Succession Planning Pitfalls to Avoid
The CPA profession is changing rapidly ̶ ongoing consolidation, a shortage of quality CPAs, baby boomer founding and rainmaker partners retiring, keeping pace with and the cost of technology, intensified competition for new clients and staff, private equity changing the marketplace for deals, etc. Many firms below the top 200 are having difficulty adapting to this change and are in denial regarding succession planning and the related new market reality which dictates that CPA firms need to change and be managed more like businesses than practices.
Denial is also more endemic among firms with older baby boomer partners who are more averse to change. It is hard to overcome denial because it is a comfortable state of mind, and it normally means avoiding change. It is seeing, but not implementing, the obvious course of action. David Maister said, “The primary reason we do not work at behaviors which we know we need to change is that rewards are in the future: the disruption, discomfort and discipline needed to get there are immediate,” thus denial sets in.
The following are examples of denial traps. These are the wrong strategies that we commonly observe at many CPA firms.
The firm can be successful in the future without strong leadership at the managing partner level.
Merging in or acquiring old, top-heavy, and low profitability generalist firms is a good long-term growth strategy.
Running the practice day-to-day is a preferential strategy versus developing a strategic plan with partner accountability for implementing action plans.
Utilizing a compensation system primarily based on collections, rather than on comprehensive partner performance, will motivate younger “quality” partners and managers to remain with the firm and build the firm of the future.
It is acceptable to fail at implementing annual retreat action items and plans because the partners are too busy.
Partners and staff will be successful at business development without professional in-house or outsourced marketing support.
Success will change an undesirable partner and firm culture.
Thinking your firm can experience significant growth with out outsourcing work and using M&A.
Attempting to increase profitability through increasing the volume of low value work and burning out partners and staff.
Established firms that have had success in the past are more likely to be “in denial” because the old way of doing things worked well for them. Some firms do not see the marketplace changing. Many more see change coming, but don’t believe it’s going to be a problem. They ignore several clear warning signs. In particular, the warning signs of the success trap. However, they are now having difficulty making tough decisions to adapt to the dynamic public accounting marketplace.
CPA firm owners have to maintain a realistic perspective about the changing marketplace such as the powerful impact that private equity will have now and in the future. They need to keep evaluating the market, and evaluating options to make their firms more profitable, more successful, and more apt to continue to grow.
Joe Tarasco, CEO and Senior Consultant, Accountants Advisory Group, LLC, assists the leaders of public accounting firms by consulting in all areas of firm practice management, including succession and strategic planning, firm governance, mergers and acquisitions, partner compensation structure, practice development, facilitating partner retreats, and leadership consulting. Click to request a consultation or call (845) 265-9046.