Succession Reality Check

The November 2014 Journal of Accountancy published information regarding a recent survey by the Global Accounting Alliance (GAA) which the AICPA participated in. The survey found that 50% of the respondents have “challenges in replacing the skills of departing owners” and 41% said they have challenges “transitioning clients from retiring partners/principals” and with “partners reluctance to relinquish work relationships.” In addition, 40% said they have “challenges training/mentoring staff for partner/principal roles.” It makes prudent business sense that if your firm falls into these top succession challenging categories—it’s 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
  • Revenue growth is primarily through increased billing rates
  • Ineffective marketing plans and lack of business development partners
  • No formal career development programs for the staff
  • Primarily a generalist firm and the absence of high demand niches, specialty services, and integrated advisory services
  • Minimal partner accountability for performance and profitability

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. Firms need to implement a succession plan that insures the transition of clients and leadership of the firm along with a program for future pay-outs to retired owners. 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 resources management. Succession planning needs to start from the top. Holding partners accountable for implementing the firm’s succession plan and compensating them accordingly is key to the success of the plan.

What made your firm successful in the past may not be what will make the firm successful in the future. 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.

Some of the corporate-like benefits include comprehensive marketing and public relations, HR Departments with Staff Career Development Programs, state of the art technology and support, administrative personnel in all areas, and established brands and niches.

Initiating merger discussions with larger firms as an alternative to an independent succession plan is a “reality check”. It’s not a sign of weakness or failure, but a prudent business decision for your partners, staff, and clients.