Six questions to ask about succession

August 6, 2018

When I was in practice at my own six-person firm, the future was often on my mind, including my own exit strategy when I decided to retire from practice. There are numerous avenues open to small firm practitioners, but the trick is knowing which one will provide the best outcome for you and your firm. Here are some questions that CPAs can ask themselves to decide what succession solutions are best and whether they are on track to reach their goals.

When should I start? Planning should really begin as soon as the firm is launched. You probably tell your clients to plan well ahead for major transitions, and the same is true for you. According to the most recent PCPS Succession Survey, only 44% of firms had a succession plan, and the smaller the firm, the less likely they were to have one. Only 7% of solo shops had practice continuation agreements, which are the closest thing to a succession plan at some of the smallest firms. But change is inevitable, and it’s better to determine the best course forward sooner rather than later.

What are my choices? Some typical opportunities for smaller firms are:

  • Sell to or merge your firm into another practice. 
  • Develop a leader internally who will buy the practice.
  • Close the firm when you retire.

These are very different options, and there will be different planning steps for each one. In my own situation, I started out with one possibility, then realized that another one was actually preferable.

What can I do to enhance my firm’s appeal and value? Merger partners like to see a well-run and profitable firm that can be easily incorporated into their practice. To boost your perceived value, your technology and office practices should be up to date, your processes should be uniform and efficient and your financial data should contain convincing evidence of the firm’s success. (Firm members who buy out your practice will also assess these indications of value.) What are your firm’s strengths and weaknesses, and how can you address them? If you’re not sure, personalized Succession Reports from industry experts, Joel Sinkin and Terry Putney of Transitions Advisors, LLC, can help. They offer customized analysis of your firm on a number of topics, including owner agreements, admitting new partners, positioning your firm for an upstream merger and succession firm positioning to acquire other firms.

What’s realistic for my practice? My firm had a very promising young professional whom I believed had the potential to take the reins one day. But the more I read about CPA firm succession, the more I began to appreciate how complicated it was across the board, including grooming someone for internal succession. Then I decided to come on board at the AICPA, which left us with a relatively short timeframe for transition. I wasn’t sure this young professional would have the experience and resources when we needed them and ultimately decided on a merger into a larger practice.  

Why is one choice better? In our case, we were excited about the option to offer new services and resources to existing clients if we became part of a larger firm. We also thought merger partners could add to our strengths and maximize the value of our practice. We thought it would be a good place for our clients and all of our talented firm members to grow.  

How else can I prepare for change? The Switching Gears Lifestyle Process is a valuable tool for practitioners who are roughly three to five years away from retirement and are seeking a holistic approach. This transition counseling program helps practitioners develop a vision of retirement beyond just financial measures. Do you want to travel, volunteer, start a new hobby or an entirely different business? When these questions - and concrete goals - are part of your planning, you’re more likely to have a fulfilling retirement, as well as the funding you need to pay for it. The same is true for clients, of course, which is why practitioners should consider incorporating this tool into their strategic planning with organizations on the verge of change. Look for a wealth of other tools in the PCPS Succession Planning Resource Center.

You’ve got this!

Succession planning can sound daunting, but it shouldn’t be because it’s already in your wheelhouse. CPAs work with clients every day on positioning their businesses to be more competitive, to develop strategies that will lead to a successful transition or to implement a merger or acquisition. You’ve spent years developing the expertise to create an exit strategy, so now put that knowledge to work on behalf of your own practice.

Carl Peterson, CPA, CGMA is the Association’s Vice President of Small Firm Interests. Have questions for Carl? Contact him directly at or 651-252-4618. And be sure to sign up for Carl’s Small Firm Update webcasts. The next one will take place on September 20 at 2:00 to 3:00 PM ET.