and personal futures to change — planning is one of the sound fundamentals on which success is built.

    Good advice. But CPA firms themselves reveal they are not preparing sufficiently for their own futures. Succession planning and building a strategy for the future transition of the leadership/ownership of the firm rates very high on the scale of importance, with 94 percent of survey participants saying it is important or very important. But how many actually have plans? Only 31 percent reported having a succession plan in place.

    This statistic from WealthStar Alliance’s November 2009 study does show progress over a 2004 PCPS survey. At that time, only 19 percent of CPA firms had a written succession plan.

    While improved, the current degree of succession planning continues to be cause for concern considering the time frame in which firms are now contemplating a change in leadership. Approximately 55 percent of firms said that they plan on making a transition in management or ownership within five years. When we extend the horizon to 10 years, 87 percent of firms expect to find themselves in transition. If CPAs took their own expert advice, it can take up to five years to solidify a plan. Clearly, there’s a call to action to get started now.

    Among the many survey insights that are included in the full report, two additional points merit some discussion in this Executive Summary.

    Funding a Transition

    Firms have potentially unrealistic expectations when it comes to funding a transition. About 73 percent of firms who expect to transition ownership of the firm plan to use firm cash flow for a buyout, while another 40 percent indicated they would fund the transition through key-person insurance.

    However, the top business issue cited in the survey was increasing revenue. Challenging economic conditions are clearly being felt by CPA firms. Survey responses highlighted clients cutting back on their service spending as well as business failures. The dent on revenues could be a significant issue going forward. Alternate sources of revenue, particularly during what is expected broadly to be a period of industry consolidation, may be an area of increasing focus.

    The good news here is that the small businesses who are the clients of CPA firms will be facing mounting transition planning issues of their own as baby boomer owners head for their retirement. CPA clients will require assistance in how to preserve wealth, its distribution, and transfer. Opportunities will likely emerge in estate planning, retirement planning, business succession planning, and deferred compensation strategies, to name just a few areas.

    The Era of Generations X and Y

    Underlying the entire discussion on succession planning is the generational sea change that is underway — the massive cohort of baby boomers exiting the workforce, and the emergence of Generations X and Y to lead and shape the culture of CPA firms going forward.

    For example, work-life balance emerged in the survey as a top factor in attracting and retaining Gen-X and Gen-Y CPA employees — something that many baby boomers have only paid lip service to. Gen-Y employees rate training opportunities (78 percent) as their top retention factor. It will be a call to action for firms to realign and strengthen their talent management focus to address new career and development expectations.

    Additional Highlights

    The full report includes many additional insights. Here are just a few highlights:

    • Not surprisingly, the top obstacle to succession planning was finding the time for the process.

    • Communication skills were cited as:

    –– Most important factor in recruiting for firm

    –– Top characteristic to the success of a leader

    • Almost all firms consider internal succession the best option for transition of ownership, and about half would also look at a merger or buyout as an option.

    • Key factors in assessing conditions for a successful merger/sale/acquisition were:

    –– Culture fit

    –– Client/service strategy

    To download the complete report with all survey results, please click here or visit http://www.wealthstaralliance.com

    Please note that the above links will take you to an external non-AICPA website of an advertising sponsor. Any information you may provide to the website will not be collected by the AICPA or for AICPA's purposes.

    The survey responses represent the views and opinions of the survey participants and do not necessarily represent the views and opinions of AICPA, AICPA Sections/Credentials Teams or of AICPA member firms. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No oneshould act upon such information without appropriate professional advice after a thorough examination of the particular situation.




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