While more and more firms are (hopefully) comfortable knowing that they have a succession plan in place for their top leadership, how many can say that they’re prepared for succession firmwide? Especially for small and midsized firms, a few sudden changes in staff can really throw a business for a loop — not an ideal situation for a firm with limited resources. With a little planning and consideration, a firm of any size can rest easy knowing they always have a plan in place.

Smaller firms may have fewer personnel to worry about, but succession can be more complicated for them than they realize, according to industry experts.

“Our experience has been the larger the firm, the more they seem focused on succession issues, and the smaller the firm, the less,” said Joel Sinkin, president of Transition Advisors. “What is disappointing about that is the smaller the firm, the more ‘partner-loyal’ its clients tend to be. The reason I bring this up is the more partner-loyal clients are, the longer it typically takes to plan and create a succession plan, so they are the ones who frequently need more attention and time on this issue. Also, the smaller the firm, the more challenging it can be to attract partner-level talent, so their need to focus on the succession issues in their firm is typically more difficult in some ways than national and regional firms.”

Jennifer Lee Wilson, co-founder and partner of consulting firm ConvergenceCoaching, pointed to a recent CPA Consultants Alliance Succession Survey that showed that 65 percent of firms do not yet have a system to identify and develop future leaders. Similarly, the 2016 American Institute of CPAs’ Succession Survey concluded that less than half of polled firms have a plan in place, with approximately half saying that their first succession choice was, in fact, to merge with another firm.

“I’d say larger firms are better prepared … however, many still tend to treat succession as event-based — someone quits, so [they] have to fill their role, or someone is retiring, so now [they] plan for resources,” she said. “Ideally, succession is more of an ongoing, overarching strategy in the firm that includes talent development, future leader identification, transition of duties taking place continuously, and retirement planning. For most small and midsized firms, we find that they are woefully unprepared for both event-based and overall succession.”

Jack Finning, partner at Boston-based firm AAFCPAs, agrees with this notion, but still sees the need for improvement in all firm sizes. “Based on discussions with a number of CPAs around the country, [none of them] are as prepared as they could be,” he said. “These firms do not have the plans in place for proper transitions, which impacts both the employees and clients. Inefficient planning could have serious ramifications on some of the most pressing issues facing firms, including overall growth and employee retention.”

Mark Strassman, president of Virginia firm Make My Day CPA, feels that this lack of preparedness is deep-rooted in how firms are run. “This is not a new situation,” he said. “Much of the history of M&A in public accounting is born from senior partners who are ready to retire without the proper funding, staffing and overall planning to make an internal succession plan a possibility. Thus, these partners turn to acquisitions as the best method available — sometimes the only method available to fund their buyout/retirement in a timely fashion.”

From top to bottom

Building a firm-wide succession plan is a serious undertaking, but its benefits can be felt beyond just filling empty seats.

“Succession planning needs to be viewed as a firmwide concern that should be prioritized by department heads and leadership teams alike,” voiced Finning. “Having ‘ducks in a row’ is certainly important for continuity, but it also helps curb any emotional issues that could arise among employees who may feel threatened about the pending change. It’s important to provide assurance that leaders, managers and department heads transitioning into retirement will not affect employees’ compensation or path to growth in any way.”

Indeed, a more transparent plan can also act as a better means of communication with all levels of a firm.

“A well-thought-out and often-verbalized plan not only instills confidence in staff that there will be a strong future, [but] it gives motivation to those that feel that they may have a part to play in a succession plan,” added Strassman. “Junior members of the staff have a carrot to chase, [and] more senior members may see the possibility of being a part of the succession as the brass ring that keeps them engaged and loyal.”

Still, these plans should not be triggered by sudden occurrences, but rather be part of a constant effort for the overall health of the firm. “Ideal succession is not event-based,” said Wilson. “It’s an ongoing business process that takes the mystery out of who is retiring and when. It considers every position in the firm. Great succession planning is not level-based or retirement-focused only; it considers career pathways and associated development for all people, at all levels and career stages. Firms that plan this way find that their people feel clear on their options, their potential progression, and they feel like they are being invested in as they are developed for future roles. Most firms don’t need new business as much as they need the right level of quality talent to serve it.”

In the case of retiring partners, Sinkin advises providing more work to top prospects early and often. “Most firms need to have two things to have a strong transition plan other than the ‘right’ financial aspects of it: the capacity to replace retiring partners and the skill set,” he said. “Capacity can often be created by leveraging time. Thus, it is critical in the big picture of succession planning that the retiring partners can leverage their work and relationships to up-and-coming partners, who leverage some of what they are doing to managers and seniors; the accounting version of the ‘trickle-down effect,’ in a way.”

Wilson echoed this experiential learning method, advocating for the “Gradual Release of Responsibility” model, in which a partner would progressively collaborate and hand off responsibilities until the new partner is in full control.

Something out of nothing

If a firm finds itself a bit unprepared for succession, where’s the best place to start? The experts agree that just a few key components can make all the difference. Sinkin believes in planning with the “4 Cs” in mind:

  • Chemistry (“If you are not comfortable with someone, why would your partners and staff be?”);
  • Continuity (keeping “the direction your ship is sailing”);
  • Capacity (replacing staff based on skills and time allotted); and,
  • Culture (a poor fit could lead to worse staff retention).

“Another key factor is leaving adequate time to conduct a proper transition,” he added. “It is hard to transition someone through e-mail, phone or the cloud; the best way is in person. For many clients, in the next three years, we may only see them in the same room three times. Thus, starting the transition process in advance is critical.”

In addition to ensuring that factors such as partner buyouts or retirement ages are hammered out with the firm’s management, Finning believes in building a plan with rigorous structure. “It is imperative to sit down in a neutral environment and review the existing agreements,” he said. “Having proper deadlines and timelines in place makes the process easier on management, employees and clients. Having a structured plan creates a digestible roadmap for everyone to consider, and goes a long way to alleviate concerns. We advise our clients to plan ahead.”

Wilson believes in more of a to-do list approach, with a particular focus on the betterment of staff and their overarching careers. “Identify career pathway options for all levels within each service line or industry group,” she advised. “Make sure your people know what their pathway options are. Invest in talent development, which includes significant investment in learning and coaching of the ‘whole person’ — not just investing in technical CPE.”

Concerning those who are already known to be heading out the door, Wilson suggests wasting no time in handling the inevitable. “Develop one-size-fits-one transition plans for retirees within two years of retirement, and then execute them,” she said. “Do not wait for the retiree to create their own transition plan — assign someone who is not a successor to develop the plan and manage the retiree against it. Tie their compensation to proper transition behaviors.”

No time like the present

No matter how a firm looks to design a more robust succession plan, one factor remains constant: the earlier, the better. There’s no downside to providing your business with a bit of staffing peace-of-mind sooner rather than later — especially with the ongoing generational gap and looming retirements of upper management.

“With 80 million Baby Boomers set to all be 65 years old by 2030, there is nothing more relevant,” urged Wilson. “Almost every established business in the country will change hands, or cease to exist, in the next 13 years. Developing your future leaders to be prepared for this transition is critical.”

“CPA firms must realize that it is critical for them to develop a plan that allows the business to continue in an efficient way and one that appeals to [young] leaders,” added Finning. “Millennials have already been in the workforce for some time. Even when they have the experience level necessary to lead, the transition plan is often dictated by those of a very different generation, [and] this can lead to communications clashes. Understanding the differences in values and outlooks between the two generations is important in completing a successful plan that benefits employees and clients alike.”

“If I am five years or less from slowing down, I should have a strong succession plan and should be working on it already,” said Sinkin. “A strong plan provides you a map as to what you need in staffing/partners to execute a succession plan, timelines, a financial package that rewards the retiring partners but allows the successors to make more money, and a transition plan that maximizes retention — the greatest measure of success of any succession plan.”

“Forethought to a solid succession plan affects all levels of the firm,” said Strassman. “Staff of all levels want a certain sense of comfort as to what their future holds. I have met with countless staff … who are considering leaving their current firm for fear that when the senior partner leaves, the firm’s driving force to success will leave with that partner.”

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