Succession Planning Calculator: 2 to 5 Partner Firm Partner Loyal Meets with Clients 3 Times or More a Year

The minimum time frame we recommend for transitioning retiring partners in 2 to 5 partner firm with mostly Partner Loyal clients the partner sees in person at least three times per year, is two years. If your firm is in a sparsely populated area, has a unique niche, and the firm’s clients require unique skills or language or have other special needs, you may need as long as 3 to 4 years.

Succession Planning Considerations

Partner Loyal clients take longer to transition than Brand Loyal clients. Understanding this is critical for the successful transition of a partner in your firm whether that is through an internal transition or an external one. If you are going to execute succession through an upstream merger or sale there is a high likelihood that the successor for a partner near retirement is not someone currently in your firm. That means the clients often have no history with the likely successor to their trusted advisor.

While we communicate more than ever before with clients using the phone, email, the cloud, etc… the key is how often partners 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. The fact you see (in person) the bulk of your clients a minimum of three times per year reduces the time frame you need to start the transition process. Two years is probably the least number required to provide adequate time to transition Partner Loyal clients.

  • Year 1: The hand off/sharing of the client relationship between the partner currently in charge of the client and the successor who will be assuming that role with the client
    • Emphasize to the client that everything the retiring partner was capable of, the successor is capable of, even more.
    • Highlight what the client is gaining from the successor, not what the client is losing from the retiring partner.
  • Year 2: The transitioning partner should assume more of an “of counsel” type role in the client relationship. That is, he or she should be available as needed.

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.