13 Succession Plan Requirements

Time to retire clock faceMake sure you're not growing your own competition.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

There are various sections that should be included in any succession plan. We are not going to present you with a sample succession plan, but even better, to describe topic areas you should address in your plan.

MORE ON PERFORMANCE MANAGEMENT: Base Retirement on Today’s Operations | Who Decides What? | How Involved Should Retired Owners Be? | How to Find a Partner’s Replacement | Best Practices for Mandatory Retirement | 7 Succession Questions to Ignore for Now | The Pitfalls of Equity Allocation and Reallocation

As always, there are various best practices to consider as you put your plan together. For any succession plan to work, you have to start with consideration of the business model you use:
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Base Retirement on Today’s Operations

Page of calendar showing date of 15th5 critical issues and 4 behaviors of healthy organizations.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

Because many firms have some part of their compensation and often retirement or ownership as well tied to client book, it is important to lock in a fair retirement based on how the firm is operating today.

MORE ON PERFORMANCE MANAGEMENT: Who Decides What? | How Retired Partners Are Robbing their Own Firms | 4 Ways to Create More Capacity | Partner Retirement and the War for Clients | Succession: The Questions to Care About | 5 Harmful Management Attitudes (and How to Fix Them)

The reason is that when creating a strong succession plan, you are likely to ask all partners to agree to some changes. If you want to create an open dialogue with a senior partner about giving up some of his or her book for the betterment of the firm, which is also typically synonymous with asking that partner to give up some of their security regarding annual compensation and even more important their internal power, it is critical to give them confidence that their past efforts are being considered when creating the reward structure going forward.
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Who Decides What?

Businessman looking thoughtfulYou need to ponder some questions before you answer.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

Everywhere you turn, you overhear someone talking about, being asked about the status of, or referring to their need to develop, a succession plan.

MORE ON PERFORMANCE MANAGEMENT: How Retired Partners Are Robbing their Own Firms | How Involved Should Retired Owners Be? | How to Find a Partner’s Replacement | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning | Succession: The Questions to Care About | 7 Succession Questions to Ignore for Now | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions

As a matter of fact, for the past 12 years through surveys with the AICPA, we have been asking firms to share with us whether or not they have a succession plan in place.

When you consider the responses to this question from the PCPS Succession Institute Succession Management surveys conducted in 2008 and 2012, clearly more and more firms are:

  • getting their act together,
  • documenting their succession management strategy and
  • thinking through the ramifications of retiring one or more senior owners.

Here is the question we asked along with summary data from both surveys: READ MORE →

How Retired Partners Are Robbing their Own Firms

Masked man carrying large money bagIf you don't set policies and enforce retirement deals, your firm could become a financial hostage.

By Bill Reeb and Dominic Cingoranelli

As many as 30 percent of firms pay more to retiring partners than they initially agreed, according to our succession survey.

MORE ON PERFORMANCE MANAGEMENT for PRO MEMBERS: How Involved Should Retired Owners Be? | Firms Say What Would Change Retirement Pay | Action Plans for Transitioning Partners | How Retirement Issues Affect Succession Planning | How Partner Ratings Factor Into Equity | Develop Your Employees or Suffer the Consequences | What Having Your Employees’ Backs Means | Do CPA Firms Need Management or Leadership? |  Job 1 for The Practice Owner: Client Management

Here's why.

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How Involved Should Retired Owners Be?

Senior businesswoman in officeThose still doing work should be under contract.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

Regarding involvement of retired owners in the firm, we asked this question: “Which of the following best describes the involvement of retired owners in the firm?” Some 42 percent say they have no influence and no involvement.

MORE ON GROWTH & SUCCESSION FOR PRO MEMBERS: Firms Say What Would Change Retirement Pay | How to Find a Partner’s Replacement | Best Practices for Mandatory Retirement | 7 Succession Questions to Ignore for Now | The Pitfalls of Equity Allocation and Reallocation | What Having Your Employees’ Backs Means

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But the answers to a dozen other questions were more interesting and potentially problematic. We think there are only five possible "right" answers. The rest just make things complicated and undermine a firm's ability to advance.

Here are the results of the survey:
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4 Ways to Create More Capacity

Purple No. 4 billiard ballConsider creating two classes of partners.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

When partners plan to retire, how do we go about creating additional capacity or freeing up the necessary capacity to handle the client transitions that need to occur?

MORE ON PERFORMANCE MANAGEMENT: Partner Retirement and the War for Clients | Succession: The Questions to Care About | 7 Succession Questions to Ignore for Now | Develop Your Employees or Suffer the Consequences | What Having Your Employees’ Backs Means | 5 Harmful Management Attitudes (and How to Fix Them) | Job 1 for The Practice Owner: Client Management

First, all of the “C” clients, which is our shorthand way of describing the smallest clients the firm serves – who while profitable, don’t have much opportunity to hire us for additional services should not be transitioned to partners, but rather to managers.
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How to Find a Partner’s Replacement

Man choosing someone's face from a photo arrayShould you add a partner ... or capacity? They're not the same thing.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

Let's assume you have a retiring partner. You have decided how to pay the partner for his/her value in the firm, you have pinned down the mandatory sale of ownership date (MSO) so you can phase that partner out of his or her leadership role in the firm, and you have covered the single most abused part of the succession process, which is client transition. It is now time to discuss how to find replacements for the retiring senior partners.

MORE ON PERFORMANCE MANAGEMENT: Action Plans for Transitioning Partners | Partner Retirement and the War for Clients | Succession: The Questions to Care About | The Pitfalls of Equity Allocation and Reallocation | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions | How to Target What Skills to Develop Now

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The most commonly asked question on this topic is “How can we find people with the same technical skills, management ability, client service capacity and vision for the firm’s future as those who are leaving?” The simple answer is “You won’t, so stop looking for that exact combination.”
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Action Plans for Transitioning Partners

Four people meeting for business lunchThe transition process is about making the retiring partner less attractive as the client’s first point of contact.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

The key to the client transition process is the action plan that the transitioning partner needs to follow for each client.

MORE ON PERFORMANCE MANAGEMENT: Partner Retirement and the War for Clients | How Retirement Issues Affect Succession Planning | 7 Succession Questions to Ignore for Now | The Pitfalls of Equity Allocation and Reallocation | How to Target What Skills to Develop Now | Job 1 for The Practice Owner: Client Management

For a small tax client, the directive could be as simple as a one-year transition and turning it over to whoever has been assigned to take over that account. For example, the action plan might be something like:

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Best Practices for Client Transition

Man watching handshake between two womenImproper transitions can lead to reduced retirement benefits.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

When a partner is retiring, there is a transition process that we recommend. Let's break it down into a few simple steps:

MORE ON PERFORMANCE MANAGEMENT: How Client Transition Is Abused | Best Practices for Mandatory Retirement | How Retirement Issues Affect Succession Planning | Succession: The Questions to Care About | 7 Succession Questions to Ignore for Now | How Partner Ratings Factor Into Equity | Hazards of Not Reallocating Equity | The Pitfalls of Equity Allocation and Reallocation | Develop Your Employees or Suffer the Consequences | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions | How to Target What Skills to Develop Now | What Having Your Employees’ Backs Means | 5 Harmful Management Attitudes (and How to Fix Them) | Do CPA Firms Need Management or Leadership? |  Job 1 for The Practice Owner: Client Management

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Partner Retirement and the War for Clients

retirement plan label on folderBONUS CHECKLIST: 8 best uses for a retiring partner.

By Bill Reeb and Dominic Cingoranelli
CPA Trendlines / Succession Institute

Once a firm is ready to phase out a partner in retirement, it's time to move on to the client transition process. But this is the single most abused part of the entire succession process.

MORE ON PERFORMANCE MANAGEMENT: Best Practices for Mandatory Retirement | How Retirement Issues Affect Succession Planning | 7 Succession Questions to Ignore for Now | How Partner Ratings Factor Into Equity | The Pitfalls of Equity Allocation and Reallocation | CPA Firm Performance Assessments: 15 Core Competencies, 21 Questions | What Having Your Employees’ Backs Means | 5 Harmful Management Attitudes (and How to Fix Them)

The reason why this part of the process is the most abused is because both sides the partner nearing MSO (henceforth referred to as retiring partners or retired partners) and the remaining partners are motivated to do the wrong things. For example, it is in the best interest of retiring partners to not transition their clients because if they don’t, the firm will need to keep them around to continue to work on them after MSO. If this isn’t bad enough, because they did not transition their clients properly, the retired partners have a great deal of leverage since they are now entitled to their full retirement pay and still have control over some or most of their client base. This allows the retired partners to gain additional benefits from the partner group by basically reselling their clients to them again. Unfortunately, this situation is more the norm than the exception.
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