A recent survey that the AICPA participated in found that 50% of the partner respondents have “challenges in replacing the skills of departing owners”, and 41% said that they have challenges “transitioning clients from retiring partners/principals” and with “partners’ reluctance to relinquish work relationships”. In addition, 49% are considering merging with another firm. It makes prudent business sense that if your firm falls into these top succession challenging categories, then it is time for a “succession reality check”.
Many of the succession planning issues mentioned above are deeply rooted in the following:
- Difficulty in attracting and retaining quality professionals
- Inability to improve the profitability and quality of the client base
- Lack of sufficient revenue growth, other than through minimal increases in billing rates
- Ineffective marketing plans and lack of business development partners
- Inadequate formal career development programs for the staff and younger partners
- Primarily a generalist firm and the absence of high-demand niches, specialty services, and formal integrated advisory services
- A partner compensation system that is not aligned to the goals and objectives of the firm
- Minimal partner accountability for performance and profitability
- Leadership issues at various levels within the firm
Many of the CPA firms that we speak to throughout the country wish to remain independent, but few of them have implemented formal plans to ensure their legacy. Succession planning is not a program that should take place a few years before client service partners and/or leaders are about to retire. It should be an ongoing daily occurrence that takes into account partner governance and compensation, marketing, recruiting at all levels, and human resource management. Succession planning needs to start at the top. Holding partners accountable for implementing the firm’s succession plan, and compensating them accordingly, is key to the success of the plan.
The accounting profession is consolidating at a rapid pace, and it appears that this trend will continue for the foreseeable future. Many large firms have created infrastructure and support systems that allow them to run their practices like a corporate business, providing comprehensive resources for smaller firms merging into them.
Initiating merger discussions with larger firms as an alternative to an independent succession plan is a “reality check”. It is not a sign of weakness or failure, but a prudent business decision for your partners, staff, and clients.