Here Comes the Baby Boomer Bubble – Valuing Your Practice for Partner Retirements

By Gary Adamson, CPA

 
I talk about the BBB with my clients a lot. No, this BBB is not the Better Business Bureau; it is the Baby Boomer Bubble. There is constant reference by the news media about the aging of the Baby Boomers, but I, for one, did not know exactly what it meant. So, I "Googled" it. 
 
What I found is not good news for the accounting profession. The BBB is seventy-six million of us born in the United States between 1946 and 1964, and we are fairly evenly spread through those nineteen years. That means the oldest of this huge bubble are four million folks who turned sixty-five last year. And, we have another eighteen years to go!
 
The CPA profession is a reflection of the BBB, with 61 percent of CPA firm partners now over age fifty. Every survey you look at highlights succession as one of the top issues of almost every firm. The point of all this is that firms will be retiring and buying out partners at a pace never seen before.
 
Many of us are looking at our partner agreements for the first time in a long time, trying to determine whether we have structured the buyout provisions in a way that remains fair to all and, in particular, affordable to the firm. It is not just the value that we place on the practice but, perhaps as important, the terms under which that value is paid to a retiring partner. 
 
Let us start with the typical structure of most buyouts. There are two pieces: capital and goodwill. Capital is pretty easy. It is the firm's accrual based capital and it gets adjusted for the normal things – fair market value of real estate, work in process, and receivable reserves, etc. It is paid out to the retiring partner as cash or a note that bears interest, over a relatively short term. 
 
The second piece is the goodwill of the practice, and this is where most of the conversation centers. 

You may like these other stories...

AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...
Many accountants struggle with payroll, either because they have too much of it or they don't want to do any of it. Either way, they are at odds with the needs of their business clients. Most clients are looking for a...
Steve Jobs. Sergey Brin. Mark Zuckerberg. Each of these individuals, and their companies, are celebrated as changing the face of the technology. They all followed a similar path to success: excelling at one thing and...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.