How to Succeed at Succession
The 2012 PCPS Succession Planning Survey found both good and bad news on practitioners’ efforts to ensure their firms’ future success. On the one hand, more firms are taking steps to address succession issues. The survey found that 46% of multi-partner firms had a written, approved succession plan. That was up from 35% in 2008, when the survey was last taken, and from 25% in 2004. On the other hand, the fact that more than half of all firms don’t have finalized succession plans is part of the bad news. The news about solo practices was even more troubling, as just 6% had practice continuation agreements, down from 9% in 2008. In the meantime, 62% of all firms expected to have succession planning challenges in five or fewer years, with 22% facing them currently. In addition, just over half of all firms were not doing anything to develop future leaders, an oversight that could undermine even the best laid succession plans at larger firms and severely limit exit strategies at smaller ones.
There was more compelling evidence in the 2013 PCPS CPA Firm Top Issues Survey, which found that succession planning was a top concern for firms of all sizes (except sole practitioners). At the same time, the survey revealed that finding and retaining qualified staff had once again moved onto firms’ agenda after being pushed to the back burner during the recession.
If your succession plan could use improvement or even initial development, the takeaway is that while you’re not alone, the time to get started is now. With Baby Boomers heading into retirement and the hiring market heating up, firms must begin to review or develop robust succession strategies. Among the resources you can turn to is the AICPA Succession Planning Summit, which will provide expert advice on firm valuation, the merits of acquisitions versus sales, and insights on client and staff retention after a transition, along with other key topics. There are actually three different summit events, each one tailored to meet the unique needs of sole owners and firms with up to three partners; firms with up to nine partners; or firms with ten or more partners. They will take place in New York and Durham, North Carolina, in late October. Additional succession resources include the PCPS Succession Planning Resource Center, Practice Continuation Agreements: A Practice Survival Kit, and Securing the Future: Building a Succession Plan for Your Firm.
By Bob Goldfarb, CPA, CGMA, PFS, CFE, CFP
When I joined the PCPS Executive Committee two years ago and heard all the practitioner discussion about succession, I realized my partners and I needed to focus on our own plans. After determining that merging a smaller firm or several smaller firms into our practice was not going to work for us, we felt that the best succession option was to merge into a larger practice, which we accomplished just last month. Our firm had three full-time partners (including myself) and one who is partially retired. I’m 62 years old and my other partners are 78 and 63. We had six professional staff, none of whom wanted to be partner. They are all excellent accountants who are in their 40s and early 50s, with one in her early 60’s, but they didn’t want to devote their lives to partnership.
We considered closing our doors at some point in the future when all of the partners were ready to retire, but we felt that option would not be fair to our clients or to the staff members who have many working years ahead of them. We wanted to guarantee that everyone in the firm could work as long as they wanted. So, as of August 1, we merged into Janover LLC, a 120-person firm located in Garden City, New York and Manhattan. We did significant due diligence going into the merger, including conversations with the managing partner and others to ensure that they had the same quality standards and would work well with our clients. We also asked about their own succession plan to ensure that they had younger partners and other professionals to maintain the firm into the future.
Janover LLC has been in existence for 75 years, so after our firm’s 53 years in business in the same professional community, we were certainly familiar with their firm and their best practices. The merger specifically appealed to us because it allowed our firm to remain together and simply join a bigger, but very similar, culture. In addition, Janover’s ethics and approach to client service paralleled our own.
Prior to the merger, clients had begun asking about my own retirement and the future of the firm. Clients value a long-term relationship, and after the recent merger, our clients are more comfortable knowing they will be well serviced in the future. The larger firm can actually offer clients more resources and they know they can rely on some continuity because none of our partners are going anywhere soon.
We announced the merger to clients in a letter, but we had one-on-one conversations with many of our clients as well. We’ve known many of them for 30 to 35 years, some even longer. They simply wanted reassurance that the same staff and partners would remain to serve them after the merger and we assured them that would be the case.
I would urge practitioners to consider where they want to be five to eight years from now and determine whether they’re on track to get there. Now is the right time to take steps to ensure a smooth transition when you’re ready to retire. I’m glad I took these steps to ensure a clear future path for myself, my clients and my other firm members.
Bob Goldfarb, CPA, CGMA, PFS, CFE, CFP, is a Principal at Janover LLC, a 120 person firm in Garden City, New York, and Manhattan and a member of the PCPS Executive Committee. He is also a member of the New York State Board of Public Accountancy.
Taking on a Leadership Role
By Jason Deshayes, CPA
In January of 2008, I was recruited to join a sole practitioner’s firm as part of the firm’s succession plan. Previously, I was a supervisor at a seven-partner firm that did not have a succession plan and I didn’t see any chances for upward mobility. Not only did my new firm, Butler & Company, have specific plans for succession, but they emphasized spending time with clients and anticipating their needs, rather than seeing each client as just another tax return.
As soon as I joined the firm I began getting to know clients and working hand-in-hand with my partner, Rob, on client engagements. We wanted clients to know they could call me as well as Rob with any question or concern. In many small firms, when the long-time partners leave, clients no longer feel any affiliation with the practice and they are quick to jump ship. We obviously didn’t want that to happen and our efforts have been so successful, that we’ve acquired more business and we are now recruiting a new staff person!
I believe one of the reasons our arrangement has worked so well is that we avoid using the term ‘retirement.’ We have not set a deadline for Rob to leave the firm. Instead, we’ve concentrated on doing what’s best for the clients, which means Rob will stay with the firm as long as he’s interested in working. If he wants to stay involved with the business, his current age of 64 shouldn’t be held against him.
It is important to have conversations, however, on how the leadership handover will be handled. Many firms are unwilling to let the next generation make a mark on the business, and they can lose good managers as a result. It can be very difficult for the older firm leader to let someone else manage what he or she has built, which is why it’s so important to have a discussion in which both sides can express their expectations and concerns. It’s also critical to have an established career path and timeline for advancement and to let staff know the opportunities available to them.
To give young professionals a greater sense of control over their future, firms can help them to develop a business niche or revenue opportunity so that they are part of the process. Young professionals, like me at age 32, want to know how they can become involved, make a difference in the firm, and become a part of the leadership team that drives that firm to success.
Jason Deshayes, CPA, is Vice President of Butler & Company in Albuquerque, New Mexico.