The New Reality of Succession Planning

“Why do I need succession planning?
I’m very alert. I’m very vibrant. I have no intention to retire.”
- Sheldon Adelson

Yes, it is a bit daunting to be sharing the latest succession planning news with such an illustrious group of planners. For starters, you totally understand the importance of succession planning and the consequences of not having such a plan in place. Then there’s the part about you and your colleagues working regularly with clients to ensure they have such plans in their own businesses. But there’s an ironic twist. Despite all of this smarts and practical application, the startling fact remains - less than 10 percent of sole proprietors and half of multi-owner firms actually have a succession plan in place in their own practice. Even worse, not much has changed with these findings over the past four years. That’s why we are taking another look in this issue of The Practicing CPA. Inside you will find insight, tips and tools to help you and your colleagues put together a plan for your firm.

A Closer Look at the Numbers

For starters, consider these statistics on US CPA firms in the 2016 CPA Firm Succession Management Survey Results conducted by the AICPA and the Succession Institute.

Solo Practitioners and Sole Proprietors

  • These firms continue to operate for the most part without practice continuation agreements; less than 10% actually have one in place
  • Nearly half of the sole practitioners and sole proprietors plan to work until they reach 70+ years, with some going out as high as 85+ years
  • Nearly half indicate their first choice of exit strategy is to merge into another firm, yet 7% report having practice continuation agreements with other practices
  • 40% plan on retiring in the next five years

Multi-Owner Firms

  • Less than half of all firms have succession plans in place
  • Over 80% of these firms expect succession planning challenges in the next five years
  • At larger firms, 61% or more of firms with 26 or more FTEs have succession plans in place, with firms above 101 FTEs at 76% and firms above 201 FTEs at 100%
  • In a positive trend, the recognized need for succession plans has moved downstream from firms with 51 or more FTEs to those with 16 FTEs and greater
  • Over 70% of them will have one or more partners leaving within that timeframe and half of that total will have two or more partners retiring
  • Over half the firms indicated that they will have 25% or more of their equity in transition and nearly 30% will have 50% or more of equity in transition
  • 74% of multi-owner firms expect succession planning challenges within the next five years, yet only 44% have addressed client transitioning at this time

Factors Adding Complexity

It’s also important to consider some of the primary factors adding complexity to the area of succession planning.

  • Attracting and retaining top talent
  • Partners prolonging retirement
  • Partners not delegating workload
  • Thinking that the next generation is not prepared to take over leadership roles
  • Younger staff resisting lack of work/life balance caused by workload compression
  • Softening market due to increased mergers and acquisitions
  • Although many firms do not have formal plans in place, this year’s findings indicate that some are starting to make progress in addressing a number of these tough issues.

Taking Action

So what’s the best way for your firm to get started? One thing to keep in mind is this: although there is no one plan that fits all, firms that get to work on their succession plans in advance will be better positioned for opportunities in the future. Here are six steps to consider in your own practice.

  1. Hold a Succession Planning Day

    Schedule a Succession Planning Day in your firm. Put it on your calendar. Use this time to help you and other firm leaders get serious about planning for the future of your practice.

  2. Dig Deeper into the Findings

    Before you sit down and draft your plan, take time to review the information contained in this year’s survey results when they are released in the coming month. Share the results with those who will be involved in the planning discussions, too. You will find a wealth of data to consider as your firm gets started.

  3. Gather Key Stakeholders

    As the leadership group comes together, zero in on primary issues most important for your partners to start addressing including:

    • How long will the current leader(s) serve in their role?
    • Have we identified who will lead the firm in the future?
    • Will this new leader come from inside or outside the firm?
    • What will we need to do to ensure this new leader is ready to take the helm?
    • If we look to a merger or acquisition, how well positioned is our firm for potential suitors?
    • What can we do to help our firm be more attractive to other practices?
    • How will we transition client responsibilities?
    • How attractive is our firm to new talent?
    • How are our leaders doing in delegating work to managers and supervisors?
    • How are we doing in the area of work/life balance?
    • What would we do if something unexpected happened to a key leader?
  4. Get Clear on Timing

    Timing is a critical consideration in your firm’s succession plans.

    • What needs to take place when?
    • An important question to ask yourself and your partners (if you are a multi partner firm) is not when you want to retire but when do you believe you will slow down and commit less time to the firm?
    • Such a timetable would allow you to gradually reduce your time commitment which can create a powerful transition plan.
    • Knowing this would allow you to use the years of full-time status to transition your client relationships and not wait until you actually slow down.
    • Be mindful that the best transitions occur while you remain in your full time role as your clients’ go-to person.
  5. Put It All Together

    Now it’s time to put it all together. Sure, it can be overwhelming. Good news, you will find a wealth of resources in the FGC Succession Planning Resource Center to help you and your firm get started. Use it to guide your practice along the way.

Here’s to taking advantage of the new reality of succession planning. It’s not too late to get started. A little work now can help you and your firm reap rewards for years to come.

Last updated: 21 October 2019