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Succession: A Process, Not a Plan

Joanne S. Barry, CAE

In this month's issue of The CPA Journal, authors Charles R. Pryor and Jack Elfrink provide solid advice for sole proprietors and single firm owners looking to grow their firms (“Strategic Planning for Small Accounting Practices: Insights on Services and Satisfaction from the MAP Survey,” p. 56). But what many CPAs might not—or, according to a recent study, do not—want to consider is how critical a successful succession plan is not only to a firm's success, but also to its very survival.

The Importance of Succession Planning

According to the AICPA's “2012 Private Companies Practice Section Succession Survey,” fewer than half of multiowner firms and an alarmingly scant 6% of sole practitioners have a written succession plan. Although managing partners are free to do what they want with their firms, those concerned about the overall future of the profession should realize that their own firm's future plays a part in that process. Converging demographic, technological, and regulatory forces have created a “perfect storm” that will have deleterious effects on the profession. If that's not enough to grab firm leaders' attention, firm succession planning is also a personal issue. Without the proper succession plan in place, a catastrophic illness can have a financially calamitous effect on the firm partners' and employees' families, as well as the future of the firm itself.

In the NYSSCPA's latest economic outlook survey, a majority of the C-level CPAs polled said that they or their employees were delaying retirement plans, with an overwhelming majority citing the economy as the driving factor. This factor, combined with a dearth of young people entering the profession, will result in a severe shortage of firm successors. If you are a senior or managing partner and you do not think you need a succession plan just yet, it might be prudent to ask yourself some key questions: If you were to suddenly leave the firm due to health, family, or professional reasons, is there a plan in place to ensure an orderly transition for future management? If you are a sole proprietor, does your firm have a roster of CPAs waiting in the wings to take over the business? Are your employees aware of what their responsibilities would be if you are no longer able to work? If there are no ownership candidates in your ranks, would you be interested in merging your practice with another local firm? Because many firms have not actively planned to replace their retiring partners, an explosion of firm mergers in the upcoming decade seems likely. Firm leaders have to start planning now for the inevitable sale of their firms, and part of that plan must include identifying and preparing future firm leaders.

Encouraging Talent

Why are the trusted professionals that so many Americans turn to when planning for their financial futures so hesitant to plan for their own? Many CPAs find developing a successor to be too expensive, do not have a lot of confidence in the pool of talent they have in the firm, might feel threatened or pressured to retire before they're ready, or just don't want to think about giving up control of the firm they dedicated a significant portion of their lives to. There's another reason—creating a succession plan forces firm leaders to take a hard and realistic look at their firm's culture, which might need fixing, and their own management skills, which might be lacking.

The most critical part of this process is developing a pool of talent within the firm, not just one individual. This is a process that includes easing into deploying control to other individuals. It fosters accountability and is also a crucial element of building leadership. If there is a lack of leadership talent within the firm, managing partners should look outside the firm for the right individuals and then bring them into the fold.

For more resources on succession planning, members should remember that the NYSSCPA has an entire committee division dedicated to firm practice issues for firms of every size. Membership on these committees is free for NYSSCPA members, and teleconferencing into monthly meetings is available. Contact Nereida Gomez, Manager of Committees and Administrative Services, at ngomez@nysscpa.org, for more details.

Joanne S. Barry, CAE. Publisher, The CPA Journal, Executive Director & CEO, NYSSCPA, jbarry@nysscpa.org.

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