NEW YORK (Oct. 4, 2012) - Succession planning is a key factor in maintaining the value of any professional services firm, and the topic clearly has CPAs’ attention: 79 percent of firms with multiple owners say they expect it to be a significant issue in their business over the next decade, a survey by the American Institute of CPAs found.
Despite a rough economy that has focused attention on more immediate, bottom-line concerns, more firms are making concrete plans to accommodate the retirement of senior leaders or the sale of practices than four years ago, according to the 2012 PCPS Succession Survey, jointly conducted by the AICPA and the Succession Institute, LLC. There’s still a lot of work to be done, however, particularly at solo practices, only 6 percent of which have practice continuation agreements to permit the temporary takeover by another sole proprietor in the event of the owner’s death or disability.
The good news: With the economy showing some signs of stabilizing, now is the perfect time to start mapping out a plan. As the Baby Boom generation continues to retire over the next decade, more pressure will be put on professional firms — accounting or otherwise — that don’t have well-defined transition plans in place. Ownership in a firm is often a CPA’s biggest financial asset, so it’s essential to establish exit strategies that maximize the value of that stake when retirement looms.
“Succession planning is a lot like preparing to sell your house – it’s not a good idea to notice your roof needs work or there are cracks in your foundation once your home is listed,” said Mark Koziel, CPA, CGMA, vice president of firm strategies and global alliances at the AICPA. “For CPAs, it pays to have an orderly plan in place that accounts for all contingencies and includes steps to maintain or increase the market value of your firm. Fortunately, we have a host of resources at the AICPA to help in that task.”
One place to start is the Succession Planning Resource Center, a one-stop information clearinghouse for members of AICPA’s Private Companies Practice Section.
The survey is broken into separate reports for multi-owner firms and sole proprietors (both sole owner firms and true sole practitioners), and includes best practices for succession planning in each category. Tips include:
- Start with a 3-year written plan. Define what your firm will look like in the future. Write down steps for ensuring smooth client transitions, grooming future leaders, and implementing policies on retirement and exit compensation. Set up metrics to measure success.
- Evaluate your fees and clients. How do your fees compare to competitors? If they’re too low, that could pose a problem. Tighten your bonds with top clients and referral sources. Evaluate if marginal clients should be upgraded or referred to another firm.
- Maximize firm value. For sole proprietors, that might mean leveraging technology or strengthening client relationships. For larger firms, it could mean developing key staff, using equity wisely and instituting a robust pay-for-performance framework.