10 To-Do’s for a Partner Buyout
Marc Rosenberg
The days of wine and roses in selling CPA firms for pricey premiums to big-monied buyers are over.
“A host of forces have combined to make succession planning into the ‘Perfect Storm,’”says consultant Marc Rosenberg. “Baby Boomer partners are now 55 to 60 years of age and hence, five to 10 years from retiring. At the same time, firms are suffering from a dearth of staff with partner potential.”
Assuming You Someday Want to Sell Your Firm to Your Partners:
1) Grow and be profitable. Run the firm like a business, building enterprise value.
2) Watch the partner composition. Maintain a good age spread among partners.
3) Revamp your compensation system. Easier said than done. But necessary. Embrace performance-based systems.
4) Weed out the undesirables. It’s tough love for the greater good.
5) Give a bit of consolation. Address and deal realistically with other partners’ fears about a merger.
6) Provide all the benefits. New partners want a say in how the firm is managed, their opinions need to be counted, and to have access to confidential data. But “CPA firms should not be run like democracies.”
7) Transfer clients. “Expect younger partners to ask, ‘What am I paying for with my buy-in?’ The correct answer is ‘clients.’”
8 ) Avoid large buy-ins. “The days of six-figure buy-ins at small and medium size firms are all but gone,” Rosenberg says. “Buy-ins of $25,000-$75,000 are much more common. Today’s young people are simply not willing to pay the higher amounts.”
9) A reasonable buy-out/retirement plan. It needs to be fair to current and retuired partners, but also competitive with other firms.
10) Get them out. “The departing partners should actually retire,” he says. “These days, more and more partners seem to hang around after normal retirement dates, retaining control over their clients and hogging the firm’s partner income dollars squeezing out the younger partners.”
The Rosenberg MAP Survey is offered by Bay Street Group LLC, publisher of CPA Trendlines, here.
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