Are you an owner of a small CPA firm without a succession plan? Consider these options

Succession Planning 1As an owner of small and successful CPA firm, you’ve worked a lifetime to build your business. You’ve grown and nurtured your clients and staff—and many of them feel like family. You’ve coached them on the importance of planning for the future, but have you applied this same thinking to your business?

According to the 2012 Private Companies Practice Section (PCPS) Succession Survey, most small accounting firms do not have a succession plan in place. The consequences of this are significant. If something happens to you, what will happen to the business you’ve worked so hard to build and the clients you’ve forged such strong relationships with? What happens when you want to retire? Without a clear succession plan, your firm is likely to experience significant issues such as loss of clientele or going out of business entirely.

There are many succession arrangements out there to consider. The one you choose should be the best fit for you, your staff and your clients. A succession plan for a small accounting firm typically takes one of three forms.

Identifying and grooming a successor

If you have a qualified internal candidate, this option is the logical choice. As you consider the contenders, remember that tenure is not a reason to make someone a successor. They should possess the same qualities and attributes that made you successful in the first place—and that may not be due to their length of time at the firm. Identifying a candidate with a savvy business outlook, strong desire to take their career to the next level and good “chemistry” with staff and clients will give your firm a solid foundation for the future.

Once identified, make sure your successor is fully immersed in the ins and outs of your firm. It may be wise to give them more responsibility and put them in a position to prove themselves early on. Make sure they become familiar with the client and management philosophies you’ve developed over the years. They should also attend client and industry meetings and undergo training on the marketing, cross-selling and technology aspects of the firm.

If you find yourself without an internal successor, as many small firms do, you can look externally for a candidate. In this case, make sure the candidate possesses the same skills and expertise that your clients and staff have come to expect over the years. Networking with other CPAs and business professionals is a good way to identify potential external successors, as is reaching out to former employers and employees. Even advertising in trade publications can be a good way to find an external successor. With an external successor, it’s even more important to not only make sure they have the qualifications, but also a good rapport with clients and staff.

Entering into a practice continuation agreement with another firm

A practice continuation agreement or PCA is a contract between you and another CPA firm to take over the practice in the event of death, disability or even retirement.

A PCA can come in the form of a one-on-one agreement with another sole proprietorship, partnership or professional corporation or a group agreement between several CPAs who act as successors to one another’s firms. Group agreements typically concern only the transfer of clients, while the one-on-one agreements could also include staff. There also are emergency assistance plans available through state CPA societies that assist the spouse and heirs of a partner who was a member of the society to continue the practice in the event that previous arrangements were not made.

The downside to PCAs is the lack of transition. When a precipitating event is unexpected, the successor firm will not have much time to prepare for the influx of clients and they may have difficulty retaining major accounts. To lessen the impact, clients and staff should be informed about the agreement while it is in development and a relationship should be established with the successor firm early on.

Selling your business to a trusted firm.

If you decide that selling your business is the way to go, there are many things to consider. Make a list of potential firms and take your time learning about their areas of practice, relationships with clients and business philosophies. It’s also important to take into account their client capacity, technical capabilities, fee structure and location. If you want to transition your staff as part of the agreement, make sure the firm offers a similar work environment and benefits.

When analyzing prospective firms, give yourself enough time to do your due diligence. At minimum, you need three to six months during the non-tax season. Remember that there are many variables to practice valuation and deal structure. Work with an expert to make sure you arrive at a fair valuation and deal structure for both sides. Once agreed upon, work with the buyer to develop a detailed transition plan for both clients and staff to ensure retention and satisfaction into the future.

If you decide selling your business is the right decision for you, ShindelRock as part of your succession plan. As a strategic and forward-thinking accounting firm, ShindelRock is looking to acquire public accounting firms with 5-15 staff members in Oakland, Wayne or Livingston County. We can offer maximum value for your business and continuity for your clients and staff. With our second generation of partners stepping up to take the lead in collaboration with our founding partners, we can offer your employees a caring and supportive work environment where they will grow and thrive. And because you know your business best, we’ll invite you to continue to stay involved as well. For more information, please contact David Shindel, CPA, MAFF, CVA, at 248-855-8833.

Regardless of what succession option you choose, it’s never too early to start planning. By dedicating time to your firm’s succession planning now, you’ll secure the future of the business you’ve worked so hard to build and guarantee continuity for your clients and staff in the years ahead.