Firms of all sizes are fighting tooth and nail to retain top talent and many employees are leveraging the talent shortage by leaping at the opportunity to secure better benefits and wages elsewhere. This trend is causing firms to re-examine their succession plans.
The evidence is tangible. For example, the monthly ADP National Employment Report indicates that the labor market is nearing full employment. With baby boomers retiring en masse – an estimated 10,000 a day – a severe talent shortage is rearing its head in the workforce.
Add this to the fire: Job hopping also is at an all-time high. The ADP Workforce Vitality Report shows that job turnover has increased by 27 percent since the first quarter of 2016. And 61 percent of employees are either actively or passively looking for a new job and would be open to leaving their current position for the right opportunity.
This trend is a concern for employers across industries. In the accounting industry, these concerns are particularly pronounced. According to the American Institute of CPAs, 75 percent of today’s CPAs will be retiring in the next 15 years. At the same time, the US Bureau of Labor Statistics predicts demand for accountants and auditors will grow at a faster-than-average rate of 11 percent through 2024.
This impending massive talent gap is forcing firms of all sizes to not only tighten their recruiting and retention strategies, but to re-examine succession planning. With so much movement in the job market – spurred by real opportunity – businesses are investing in career development programs to retain employees who, in many instances, take that training and leverage it to secure better positions with other firms.
This practice leaves many companies with holes in what they thought were airtight plans to fill the vacant spots of retiring leaders. With fewer highly experienced employees to replace those who retire, accounting firms may need to get serious about succession planning.
Typically, CPA firms don’t have many options if the firm’s leaders haven’t already identified someone to take over the firm when they retire. Firm leaders may want to investigate exit strategies that can help them sell parts of the practice, such as the payroll practice or retirement planning services. This is one alternative approach to succession planning that may help firm leaders pull value out of the practice.
With so few options available to CPA firms, here are four steps firm leaders can take to make this a priority and adapt to the talent shortage:
1. If you don’t have a plan, get one. This may fall into the “stating-the-obvious” category, but the reality is that only 28 percent of accounting firms have a succession plan in place, according to the National Society of Accountants. Continually postponing establishing a succession plan can be devastating in the long run. Even in a tight labor market, every firm needs a succession plan. It can give the firm flexibility to act when the market is in their favor.
Remember, the best time to fix the roof is when it’s sunny. Firms should be proactive in their succession planning and act early.
2. Train a larger pool of candidates. Succession planning is not just about maintaining a list of high-potential employees and the positions they might fill should a vacancy occur. It should also focus on the skills and experiences required for senior management positions and provide employees with an educational system that can help them develop necessary leadership skills.
For instance, firms should train potential successors in all areas of client history and general information, including unique client characteristics and needs. If you’ve established a new service within your practice, make sure eligible successors have an opportunity to work in that area. By exposing these individuals to appropriate training and offering cross-rotational experiences and special assignments, accounting firms can create a larger pool of successors.
Keep in mind that training a viable successor can take several years. One way to seed your successor program is to integrate training with hiring. Deeply understanding your firm’s bench strengths and hiring to fill those gaps may be the secret to creating a more natural progression of future leaders.
3. Identify multiple successors. It may help to look beyond the traditional lineup of “future leaders” to identify more than one appropriate successor. Rather than just consider those with direct responsibilities to clients, expand opportunities to support personnel, as well. Are there employees with sales and marketing skills? Those employees can help assure continued growth, new clients, and expanded revenue bases for existing clients.
4. Smaller firms may want to adopt a large-firm mindset. It may seem like succession planning is mainly a concern for large firms, but in reality, it should be a consideration for all firms, regardless of size. In fact, succession planning could be even more critical for smaller firms because of the limited bandwidth and specialized roles of their principals. Failing to plan may impact the ability of leaders to retire. Smaller firms need to ensure they are looking ahead to see future staffing needs.
Ultimately, having a succession plan can be a sign of business stability and longevity to existing and potential clients, as well as potential employees. Considering the traditional gaps accounting firms experience in this area, bolstering succession planning best practices may be what sets your business apart from competitors. It also will ensure your firm’s future no matter what is happening in the labor markets.