Snapshot from the PCPS Succession Planning Survey for multi-owner firms
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Professional Insights

Snapshot from the PCPS Succession Planning Survey for multi-owner firms

1 year ago · 3 min read

Every four years, the AICPA’s Private Companies Practice Section (PCPS) works with the Succession Institute to survey practitioners and better understand succession challenges in CPA firms. One survey is exclusively for multi-owner firms. Here are the 2020 survey’s key takeaways for those firms.

Although succession considerations are a concern for many firms, most don’t have formal plans to address it. Succession planning is either already an issue for multi-owner firms or it is looming on the horizon. A large majority of respondents (73%) expected succession planning challenges in the near future and more than one-half (55%) were facing them now. Despite that fact, 57% of firms did not have a written and approved plan, with the smallest firms (less than $2M in net annual revenue (NAR)) least likely to have one and the largest firms ($15M+ NAR) most likely.


  • Take steps to ensure a smooth transition for retiring partners and safeguards that enable the firm to continue to thrive. That includes having a formal succession plan documenting:

    • Who is retiring and when

    • How future retirements will affect the firm financially

    • The firm’s future strategic plans

    • How the firm plans to replace each retiring partner’s technical capability, work capacity and client relationship connections and skills

    • What the successful transition of clients looks like and how transition success or failure will affect exiting partners’ payout

    • How partner transition of referral sources will be handled

    • How the firm will develop future leaders

    • Compensation and benefits for retiring partners

    • The role of former owners’ post-retirement.

  • Create policies for critical issues such as partner roles, damages for taking clients and/or staff, partner termination, mandatory date of sale and minimum age and years of service for retirement.

Merger plans are in the works. Almost one-half (46%) of survey respondents had been engaged in merger discussions in the past 24 months or were planning to seek M&A opportunities in the next two years. Nearly all (82%) of the largest firms ($15M+ NAR) were involved in discussions or planned to be.

Additional interesting facts that the survey revealed include:

  • Among the firms actively looking into mergers, more—76% in the 2020 survey vs. 62% in the 2016 survey -- are doing so as an acquirer.

  • Firms with $1M in NAR and up are targeting smaller merger partners, favoring 10% to 30% of their NAR. Only 16% of acquiring firms are seeking merger targets the same size as, or larger than, their firm.

Recommendation: For those firms seeking acquisition targets, consider the size of prospective firms in relation to your own NAR. Going too small may not warrant the time, energy and effort required. Going too large will require increased capital requirements and a more complex operating and management structure. For those looking to be acquired, be the firm others want to buy. This includes being fully staffed, billing rates in line with your market and keeping up with technology.

Firms are not addressing client or referral source transition. Over one-third (40%) of firms had not addressed client transition. Of those firms who did address client transition, 78% did not incentivize or penalize retiring partners to properly transition clients or achieve specific goals. Also, 74% of firms had not covered referral source transition. Among those that did have referral source transition policies, the most popular policy was for a partner to begin transferring referral sources to owners or managers when they were two-to-three years from retirement.

Recommendation: One best practice is to financially reward retiring partners for transitioning all their responsibilities within the firm to others. Begin by creating a timeline of those who are retiring in the next few years. Identify the many ways that each retiring partner has an impact on the firm through client relationships, referral networks and specialized knowledge or skills. Then determine how each of those areas will be handled after the partner retires and to whom their responsibilities will be transitioned. The firm can make clear which steps the retiring partner is expected to take during the process and incentivize or penalize accordingly.

Firms are expecting growth. The overwhelming majority of firms (79%) were expecting growth over the next three years. Nearly half of firms, 47%, expected growth between 1% and 5% per year while 38% anticipated growth between 6% and 10% per year.

  • Proactively identify and develop the next tier of leaders. Use a clearly defined competency framework as a career path to partnership.

  • Leverage technology and delegate work to streamline value and enhance productivity.

  • Consider how your firm can offer value-added services that address clients’ needs. Many firms in the survey were embracing client accounting services (75%) and consulting and advisory services (63%).

The COVID-19 pandemic has not impacted retirement plans. For most firms (88%), the COVID-19 pandemic was not expected to change the retirement horizons of senior partners. For about half (49%), their interest in mergers is also unchanged.

Recommendation: While most respondents report COVID-19 as having a minimum impact on their succession plans, firms should stay vigilant in their planning. This includes developing the next generation to transition into leadership roles, ensuring partner consensus on the firm’s succession strategy and defining a successful transition or merger. On a related note, consider the needs and expectations of your team members to continue to work remotely. Develop remote work policies that benefit both the staff and the firm and that would be attractive to potential buyers who have also embraced remote work.

Turn to the Private Companies Practice Section’s (PCPS) Succession Planning Resource Center, available exclusively to PCPS members, as well, for invaluable guidance, resources and templates to walk you through the process and options available.

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