While change in general is hard for all of us, including this author, perhaps the biggest change that an owner ever will make is the one that requires him to leave the firm. Knowing when to pass the baton and how to do it are actions that all of us will have to take sooner or later.It is incumbent on the firm, as well as individual owners, to lay out their plans. The sooner the plan is set in writing, the easier it will be for all involved to implement it. Not having a succession plan is like not having a will. You are going to let someone else determine what will happen.

While the following checklist is not meant to be all-inclusive, it will get you started down the succession-planning path. Don't be afraid to add questions that pertain to your particular situation. There are four key areas of any successful succession plan - what happens to the practice (an individual's or the entire firm's), how the buyout is structured, how are clients informed, and implementing the plan.

Practice continuation

The main goal for any succession plan should be the continuation of the practice after the retirement or death of the founding owners or other key owners. Have a plan and stick with it. You don't want to be forced to sell the practice from a position of weakness. Practice continuation varies from firm to firm, but here are some key questions to think about.

* Does the operating agreement state a specific age when owners sell or pass on their equity? Depending on the size of the firm, the most common ages I am seeing are 62 and 65.

* Has a successor been identified? If not, what will the firm do in an emergency situation?

* When and how will the clients be transferred to the successor?

* What type of successor development plan does the practice have? Most successors just inherit the position or book of business with little or no preparation.

* Will the retiring owners continue to work full- or part-time at the firm?

* How strong are your seconds-in-command? Larger accounting firms need to have succession plans for key department and industry leaders.

* If you are a sole practitioner, do you have a practice continuation agreement to protect the value of your practice in case of your sudden death or disability?

The buyout

Nothing is more sensitive than determining the value of an accounting practice. In general, outside buyers tend to pay more than insiders. The insiders believe that they have helped build the firm over the years and are hence paying for business they brought in.

Unless the buyout is clearly articulated in the succession plan, a policy memo or operating agreement, the firm can be headed for serious trouble. You should review the buyout formula every few years to make sure it still makes sense. Make sure you have clarity around these points:

* How is the value of the firm calculated?

* When is the buyout calculated?

* What happens in the case of owner disability?

* How long does it take an owner to become 100 percent vested?

* Are there any conflicts of interest? For example, are you asking the retiring owner to transition clients, but the buyout is based on her ultimate book of business?

* Is there a maximum amount that can be paid out to retired owners each year?

* What happens if the firm cannot make its commitments in any given year?

Client notification

Don't forget to include clients in the succession plan. The personal relationships that develop over the course of years are the glue that holds the clients to the firm. Clients need to be aware of any changes taking place in the firm - the sooner the better.

If clients are not aware of upcoming changes, and if a sudden change in their relationship with the firm takes place, they may be more likely to listen to offers from other firms.

* When do owners need to give notice of retirement?

* How will clients be informed of any major relationship changes in the firm?

* When will they be informed of the changes?

* How will the new contact be introduced?

* Do major client accounts already have a second relationship manager assigned?

* What is the firm doing to make clients firm clients, rather than individual owners' clients?

Implementation of the plan

As with any plan, the proof is in the execution. If the firm cannot implement the plan, it is hardly worth the paper it is written on. To make sure the plan is implemented, consider the following:

* Update the plan annually and present it to the owner group.

* Develop a three-to-five-year timetable of what needs to happen to make a smooth transition.

* Focus on accomplishing two or three major activities each year.

* Hold key players responsible for fulfilling and completing the action steps outlined in the timetable.

It is never easy giving up something that has been your entire life's work. Every succession plan needs to be a win for both parties; otherwise, the chances of it working become very slim.

Succession planning often becomes as much an emotional event as a financial one. Using a neutral outside advisor is an excellent way to keep the emotions under control and clarify or develop the proper buyout structure.

August J. Aquila, PhD is a director at The Growth Partnership. He specializes in succession planning, mergers and acquisitions and owner issues. Reach him at (952) 930-1295 or aaquila@thegrowthpartnership.com.

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