Succession Planning

Do you expect succession planning to be a significant issue for your firm in the next 10 years?
84%  Yes        16%  No


Succession planning is nothing new for the profession and once again it ranks among the top issues for firms according to the latest PCPS CPA Firm Top Issues Survey. With more than 40% of firm owners planning to retire over the next five years, 84% of them expect succession planning to be a significant issue for their practice in the next decade.

The big question is this. What are firms doing to prepare for this exodus? In this month’s Feature Focus, we are going to examine succession planning and what firms are doing to get ready. 

A Closer Look

Let’s take a closer look at findings from the latest PCPS Succession Survey for more insight on the subject.

Sole Proprietors

I currently have an existing practice-continuation agreement with another firm.

7% Yes

93% Yes


The following best describes my succession plan, retirement plan or exit strategy:
  

29% - I am leaning toward selling my clients to another CPA firm and walking away, while taking actions that will help transition my clients to maximize the amount of my payout.

28% - I am leaning toward merging my firm into another firm a year or two before I want to retire to secure my retirement benefit and client retention.

25% - I am leaning toward running my practice, working a little less each year, until I don’t want to do the work any longer. When that time comes, I plan to walk away and if I can get someone to buy my remaining clients, great. If not, I am willing to live with that.

18% - I am leaning toward merging my firm into another firm and working for that firm for a number of years until I retire. 

  
Multi-Owner Firms

We currently have a written, approved succession plan in place.

44% Yes

56% No

 

The following best describes our progress with our current succession plan:

14% - Have a plan in place but relatively little progress has been made towards implementing it

30% - Have a plan in place and significant progress has been made in its implementation

56% - Have a plan in place, it has been implemented and is periodically updated to address issues as they arise


With so many owners planning to retire in the near future, it is interesting to see the large percentage of firms without succession plans in place. What’s more, results indicated the smaller the firm, the less likely it is to have a succession plan.The following best describes our progress with our current succession plan:


Start the Conversation

Where is your firm with its succession planning? If you have not begun the conversation around the succession of your practice, now is a good time to start. Questions to kick off a dialogue include:

  • When do you plan to retire?
  • What will happen to your practice when you retire?
  • What will happen to your clients when you retire?
  • What will happen to your employees when you retire?
  • Are there others in the firm who could take over the practice when the time is right?
  • Are these practitioners willing and prepared to take on the leadership role?

Develop and Implement a Formal Succession Plan

No matter the size of your firm, it is important to develop and implement a formal succession plan. The complexity of your plan will depend on the size and structure of your practice and how you intend to move forward. Key issues to address include:

  • Determining the timing
  • Transitioning leadership
  • Selling or merging the practice
  • Valuing the practice
  • Grooming the next generation of leaders
  • Transitioning clients
  • Arranging buyout details
  • Closing the practice

Sole Practitioners

As a sole practitioner, there are additional issues to consider around succession. Here are two central ones to focus on:

Determine Your Preferred Exit Strategy 

For sole practitioners, it is important to determine exactly how you will exit your firm.

  • Internal Succession
    • Have you identified someone internally to take over your practice?
    • Have you discussed this in detail with them?
    • Do you have a formal agreement in place?
    • Are you both prepared for the transition?
    • Do you have a process in place to transfer your clients?
  • Sale or Merger
    • Would you like to sell or merge your firm into another?
    • What are you doing to attract potential candidates?
    • Have you identified a potential candidate?
    • Have you begun preliminary discussions with this firm?
    • Do you know the worth of your firm?
  • Turning Out the Lights
    If you have decided to simply work as long as possible then close your practice, there will also be actions needed to ensure a smooth transition into retirement. Have you made any preparations for this type of departure?

Prepare a Practice Continuation Agreement

While considering your succession, it is also important to have a practice continuation agreement in place. Think of it as a survival kit for your practice. In the event of death or temporary or permanent disability, a practice continuation agreement helps protect your practice, the business interests of your clients and the financial interests of you and your family. It can also be used as a vehicle for retirement.  

Multi-Owner Firms

While there are a number of issues around succession planning for multi-owners firms to tackle, here are two significant ones to consider. 

Identify and Prepare Future Leaders

Your firm’s success requires proactive involvement from its current leaders in identifying and preparing future leaders. Help them acquire the skills, practical knowledge and experience they will need to successfully lead your firm in the future.

  • What is your firm doing to equip emerging leaders to take the reins?
  • Do firm leaders provide mentoring and coaching to emerging leaders?
  • Does your firm create personal development plans for emerging leaders focused on their individual strengths and interests?

Take Care of Your Clients

Your clients are an important part of the firm’s success going forward. Work to help ensure a smooth transition from one relationship manager to the next as owners retire. Start by putting client transition strategies and processes in place. We are talking about such details as how and when clients will be transitioned and the communication that should take place between the partners and the clients during the handoff. 

Practical Tools and Resources

It is no secret that putting a succession plan in place takes time and knowhow. Are you aware of the extensive array of succession planning tools and resources the PCPS has developed that you can put to work in your own firm? Not only can you get started right away, as a member of PCPS these resources are available to you free of charge.

Consider these popular tools and best practices:

  • PCPS Succession Planning Resource Center
    This resource center is filled with succession planning tips, tools and insight for today’s practitioners. It is all about helping you sort through the complexities and issues impacting your practice and your clients.
  • Succession Planning Guide &Tools
    Need some help in developing your firm’s succession plan? If so, this comprehensive guide is a great place to start. Inside you will find the resources your firm will need to make it succession-ready. You will also find a variety of succession scenarios for you and your partners to work through, including:
    • Selling the firm
    • Merging the firm
    • Developing new leadership 
    • Transitioning with retiring partners
  • PCPS Succession Survey
    Gain access to the latest survey results with the largest most comprehensive look at succession planning to date. Compare how your practice stacks up against others. Learn best practices to help you prepare for the transition of leadership.  
  • Practice Continuation Agreements
    A practice continuation agreement is a practice's survival kit. In the event of death or temporary or permanent disability, a practice continuation agreement helps protect your practice, the business interests of your clients and the financial interests of you and your family. It can also be used as a vehicle for retirement.