For most CPA firm owners, succession isn't just retiring; it's ensuring the long-term success of the practice you've worked to build and securing the future for your team. Private equity has entered the picture as a seemingly viable option for firms looking to transition; the considerations are now more complex than ever.
Managing the emotions of closing a chapter, balancing diverse personalities and viewpoints, and confronting uncertainty can be complex. It's no surprise then that transition conversations are often delayed or fall off the priority list until it's suddenly urgent. This is when the promise of PE becomes attractive, as, on the surface, it is a simple and financially lucrative option.
But while it may look like a golden parachute, it has increasingly become the default path for firm owners, simply because there was little to no other plan. If you want to have options in your exit plan, you must start planning now.
PE as the 'only option'
PE firms have the ability to top almost any deal that you would otherwise get by selling, merging, or internally transitioning ownership. This makes it an intriguing financial option, especially for firms that don't have a solid succession plan in place, but the cost may be too much to bear. Without another option, you may be sacrificing long-held firm values, trading client service for profit pressures, and impacting your remaining team members.
Building firm value and thriving on your own terms is possible, but it takes time and effort. Unfortunately, for some firm owners, this realization comes too late in the game, leaving few other feasible or attractive succession options that align with their timelines. So, how do you avoid PE becoming your succession ripcord?
Plan early and plan well
One of the best things you can do for your firm's succession strategy is to start talking about your exit early and often. Most firms that struggle through a succession transition have started the conversation too late, leading to a rushed and rocky hand-off. Even if you don't have partners who are retiring anytime soon, conversations should be happening at least annually to confirm alignment on big-picture concepts like strategy, timing, and your ideal outcome.
These conversations can be high stakes and emotional, especially when founders are involved. We always recommend getting out of the office for strategic conversations such as this, which could easily be combined with your annual planning retreat.
This serves two purposes:
- It removes some of the distractions and interruptions of the office.
- It provides a neutral territory for having these conversations. Ideally, you would also have these in a new location, which can provide, quite literally, a fresh view to inspire you as you chart your future path.
Dealing with high emotions in a conversation can be challenging. If you're concerned about having meaningful and productive conversations, consider a facilitator that can help to create a safe environment for your team to share openly and to keep the conversation moving.
Now is the time to bring all perspectives to the surface so that any and all concerns can be addressed, and your team can align on what will be the best path. Anything left unsaid or not addressed has the potential to bite you down the road.
The dark side of PE
For the most part, private equity becomes the strongest consideration when there is little to no direction of a path forward for the firm. They give you the pitch, not only offering a destination but also selling the beautiful, smooth journey you'll take to get there. They're also going to "show you the money," and if your firm feels lost and directionless, this option is likely to seem too good to pass up.
Now imagine sitting in that same PE pitch meeting when you're clear about the vision and values that you live by. Instead of feeling saved by the life raft, you have your own clear beacon to guide you as you evaluate options that best align with your goals. It's possible that despite the financial upside, this deal may come at too high of a cost.
You may not have had these conversations with your partners in the beginning, but it's never too late to start talking about your vision for the future of the firm before any outside forces enter the picture. As Stephen Covey says, "Start with the end in mind." What does it look like to you five or 10 or more years from now? What is the legacy you want to leave behind?
Bring your current partners and other trusted team members into the discussion when exploring your vision. This fosters a sense of team and models a level of transparency, which is critical in any strong succession plan.
In my work with partner groups, these conversations can be some of the most moving and meaningful. In the best cases, it brings the partner group together in a united front in service of their shared vision — something that will benefit your firm and strengthen your bottom line for years to come.
Align with your successors
One of the biggest mistakes I see firms making is building a succession plan around key individuals without bringing them into the discussion. This opens you up to the risk of last-minute surprises.
Instead, co-create the journey with them to ensure they are bought in from the beginning. Welcome conversations about their concerns about ownership and about their goals and aspirations for their careers and the firm.
Often, the hesitations for prospective partners stem from not knowing what the path to ownership looks like. Share your current partnership agreements and explore whether updates are necessary.
Early mentorship and transparency about firm operations, expectations, and perks of ownership clear the way for them to confidently step into their next chapter. This also gives you plenty of runway to develop the key skills they will need to succeed in their new role.
Having established your clear vision for the future and aligned your partnership group around it, you can now begin building together to bring that vision to life. With dedication and a committed focus, it is possible for you and your firm to thrive on your own terms.
