Is it really a “succession” issue? Or simply a failure to plan for success?
by Rick Telberg
Many say there’s a succession crisis among CPA firms. Maybe so. Or maybe you could look at the problem a little differently. Maybe we don’t really have a succession problem – maybe we have a problem planning for success! Think about it. The core issue in a succession plan is the fair-market value of your firm. If it’s worth it to someone to join as partner or to acquire, buyers should be lining up.
[NOW IT’S YOUR TURN: How worried are CPAs about succession? Join the survey and get the results.]
The fact is, as we’ve detailed, there are more buyers than sellers. So where’s the crisis? The crisis is in the minds of the sellers. All too often a seller, nearing retirement, has scaled back the business instead of preparing it for sale.
Don’t take my word for it. Check out Bill Reeb’s book in the AICPA store. Or listen to Terry Putney of Blacklake Transition Solutions.
Ask Putney what the most critically important practice management issues facing the profession are and you’ll get an earful of wisdom and experience.
Most firm owners just don’t know where to start. They may be great advisors for their small-business clients, but when it comes to operating their own practice like a business, theirs is the story of the cobbler’s children going barefoot.
“We see a tremendous shortage of solutions for practices looking for succession of the partners,” Putney says. “Most practitioners should address their succession before they are ready to retire. Many don’t know where to turn to do that.”
Many sole proprietors and firms with multiple partners wish they had an internal solution in the form of talented staff who could develop into partners and buy them out when the time comes. “However,” Putney says, “there is a tremendous shortage of that type of person.”
And many firms have several partners who will be retiring at around the same time. “Unfortunately, firms often wait too long to commence a transition and prepare an exit strategy,” he says. Why? The reasons include fear of having additional accountability, fear of loss of control and income, and simply a fear of change.
Firms can hardly afford to wait. About 55 percent of CPA firm owners are already 55 years old or older.
Ask yourself: Are you preparing your exit strategy? How many partners in your firm are within five years of cutting back in anticipation of retirement? Who’s going to fill their shoes?
Exit planning must start at least five years before sale. So if you’re planning on cashing out some day, and you’re already 60, then you’d better take steps now before it’s too late to maximize the value of your firm.
3 Responses to “Another Look at the “Succession Crisis””
If you want ammo...
…to support your theory about firms — just read the PCPS publication “Best Practices in Recruiting and Retaining Talented Staff.”
Here’s some stats from the opening page about firms surveyed:
— 93% did not have a leadership development program
— 92% did not have a program to address generational differences in attitude toward work-related issues
— 90% did not have a career professional program that would, among other things, identify expectations, titles, compensation alternatives and other benefits to those not on the partner track.
89% did not have a partner-in training program !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
And it goes on from there… very interesting read….
–Anonymous
Jeannie Patton
I found your comments about the “Succession Crisis” very thought provoking and all I can say is AMEN…
One of the interesting insights from the CPA Vision Process cycles around the issue of the “cobbler’s children” that you mentioned. It isn’t that CPAs don’t have the ability or the perspective needed to face the future. It is much more a lack of perspective and therefore priority and allocation of the most precious of all resources — time. Without clear responsibility for leadership and quality thought, succession planning often drops out of sight until CPAs are faced with reality. The partnership form of practice is a distinct disadvantage in many ways — it often keeps CPAs from seeing the obvious about the firm itself and asking the questions that bring insight as to needed investment in leadership and the soft skills that often make succession planning successful. Partnership form also often enables the short-sighted measurements to rule over strategy and long-term viability.
Firms have Excel spreadsheets and all kinds of tools to measure “performance” — and for certain you get what you measure. Viability and succession planning are more difficult to measure. CPA partner investments have to be viewed in terms of the long run for the firm — the marathon… and many firms tend to measure performance for the sprint.
Jeannie Patton, CEO
Utah Association of CPAs
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Junior LLC Member
A key problem that hindered succession at my CPA firm has been a senior partner simply not being able to let go, and not willing to transition those relationships.
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