The minimum amount of time we recommend for a partner in a 2 to 5 partner firm with mostly Partner Loyal clients he or she meets with only once or twice per year in person is three years. If your firm is in a sparsely populated area (and you intend to merge upstream or sell), a partner has a unique niche, or the clients require a unique skill set or language or other such mitigating factors, you may need as long as 5 years lead time to start succession for a partner.
Succession Planning Considerations
While we communicate more than ever before with clients using the phone, email, the cloud, etc…. the key is how often you are face-to-face with a client. You cannot truly transition a client through email or any other way as strongly as you can in person. Thus if a transitioning partner sees the bulk of their clients only once a year and they want to slow down (not retire necessarily) in 3 years, that is only 3 visits! 3 visits is probably the least number required to provide adequate time to transition Partner Loyal clients. An example of a transition plan based on 3 more visits with a client is as follows (assuming this takes place over three years):
- Visit 1: Introduce the successor (probably a partner). The successor should be actively involved in the meeting while the transitioning partner continues to be the go-to person giving the client comfort not much has changed.
- If the transition is internal, this may be someone the client is already familiar with.
- If the successor is the result of a merger or sale, this is likely to be someone the client doesn’t know and you need to also introduce the newly combined firm to the client.
- Visit 2: The successor should handle much more of the dialogue and the transitioning partner should no longer be the go-to person.
- Visit 3: Feature the successor managing the conversation while the transitioning partner sits in the background, if they are even there.
You can substitute years for visits in the above transition plan if the client is one the transitioning partner interacts with without having direct contact during other times of the year.
If the type of service a retiring partner provides is a specialized niche, or requires unique skills, or a special license, you likely need additional time to find a successor with these attributes.
- Therefore, it may take you longer to execute transition plan for that partner.
- Other examples that can result in longer lead times are client bases with special needs such as language requirements.
Prior to transitioning, you should make an assessment of how you plan to provide for the succession of you and your partners and when the need is likely to occur based on their personal career plans. Then ask yourself how you plan to provide for succession of retiring partners.
- Will you try to do this internally by promoting or hiring new partners to replace the ones that retire?
- Or are you already planning to merge upstream?
It is not unusual for a firm your size to have partners with the differing career plans:
- One may seek to slow down in 5 years or less
- One or two in 6-to-10 years away
- One or two may be planning to remain working full time indefinitely, certainly over 10 years.
Make an honest assessment of the talent on your bench and your ability to develop new partners from within. If you are planning to provide succession internally, will your firm have the capacity to replace retiring partners when it needs to?
If your plan is to create succession for your partners internally-
- The availability of replacement partners is usually the big issue.
- Keep in mind that regardless of how long it will take to properly transition clients (and we will address that next), you need to have replacement partners in place before that can start. That can add another one to three years to when this process needs to start.
- If your firm has multiple partners that may be slowing down in the next 5 years you likely need most of that time to execute a plan that enables you to make new partners ready to replace and assume the duties and clients for multiple retiring partners simultaneously.
- Analyze your situation realistically.
- Do you have the bench strength required to replace multiple partners within a tight window?
- If your analysis tells you that you lack the talent or capacity to replace exiting partners, you may need to merge up into a larger firm.
- Some firms try to address internal succession searching for young professionals with a book of business to become internal successors. In today’s marketplace this is rarely a realistic plan and may prove to be a pipe dream.
If your plan is to look for an external solution to succession (merger or sale), consider the following factors:
- Local market - If you are in an area of the country that has a plethora of accounting firms, finding a successor will be far less daunting compared to a market that has very few local firms as potential successors. If you are in a market where there are a limited number of potential successors, once again you should assume it may take you longer to identify your successor and you should consider commencing your transition plan sooner
- Long-term lease commitments are a major obstacle for firms seeking a sale or merger to execute a succession plan
- The best case scenario is avoiding a long-term lease. That may only serve to extend the time you can start to execute your succession plan.
- When you commit to a long-term lease, you reduce the amount of potential successor firms who will consider you.
- A successor firm may reduce their offer to you by the additional costs of retaining this additional overhead if they are willing to assume the lease.
- Name of the successor firm-Your name has likely been a prominent part of your brand for years. This often leads a selling practitioner to request their name be retained in the name of the successor firm.
- Reality is the name of the successor firm is not important to most clients.
- What is important to clients is feeling the professional they have worked with will still be there managing their account, the fees will remain the same, and that the office remains geographically convenient if they are accustomed to meeting at your office.
- Your active involvement in the transition is far more important to your clients than having your name on the door.
- Terms that don’t work- While you, the seller, need to be paid for your years of sweat-equity, buyers don’t do deals to lose money. You need to be realistic that the buyer is unlikely to do a deal that is not profitable to them even while they are paying you for the practice.