From success to succession: Continuing the circle of life in a CPA practice

August 28, 2018

Sure, there is lots of talk about succession these days. But have you considered this? Preparing for succession isn’t just about those exiting their practices. While record numbers of trusted advisors look to step down in the coming years from firms they have built, there is a new generation of practitioners looking to realize their dreams of becoming owners in successful practices. Not only is this an opportunity to start new conversations as important business decisions are being made, it creates an opening to perpetuate the circle of life within a CPA firm and the profession. That is why this month’s issue of Feature Focus in all about succession planning and what you can do to prepare yourself for success, whether you are ramping up for or exiting the ownership ranks. No matter which side you are on, you can explore best practices and practical tools to help you make the most of your transition.

Are you an owner looking to exit your practice?  

You have worked hard to build a successful practice. You have earned the reputation as a thought leader in your field. You have led and mentored a great team. You have developed a loyal group of clients who consider you their most trusted business advisor. But now you are starting to think about transitioning your practice. You are not alone. In fact, there are many like you who are also turning their thoughts toward what’s next for themselves and their practices.

As you start to ponder the possibilities, here are some interesting findings to consider from the last PCPS CPA Firm Succession Survey. 

  • 40% of sole proprietors report they are planning to fully retire or exit their practices within the next five years and another 33% plan to transition within 10 years
  • Nearly half of sole proprietors said their first choice of exit strategy was to merge with another firm
  • Only 7% of sole proprietors have a practice continuation agreement
  • 84% of multi-owner firms expect succession planning to be a significant issue in the next decade yet the majority of firms don’t have a plan for this transition
  • Only 63% of multi-partner firms have a partner agreement

Now that have some insight into the intentions of practitioners around the country, here are some questions for you.   

  • Do you have an exit plan?
  • When do you plan to transition from your practice?
  • Do you plan to transition over time or establish a firm date to exit?
  • Do you have a Practice Continuation Agreement (PCA)?
  • What do you plan to do with your clients?
  • What do you plan to do with your practice?
  • Do you know what your practice is worth?
  • Do you have a firm interested in merging or buying your practice?
  • Do you have a successor?
  • Is this successor prepared to assume your practice and the duties that come with it?
  • Has this successor worked with your clients?
  • How will you let your clients know about your departure?
  • How do you plan to spend your time once you have stepped away from your practice?  

These are not easy questions, especially as you consider the lifetime of work you have invested in developing it. But to make the most out of your valuable asset, it will be important to carefully think through these and other critical elements of your departure before you walk away. Developing a detailed succession plan is a key element in achieving the type of result you desire. To receive maximum results, it is recommended you begin this planning process at least two or three years prior your departure.

Not sure how to get started? Good news. PCPS has done some of the heavy lifting in conjunction with a number of the nation’s premier succession experts to create user-friendly resources designed especially for firm owners like you who are looking to exit in the coming years. The Succession Planning Resource Center is a perfect place to start. Use it to sort through complex issues that can significantly impact you and your practice. Another good one to explore is Getting Your Succession Planning on Track. Tap into this document to understand how your peers are addressing succession planning, while gaining insight into barriers that may exist and practical ways to overcome them.

Are you a potential owner looking to buy into a practice?  

You have made great strides to achieve success early in your career. You have been recognized as an up and coming leader. You have built solid relationships with your clients. You are starting to make a name for yourself in the industry you specialize. Now you want to make an additional investment in your future by becoming a firm owner. Whether it is the chance to take over a sole practice or replace a soon-to-be departing partner in a multi-owner firm, you are ready to capitalize on this time of succession to make your dreams come true.

An important element to your success is the development of a detailed action plan. Since this process will take time to achieve, it is recommended your craft your plan two to three years prior to when you see yourself becoming an owner. Why? There are lots of things involved and much to prepare for. As you get started, here are some questions to ask yourself:

  • Do you have a plan outlining your journey to become a firm owner?
  • Have you expressed your interest in becoming an owner to leaders in your firm?
  • Have you talked with the owner of another firm who is preparing to retire?
  • Have you identified additional skills and competencies needed to become an owner?
  • What type of new or emerging partner training have you participated in?
  • Do you have a mentor helping you with your goal of becoming an owner?
  • If no, is there someone you could ask either in your firm or another firm?
  • Have you considered what your life will entail once you make the transition to an owner?
  • Have you considered the needed investment of time and capital to become an owner?
  • When do you see this transition taking place?

Yes, it is a lot to consider and it can be a bit overwhelming but don’t fret as there are a number of tools you can turn to. For starters, check out the PCPS Firm inMotion e-Toolkit, an online resource that can be helpful in your planning process. Using tools such as the Staff Assessment and Career Development Plan can help you create your own journey to partner.

Preparing potential owners for a successful transition as senior partners exit

One of the biggest barriers to effective succession is that senior partners don’t believe younger professionals are ready to take over leadership, according to the most recent PCPS CPA firm Succession Survey. What’s more - a firm’s success depends on its future leaders who are ready to take the reins. So what are firms doing to better prepare future leaders? Here are the top three steps firms are taking.

  • 53%       Identification of, and training for, specific competencies (preferably based on a competency model)
  • 36%       Formal training or education in soft skills such as management, assertiveness, handling conflict, communication, change, etc.
  • 34%       Formal training or education in management and delegation

As a potential owner, you can help position yourself for success by attending training to build specific core competencies. Don’t wait for senior members of your firm to tap you for this training. Instead, take a proactive role in seeking it out and talk with firm leaders about attending sessions to hone your skills.

Check out the upcoming AICPA Emerging Partner Training Forum November 5-7, 2018 in
Atlanta, GA. Here you can benefit from an action-packed event designed to help new and potential owners succeed in their new roles. Not only will you learn valuable insights from seasoned leaders, you will have the chance to network with colleagues from around the country looking to become firm owners and partners. 

Another proactive step you can take is to seek out a mentor to help prepare you for an ownership role. This can be someone in your firm or one in your network. Their insight can prove to be invaluable in providing you with expertise they have spent decades learning. Bottom line, this knowledge and insight will separate yourself from others as you strive to become a firm owner.  

Tips for a successful handoff

As you can see, there is a great deal involved whether you want to exit your firm or take over for a partner who is ready to retire. Here are 10 tips to help you achieve a successful handoff.

Owners looking to exit your firm

  1. Put together a detailed succession plan – start 2-3 years prior to your estimated departure
  2. Make sure you include a Practice Continuation Agreement
  3. Identify when you plan to exit your firm – will it be a set date or a gradual transition period?
  4. Identify what you want to do with your practice – do you want to sell it, merge it with another practice or simply turn out the lights?
  5. If you plan to merge or sell your firm, consider what you need to do to attract a suitable candidate  
  6. Determine what your practice is worth
  7. Get clear on the financial details of an exit from your firm
  8. Identify all the duties within the firm you will need to transition
  9. Work with your successor to transition your clients 
  10. Consider how you will spend your time once you step down from your firm

Practitioners looking to buy into a firm

  1. Put together a detailed plan mapping out your journey to partnership – start 2-3 years prior to your target date
  2. Identify essential skills and core competencies you will need to become a successful owner in your desired firm (i.e. leadership, management, client development) 
  3. Identify what type of firm you would like to own – what characteristics are important to you?
  4. Make plans to attend training courses to develop or hone needed skills and proficiencies
  5. Identify a mentor to help you in your route to ownership – a senior leader in your firm or someone on the outside that you look up to
  6. Get clear on the financial requirements involved in buying into a firm
  7. Understand specific legal obligations involved in buying into your selected firm
  8. Be clear on duties, time and other commitments involved in being an owner  
  9. Work with the partner you are succeeding to help ensure a smooth transition
  10. Build a professional network with other practitioners who are on the same journey as you. Reach out regularly to discuss challenges and share success stories as you grow into your role.

Whether you are ramping up for or exiting the ownership ranks, here’s to your success and to continuing the circle of life in the CPA firm. 

Resources for practitioners

There are a number of tools to help you get started with your planning.  

Resources for owners looking to exit their firm 

  • Succession Planning Resource Center
    This resource center is a perfect place to start as you begin to put together a succession plan. Use it to sort through complex issues that can significantly impact you and your practice.
  • Succession Reports
    Tap into these specialized reports to provide you with an analysis of your firm on a variety of topics, including owner agreements, admitting new partners, positioning your firm for an upstream merger and succession firm positioning to acquire other firms.

Resources for practitioners looking to buy into a firm

  • CPA Firm Competency Model
    Tap into this career ladder as an example of a well-defined path during your discovery and planning.
  • Owning Your Leadership
    Consider this seven-part, self-study program to gain a deeper understanding of the leadership and relationship skills you’ll need to be an effective leader for any position within a firm.
  • Emerging Partner Training Forum
    Benefit from this event dedicated toward helping new or potential owners succeed in their new roles. Not only will you learn valuable insights from seasoned leaders, you will have the chance to network with colleagues from around the nation looking to become firm owners and partners.