Test your firm’s succession plan

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Six months ago, we painted a less-than-favorable picture of the CPA firm succession landscape. To summarize, we said:

  • Fifty percent of firms have no plan.
  • Thirty percent think they have a plan.
  • Twenty percent have a functioning plan.

Our growth team thinks it is much worse. There are exceptions, but don’t dismiss our thoughts too quickly, nor accept what we say. Test your position by answering a few questions so you can come to your own conclusions. If you have any doubts about any questions, or are not 100 percent certain about an answer, then you likely do not have a functioning succession plan.

You could still land on your feet. However, with the average baby boomer being 65 years old, and the wave of exit-minded or exit-required firms that are hitting the market, do you want to take a chance that you can exit and still get paid? Without a plan, your risk factor will be high. Add to the formula the impact of the recruiting drought and the inability of a potential succession team to want to buy-in. Their culture does not always align with ownership.

Take the test. Answer yes or no to the questions below, and if you still feel secure in your answers, then congratulations — you have a functioning succession plan.

1. A written succession plan exists. (That’s an easy one. However, if a plan does not exist, you should stop here because the absence of a written control document is a major flaw.)
2. The plan has been updated in the last six months.
3. More than one person has been involved in writing and updating the plan.
4. The plan includes recurring training to assume technical leadership roles; recurring training on firm administration responsibilities; and a timeline to transition steps in once the plan has been established.
5. The plan has been communicated to each individual succession potential candidate.
6. The financial details of the partnership buy-in and their responsibility for retiring partner buy-outs has been thoroughly explained.
7. The succession team members have consistent track records of winning material new clients — not 1040s or small-business clients, but business with substantial revenue.

Succession is a process that takes time. It is also an area that many firms have little experience in constructing. A great CPA firm that does not have a functioning succession plan is not a sign of weakness; it’s just an area outside of their core expertise.

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