With a wave of senior partners graying and a shortage of younger CPA professionals ready to take their place, the importance of creating - and maintaining - a succession plan for a firm's future is becoming more urgent than ever.It may seem obvious to design a plan to keep the business of a firm going strong, but according to a 2006 survey conducted by the Private Companies Practice Section of the American Institute of CPAs and the Texas Society of CPAs' National Management of an Accounting Practice, 76 percent of the 1,842 participating firms reported that they had no documented succession plans.

Those numbers are especially striking since 74 percent of AICPA members were already over 40 in 2006, a leap from 1993, when 47 percent of institute members were in that age demographic.

"Two thirds of our AICPA members will reach retirement age in the next 15 years," said Jim Metzler, a CPA and the institute's vice president of small firm interests. "Our profession is not very succession-ready."

Barry Cain, managing director of strategic services at Blackman Kallick Family Business Center in Chicago, said that many aging partners don't want to deal with the reality of leaving a firm they may have founded. "Sometimes the people who started the firm put their head in the sand and they don't want to talk about it, because they like the control and the income it produces," he said. "People don't want to confront their own mortality, and they start holding on longer than they should."

Those who want to keep generating business for their firm should develop a plan that creates a succession strategy for at least the next five years.

"It's how do we keep control of our business, how do we motivate people to move up within our firm, how do we attract new people to come to our firm," Cain said. "The way you do that is to have a plan that you can lay out and say, 'This is where you can go if you bring in the business.' If you start laying those things out, all of a sudden, you have a business with some real intrinsic value and a future."


Succession planning should start on the day an employee is hired, according to Metzler, and that new person should be eyed as a potential partner.

Communication is crucial to the implementation of any successful strategic plan, but when it involves transitioning partners in and out of significant roles within the firm, it becomes even more essential.

"You're very wise if you don't just create something and drop it on people," Cain said. "You want to involve them in the planning process itself. Because they're involved in the planning process, they're more likely to understand why you're doing something. They [also] know they have been heard, so they're much more likely to feel a part of it, follow along and buy into it than if it's just something that's been forced upon them."

"I started [succession planning] 20 years before I planned to retire," said Bob Jazwinski, CPA/PFS, CFP and founder of JFS Wealth Advisors LLC in Hermitage, Pa. "I think it's really important, particularly for the younger, entrepreneurial firms. Those younger firms that haven't thought about this need to be thinking about it - and the sooner the better."

Jazwinski, who also heads the AICPA's Personal Financial Specialist credential committee, said that a priority of overall wealth management is to manage closely held businesses, such as CPA firms, to produce an appropriate investment over time. Part of that management, according to Jazwinski, includes succession planning.

Jazwinski's succession planning approach included identifying four individuals between the ages of 40 and 60, with different strengths, to become partners. To get the ball rolling, he began to transfer small amounts of ownership to them over a five-year period. That has now grown to a point where each individual has 10 percent ownership, which they receive as part of their compensation, depending on whether they reach certain personal and business development objectives.

"That was the first step I took," Jazwinski said, adding that he is now looking within his firm for "shining stars" who could potentially be partner material in the next 15 years. "It's six years later, and it worked very well because I really wanted them to act like owners of the firm, and that's what happened."

Jonathan Miller, tax partner at Habif, Arogeti & Wynne LLP in Atlanta, has survived three different succession plans regarding the firm's managing partners. By the third one in 2004, when Miller was transitioning out of his final managing partner role, he said that the process was successful and it was because the firm figured out what was important.

"The last time around, we assessed the firm's needs at the time," he said, adding that the first transition, even though the firm prepared for two years, did not work. "The No. 1 priority in developing a succession plan is assessing the firm's needs, and also assessing the individual's qualities and characteristics."

Jim Alerding, managing partner of valuation and forensic services at Clifton Gunderson in Indianapolis, has a five-word mantra that he uses to describe his strategic advice: "Prior planning prevents poor performance. If you don't plan, you're going to perform poorly in that area. Traditionally, accounting firms have just sat on it and haven't done anything. As the Baby Boomers enter their 60s now, it's going to be even more evident that a lot of these firms haven't done what they need to do. They are going to either not survive as a firm, or they are going to end up trying to find a merger partner."


Steven Baum, co-managing partner at New York-based Marks Paneth & Shron, is stepping down this year with the firm's other co-managing partner, Arthur Gruber. Both came together through a merger of their respective firms - Paneth, Haber and Zimmerman LLP and Marks Shron Co. LLP.

"Mutual partners in both places had relationships," Baum recalled. "It was clear that their business plan and our business plan meshed and each firm had something the other needed."

They met in August of 1999. and by November they had an agreement, a new lease and a move to organize in the heat of tax season. The agreement also described a plan where they would both transition out of the full-time co-managing partnership by the end of 2007.

"We had to now deal with the two managing partners that are retiring at the end of this year," Baum said. "The managing partners are a part of an operating committee that meets every week. Even though we're a larger firm, by meeting every week you avoid a lot of the bureaucracy that takes place."

Four leaders were then chosen by the firm's equity partners, and each had a chance to work with that operating committee. The group later voted to keep the co-managing partner positions intact. Soon after, two new co-managing partners were chosen out of the four leaders who'd been identified earlier in the year. Since then, the two incoming managing partners have been working with both Baum and Gruber.

"The succession has already taken place, because we're so involved with them on a daily basis," Baum said, describing the transition as seamless. "We've been happy to relinquish responsibility, and the firm has made a great pick because you can see how great they are doing."


"What it's done is really opened up the thinking process of who are the future stars of the firm and how do we make sure that we not only identify them, but get them on a track that both keeps them with the firm and develops them into the stars we believe they can be," Clifton Gunderson's Alerding said of his firm's succession plan.

Still, even though partners may be more in tune with whom they may want to pass that torch to, statistics suggest that there is still a communication gap between senior partners and younger CPA professionals.

According to a 2006 Top Talent survey of 600 firms conducted by the AICPA's PCPS, 72 percent of top talent identified by senior partners believed that they were being groomed for a senior position. Of that number, 76 percent had a goal of being groomed for such a role, according to Mark Koziel, senior technical manager for the AICPA's specialized communities-firm practice management/PCPS.

"I expected the number to be somewhere in the 90s and it's not there," Koziel said. "So firms need to identify a way to connect with those who do and those who don't. For a firm to succeed, they have to try to retain as much as they can."

Many firms seem to have their own way of creating a succession plan; some write it down to be reviewed annually, while others have a goal of documenting their strategy. Yet most who have gone through succession planning believe that an outside expert to help facilitate the process is beneficial.

"I believe an outside consultant is absolutely needed," the AICPA's Metzler said. "There is usually an elephant on the coffee table none of the partners have spoken about for many years. The seasoned consultants will surface the unverbalized fear. They know just what should be talked about."

Koziel agreed. "That lends itself for data extraction, to really get that information out in the open," he said. "A good consultant would do that, and that allows partners to save for another partner meeting whether they are going to have beef or chicken at the holiday party. A lot of the strategic planning for firms is in the here and now, and there's not much in that five-to-10-year plateau."

It can be difficult to look forward when saying goodbye to familiar faces and long-term relationships is part of the process. Even when the outcome is positive for the transitioning partner, expect emotions - on both sides of the equation.

"It is hugely emotional from a couple of different perspectives," Metzler said, who left his firm after 32 years. "One is that usually the value in your head of your firm, or your ownership in the firm, is a whole lot higher than where you're going to end up. The other side is there is a separation emotion. The relationship for a small-and-midsized firm with clients is so beyond accounting, and until you walk in and talk about your future, you don't really realize how deep that runs."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access