NSA Offers Tips for Successful Succession Planning

By Jason Bramwell
One of the most complex business decisions an accounting practice will face is putting together a succession plan, and a recent survey conducted by the National Society of Accountants (NSA) revealed that many firms do not have an arrangement in place to transfer firm ownership.
Less than one-third (28 percent) of accounting firms polled have a succession plan. But despite the low survey result, the need for succession and transition planning for tax and accounting practitioners and their firms has been growing each year for the past ten years or so, wrote Mark Fowler, CPA (inactive), CMC, president of Stowe Management Corporation, in his article "Succession Planning: Both Sides Now," which was published in the MayJune 2013 issue of the NSA's Main Street Practitioner.
Fowler said part of that growth is due to an aging practitioner base. Another influence is the changing dynamics of clients  particularly their need for more sophisticated assistance in business and tax planning as well as issues related to their own succession. Finally, as heads of firms start to examine their succession, they're realizing the demographics and interests of the talent coming up the career ladder will determine what the landscape of the firm will be once they are no longer on the scene. 
One of the best ways to transmit one's legacy after retiring is to sell to the team members, partners, and partners-to-be. In this scenario, understanding how addressing the needs of both sides of the firm  the "family" inside and the family member who is exiting  is crucial in making the future of the firm more successful, according to Fowler.
Successful succession means creating a more attractive and profitable environment for everyone, not just the retiring or exiting professionals. With "firm as family" in mind, everyone has a better chance of finding ways to bridge the needs and wants of both sides, improving the chances of a win for all  including clients.

Five Additional Succession Tips

  1. Train individual talent and other team members in all areas of client history and general information, unique client characteristics and needs, and skills and technical information that will be required.
  2. Develop a working relationship between clients and team members  not just those with direct responsibilities to clients, but support personnel as well.
  3. Transfer in an orderly way any administrative duties the existing professional, partner, manager, principal, or other key team members may have.
  4. Develop a much more robust administrative platform to begin to handle more duties that were handed by existing partners or other revenue-generating professionals. It is not unusual to shift personnel from office manager position to firm administrator or from firm administrator to COO in order to more effectively handle the needs of the whole firm.
  5. Enhance the sales and marketing skills of all team members, including creating a business development process within the firm to help assure continued growth, new clients, and expanded revenue bases for existing clients.
In his article, Fowler provided what he believes are the four key stages of succession planning:
  1. Recruiting, developing, mentoring, and grooming the right team members.
  2. Constantly developing services that existing and future clients need and appreciate.
  3. Developing a formal sales and business development program to help ensure the continuity of the business.
  4. Shifting more from a practice mind-set to a firm perspective.
Whether a partner or owner is retiring, the firm is downsizing, or the business is being sold, merged, or allied with another firm, ownership transfer is going to occur. There are a number of buyers to consider, according to Fowler:
  • The firm itself. The company can purchase the shares of the existing owner.
  • The other partners and partners-to-be. These individuals can purchase ownership shares.
  • The external strategic buyer. This buyer is looking for locations, talent, niches, and technology to enhance the buyer's business.
  • The external revenue-oriented buyer. The singular focus of this buyer may be adding revenue. This type of sale often means rapid cost cutting and very short transition periods.
No matter who the buyer is, new owners have their own goals and objectives, which could include enhanced profitability, an expanded client base and additional services, more appreciative clients and higher-quality team members, and increased value out of the firm. The succession plan should include ways team members can accept and embrace these objectives.
"Whether you're a sole practitioner, a partner, or a long-term senior manager/principal in a larger firm, succession planning and exit strategy are integral activities that deserve the same level of support and focus you would give your most important projects," Fowler wrote. "Your future and the future of what you and your colleagues have built depend on it." 
What are your plans for succession? Do you have suggestions or advice you can offer to those who are approaching retirement age? Please share your insights with our readers who are getting ready to go down this path. Post your comments in "I Want to Retire, So What's Next?".
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