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Connecticut CPA
May/June 2013
Getting Started: Determine Goals
The ultimate goal of any succession
plan is to smoothly transition client
relationships to an internal or external
successor and, of course, monetize
the value of your book of business.
So what's the first step?
We have found that it often makes
sense to look at your practice as you
would a consulting engagement for a
client. That means you first need to un-
derstand what your goals are.
If you are a partner in a larger firm, your
existing partnership agreement should
spell out exactly what happens in the
event of death, disability, or retirement.
If not, your partnership agreement
needs to be updated immediately.
It is a fairly common problem for multi-
partner firms to have a core group of
partners around the same age. A good
succession plan takes into account the
ramifications of multiple retirements
hitting over a short period of time. You
shouldn't burden your firm's junior
partners with an impossible cash flow
position and/or capacity issues. It is
highly unlikely that junior partners will
have the free time and excess capac-
ity to assume all the retiring partners'
responsibilities in such a situation.
Internal Succession Options
For smaller firms, there are a couple of
questions that need to be asked. Do
you have the staff that can take over
the practice from an expertise or ca-
pacity perspective? Do they actually
want to take on the responsibility and
financial risk?
For many smaller firms, the answer to
those two questions is usually "no." If
you happen to be the exception and
have an opportunity to solve your suc-
cession issues via an internal process,
make sure that you don't wait too long
before proceeding. It may make sense
to give your successors equity or accli-
mate them to the role of partner several
years before the actual trigger date and
not a couple of months before you are
ready to retire. This is especially true if
your clients are partner loyal vs. brand
loyal. Partner-loyal clients take longer
to transition.
All too frequently, CPA firm owners
convince themselves that there's a su-
perstar rainmaker out there just waiting
to be hired. They envision that person
gradually buying their share out. Trust
us, if it were that easy, everyone would
be doing it.
Sales or Upstream Mergers
If you are unable to complete an inter-
nal succession plan for any number of
reasons, what do you do next?
The most likely exit scenario is a sale
or an upstream merger. But how do
you choose the right firm with which
to affiliate? There are many factors
to consider, but perhaps most impor-
tant is the cultural fit, which offers the
greatest continuity to both your clients
and your staff.
At the outset of the negotiation pro-
cess, both parties will spend a large
amount of time determining if there's
chemistry between them. Think
about this: if you don't feel comfort-
able with a potential successor firm,
why would your clients? Remember,
many of your clients hired you as their
Succession Planning:
Key Questions
You Should Be
Asking Now
For most CPA practitioners, succession planning is something that can
never be addressed too early. In too many cases, those without any type of
succession strategy are forced into hastily arranged mergers (where client
retention suffers) or may even have to shut their doors for good.
By Joel Sinkin and Bill Carlino