For Whom Succession Tolls: Prep Your CPA Firm to Remain Independent
By Joe Tarasco, CEO and Senior Consultant
Statistics support the number of upward mergers that have swept through the accounting profession and added to the growth of many of the top 100 firms in the country. Many of these upward mergers occurred due to the seller’s inability to attract talent and a lack of succession planning.
The accounting profession is comprised primarily of small firms (less than $10,000,000 in revenue) that are quickly running out of time for succession planning, and now it is time for a call to action “for whom succession tolls.” The call to action should start with reshaping the culture that was responsible for positioning many firms in their succession crisis mode, such as:
A denial concerning the aging of the equity partners who are the rainmakers and are in control of a majority of the client base, together with a scarcity of quality professionals for succession planning purposes. A culture of denial has been rampant in the CPA profession, especially at firms with five or fewer partners. Denial is more endemic in firms with older Baby Boomer partners because it often results from a stubborn adherence to a once accurate perception of reality that has become obsolete in a changing and dynamic marketplace. It is difficult to overcome a culture of denial because it usually means avoiding change.
There is a scarcity of innovation and creativity regarding services in addressing the needs of clients and the marketplace. In other words, they engage in a factory-like environment of driving profitability with a volume-oriented approach and offer traditional commodity services versus the value approach of advisory services.
"Comfort Zoners" in the partner and senior manager ranks have failed to add value to client services, neglected to enhance their technical and advisory skills over their careers, and have not contributed to firm growth. They have resisted change within the firm and its culture. Due to a lack of talent in the profession, and firms promoting staff to partner as retention strategy, the “Comfort Zone Culture” became more pervasive, and top-heavy firms resulted.
Procrastination by the partners in making the tough business and strategy decisions to take the firm to the next level of success, such as:
Adding high-value niches,
Investing heavily in high-end talent, technology, marketing, and practice development initiatives,
Establishing formal career development programs for staff,
Replacing underachieving partners and managers, with contemporary, entrepreneurial, and talented leadership,
Restructuring partner compensation programs and aligning partner accountability to motivate partners to achieve the firm’s strategic plan,
Pursuing inbound mergers and acquisitions to grow, and upgrade talent and service offerings,
Adapting to the changing public accounting marketplace,
Outsourcing at least 25% of compliance services.
Managing change at accounting firms is a challenging task, and it takes the effort of exceptional leadership. Fundamental change in a firm is often resisted by the people it affects most—in this case, the partners, shareholders, principals, and owners. Leading and implementing change with a sense of urgency is critical if a firm seeks a succession solution other than an upward merger.
Leaders must be willing to make the tough decisions and replace under-achieving partners with talented professionals as part of the firm's succession plan, either through inbound mergers or by attracting partners from other firms who will be instrumental in the firm's future success.
Many firms tend to avoid confrontation regarding partner performance issues for an extended period, which allows for complacency and enhances the “comfort zoner” culture. Unfortunately, as the need for more capable and innovative partners has heightened, the talent pool is shrinking, which exerts more pressure to act quickly.
Great leaders do not necessarily build a business; they build an organization that builds the business of the future by adapting to change in the marketplace.
Darwin's famous quote, "It is not the strongest of the species that survives, nor the most intelligent, but the one that is the most adaptable to change," is often used to illustrate the importance of agility and adaptation in the face of change, which is a key factor in business succession. CPA firms that can successfully navigate shifting market conditions and evolving client needs are more likely to thrive and perpetuate their legacy.