Though no one likes to think about it, there may be times in a CPA’s professional life when he or she is called away from business for long stretches. As baby boomers, Generation Xers and other demographics continue to age, some of us will become critically ill or experience a long-term disability that may take several months—or years—to recover from. Even if poor health isn’t a factor, other concerns, such as family emergencies or unexpected personal obligations, can keep a CPA on the sidelines.

What would happen to your clients if you experienced such a scenario? When a client needs attestation services to obtain financing or satisfy loan covenants, or must have a tax return prepared by a certain deadline, who would complete the work? 

Several risk exposures, including possible damage to a client’s business and the potentially negative effects of missed opportunities, come into play when a CPA is unable to work, but has not made arrangements for a suitable replacement. Indeed, those CPAs who have not taken the time to develop a continuation plan may be 1) inviting future lawsuits against themselves or their estates and 2) leaving their spouses, families and heirs with the daunting task of trying to figure out what to do.

Fortunately, if you don’t already have a contingency plan in place, there are actions you can take this very minute to get one under way. Just taking the first steps in the planning process will go a long way toward facilitating the continuation of your practice, making sure that clients are taken care of and preserving the value of the practice.

CPAs interested in detailed guidance for developing practice continuation plans may want to consult Practice Continuation Agreements: A Practice Survival Kit, Second Edition, by John A. Eads, CPA (AICPA, 1992). Additional articles on the topic are also available online, such as the Journal of Accountancy’s “Who Would Run Your Firm?” by Joel Sinkin and Ira Rosenbloom (February 2011), and Loanna Overcash’s “CPAs Share Continuation Strategies” (February 2011).

Here are some basic tips from these and other sources on how to get a plan started:

1. Create a checklist of important resources and phone numbers, such as your professional liability insurance carrier, state board of accountancy and appropriate contacts at the NYSSCPA, including the Society’s tech hotline. Other important resources may include your office building manager, computer technical help, telephone service and other utilities.

2. Assemble a set of practice and operating documents. These documents can be divided into sections, such as—
• a profile of the proprietorship, including types of services offered, names of key employees, location of accounting records, bank account information and the location of contracts and lease agreements;
• a client list, including key contacts, services provided and important deadlines (this will need to be much more detailed if you are interested in negotiating a buy/sell agreement as part of a contingency plan);
• procedures used to monitor work in progress (this will enable others to determine the status of uncompleted work);
• a guide to using the firm’s computers;
• the location of workpapers;
• a description of the filing system;
• office procedures for handling the receipt and return of client information;
• billing schedules and collection policies;
• procedures for identifying and paying accounts payable; and
• the location of personnel files.

3. Decide on a continuation arrangement/agreement. There are three basic types:

• A one-to-one agreement with a local CPA firm that you have identified as a good fit/culture for your firm. The agreement established between the firms should cover the critical areas that are necessary to ensure a smooth transition (both short-term and long-term), if it becomes necessary. The agreement usually has a buy-sell component, with a clear formula for calculating the sales price of the firm, along with payment period and terms in the event of the CPA’s permanent disability or death.

• A group agreement, in which several CPAs may act as successors/partners to each other’s firms. CPA firm alliances or associations generally serve this purpose, as well as others.

• A CPA society or group that will assist the member, spouse or heirs in finding a successor/partner.

A variety of elements can be addressed in a practice continuation agreement, providing for a number of conditions and terms. It’s prudent to consult with an attorney when drafting a formal agreement or contract. A formal agreement can—

• define the circumstances under which assistance will be triggered (e.g., long-term or permanent disability, or leave of absence);

• specify a temporary time frame. If the agreement addresses temporary disability vs. permanent disability, definitions of the covered disabilities under the agreement should be included. Other applicable provisions, including client transition requirements, should also be addressed, in the event that a permanent replacement of the CPA who is unable to work is required. Keep in mind, though, that people can be disabled for several months and still make a return to full-time work. Therefore, you might want to consider also including a buyback provision in the agreement;

• specify responsibilities to be performed by the assisting party, including financial terms or compensation for assistance, and provisions for billing, collection, record retention, confidentiality, and noncompete and restrictive covenants.

4. Identify, approach and partner with a suitable firm(s). Practices that have certain niches or specialties will need a potential replacement CPA to have similar competencies, which may include special licenses. Another factor is whether the replacement CPA will be able to dedicate enough time to perform the role that the absent CPA performed.

To identify the most suitable replacement possible, network among possible sources of referrals, including fellow committee or chapter members here at the NYSSCPA, as well as bankers, attorneys and other community groups that you may belong to. In some regions, there are active alliances among the local CPA firms—whether formal or informal—that can help facilitate practice continuation planning.

For instance, some CPA sole practitioner groups will regularly meet to discuss their businesses and get to know each other. Other groups work together over a period of many years, enabling members to develop a high level of trust with each other and with their firms’ employees, in case one of the CPAs needs to temporarily take over for another. And a few groups even strategize business plans for the next 5 or 10 years, asking each other what they can do to make things better for their clients and themselves. In the event of a long-term disability or death, the members can act as agents for the other’s business and help spouses negotiate what to do with the practice. The planning process can also address retirements, exit strategies, buy-sell agreements and firm succession, in case CPAs need to leave their practice altogether for health or other reasons.

5. Implement the plan. Contact your attorney to draft any agreements required by the plan. Discuss the plan with your spouse and successor/partner. Communicate in writing the instructions for all parties, and set up dates for annual reviews of the plan.

The worst time to craft notifications to clients is during a crisis. Prepare template notifications to clients and referral sources ahead of time. There’s a chance that the CPA being replaced will not be available for guidance during a crisis, so the CPA who is stepping in should be well apprised of as much information as possible.

Major goals for practice continuation planning include avoiding losses of clients, keeping them happy and allaying their fears about changes in service and operations. An organized transition that is well communicated to clients is a big step toward attaining those goals.

Suzanne M. Holl, CPA, is vice president of loss prevention services with CAMICO.