Do you know how much longer your firm’s partners want to work?

The answers might surprise you — and help you transition more easily into the future.

“One of the first questions we ask when a firm seeks assistance for succession is to take a survey of the partners and ask how many more tax seasons each wants to work full-time,” said Joel Sinkin, principal of Accounting Transition Advisors, a New York-based consulting firm specializing in CPA mergers, acquisitions and succession planning. “A lot of people ask what seems like the same question in the wrong way. Like, ‘When do you want to retire?’ There’s a plethora of options between working full-time and retirement.”

For Sinkin — who has been involved in the closings of more than 900 CPA firm mergers and acquisitions in the past 18 years — said that 75 percent of his business comes from those firms that don’t have an internal succession plan in place and recognize that they have a problem.

Succession planning is about sustaining the firm throughout constant change, which should be a regular and ongoing practice, according to a 2008 Private Companies Practice Section Succession Survey released by the American Institute of CPAs.

The survey, which netted about 400 responses from firms of various sizes, showed that firms are stepping up their strategies for succession planning since last measured in 2004 — but not by much.

In the 2008 poll, 35 percent of multi-owner firms and 9 percent of sole proprietors had a written succession plan in place, compared to 25 percent of multi-owner firms and 9 percent of sole proprietors in 2004. While these statistics show slow action, more firms do acknowledge that succession is on their radar. A total of 67 percent of multi-owner firms and more than 50 percent of sole proprietors believed that succession planning would be a significant issue for them in the future.

“Our thinking is, if more people aren’t preparing for this, their options are going to be limited down the road,” said Mark Koziel, a CPA and senior technical manager at the AICPA. “It’s not unlike our clients and the rest of small-business America. It’s not like we’re alone here, but we have such a great opportunity to be prepared. If we want to maintain the value of the firm, whether we are going to transition it internally, sell it to the open market or merge into another firm, then we need to have the right firm practice management practices in place to make sure that we maximize our value.”

Koziel said that the survey revealed firms to be “fairly consistent” in their relationship to succession planning, but he was particularly interested in some of the changes starting to pop up in the area of partner compensation.

“It’s not just about the book of business anymore,” he said, adding that salary or base draw is still the No. 1 element of many firms’ compensation system. Yet it has decreased by 4 percent since 2004. “Now you see a greater number of elements that are starting to really play into the partner comp role. Client satisfaction goals went up, leverage of work being done by other staff members, business transferred to other partners or managers. [It’s] forcing succession through the pocketbook of the partners. Part of our recommendations for firms is to take a look at that list and basically start from the bottom and work your way up, because those are the early adopters in some of these newer systems.”

The survey, aside from providing a succession best practices section towards the end, offers more detail for multi-owner firms and sole proprietors than 2004 — and of those multi-owner firms that participated, 63 percent are expecting at least one owner to retire in five years. Some 32 percent of firms will have two or more partners leaving within the next five years. Surprisingly, 38 percent of these firms’ senior partners revealed that they felt the younger partners weren’t ready to step up to leadership positions, while in 2004, 86 percent of firms surveyed said that the firm and clients of the senior owners would be transitioned to the remaining owners or incoming owners. This year that figure has dropped to 79 percent.

“A lot of these firms are still in their first-generation partners,” Koziel said, adding that the AICPA would be launching an online section through its Succession Resource Center targeted at developing new leaders. “They came up through the school of hard knocks. I think some partners forget the early days of their firm and some of the mistakes they too made along the way. They’re seeing that in some of their people and saying, ‘Well, they are not ready.’ Well, they haven’t had the opportunity to grow like the senior partners at the firm, yet. They will learn that along the way.”


McConnell Jones Lanier & Murphy LLP in Houston is among those firms that have decided to promote from within. It created two new principal positions to provide a clearer ranking system to the partner track. The principal role, as described by Thomas Jones, one of the firm’s four founding partners, is viewed as a partnership position without the equity stake or liability.

“We have just in the last couple of years started to deal with the issue of succession planning, and obviously that involves bringing more people into the partnership ranks,” said Jones. “We started that process with a couple of people both in the audit and tax area, who we believe will be around and can carry the firm on after we’ve left.”

The firm’s partners — all of whom are in their 50s and within three years of each other — started to think about succession planning.

“It was just the realization that we are getting up in age,” Jones said, adding that he foresees the firm completing a written succession plan by the fall and eventually expanding the firm nationally in the near future. “While we suspect we will be working past the age of 60, we did really want the firm to go on. You basically decide, ‘Hey, we really believe we’ve built something of value here that we would like to see sustain itself.’ Certainly we have been approached about mergers and we have thus far steadfastly said that we’re not interested at the moment in doing that.”

There are two main ways to plan for succession — externally and internally. Some firms sell themselves, or choose to be merged or acquired into a larger organization. Other firms do an internal assessment, decide whom management could successfully pass the baton to and go from there. Regardless of the choice made, many firms opt to bring in an outside consultant to help facilitate a succession plan strategy, which includes having a written document to guide them along the way.

“You have to be able to envision the future you’d like to create,” said Patrick Sweeney, executive vice president of Caliper, an international management consulting firm based in Princeton, N.J, adding that the first questions to ask are about what the position and organization will look like once the succession has taken place: “Understand the position [being replaced], recognize that this is a very difficult and tender time, so it’s developing an ideal profile of what that next leader would look like, and then it’s a matter of looking around to see if you have someone in that profile you described.”

He added, “Grooming and creating a connection between the leader that is stepping down and the leader that is stepping up is crucial. It’s not just professional, but extremely personal. It’s a crucial crossroads.”

Wayne Pinnell, managing partner at Haskell & White LLP, an 11-partner firm headquartered in Irvine, Calif., understands the emotions and critical planning involved in succeeding a firm leader.

He took over the reins of his current position in 2004, a mere eight weeks after one of the firm’s founding partners was diagnosed with lung cancer. Succession plans were already in the works for Pinnell to take over for managing partner Steve Haskell, but, not surprisingly, were accelerated once news broke of Haskell’s illness.

“It happened really fast,” Pinnell recalled. “I was probably the obvious choice to succeed Steve at that point in time based on our personnel make-up and the histories we have with the firm, but when we announced Steve was resigning from the position, there was a little bit of shock and jaw-dropping because we did it at the partner retreat. It took a little time to process the fact that Steve was no longer the managing partner and then we had to, in that same meeting, very quickly get around to going through the partnership election for the managing partner. So it was kind of this [surreal] moment where everybody was in a state of confusion, like, ‘What do we do now?’”

Once other management and staff were told about the change, Pinnell worked closely with Haskell to create action plans on how the transition process would evolve. The firm also — for the first time — hired a professional public relations firm to communicate to its clients and community about the change that was taking place. At the same time, the firm started looking at its partnership and retirement agreements and invested in insurance plans for both the firm and its individuals. They also hired a partner to specifically take over Haskell’s book of business, a process that only lost them a few clients.

Though Pinnell said that his firm doesn’t have a formal written succession plan, there are elements that are written — such as a strategic plan, the firm’s partnership agreement, the insurance requirements, and the counseling and mentoring program for all personnel in the firm.

Said Pinnell, “There’s no such thing as a plan that you write and put on the shelf. A fluid plan has to be a living document that is adjusted every time there is a change in the environment. It’s never complete."

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