There are many CPA firm leaders who grapple with the right approach to practice succession.
Some firms want to remain independent and look for ways to strengthen their bench internally. Yet staffing and leadership are constantly at the top of firms' lists of things that keep them up at night.
Other firms feel that the only appropriate succession solution lies with mergers and acquisitions. Yet M&A is not the best answer for everyone — in the same way that an all-cash deal, a private equity takeover, a strategic partnership or business-as-usual may be the wrong answers.
To figure out the best succession solution for your firm, you should ask yourself — and find answers to — some key questions.
1. Have you thought in ways that are out-of-the-box?
Doing a deal is a bold step. It is important to consider other bold options and not restrict your efforts only to M&A.
Look at reengineering your practice so you're providing more concentrated levels of service, eliminating services, working off a required service model which includes meetings and consultations, or focusing on specific industries.
Consider joint ventures or cooperative relationships with other providers so you and your team are not stymied by not having enough — or the right kind of — help to serve clients in the best ways. You may need to strengthen your team by seeking out different types of partners, for instance, consultants with different specialties, outsourced accounting services, or experts with advanced degrees who are not CPAs.
Explore the viability of adding non-CPA owners that provide key service expertise, capital, and/or connections.
2. What is your level of market intelligence?
Understand how today's M&A deals, transitions and integrations are handled. Become familiar with common positives and negatives for moving forward and be prepared to handle related steps. Have a realistic timeframe for completion.
If you're considering internal succession, become knowledgeable about best practices. Know the terms and benefits most attractive to successors and understand how you can best find or cultivate the right ownership candidates. You may want to tap into outside experts who can help bolster next-gen leadership. If you're looking outside your current firm, identify recruiters who specialize in accounting firm leadership and strongly consider a retained search based on sufficient due diligence.
Talk with other firms who have been through the process. Ask them about the highs and lows. Often, talking with strangers can be more valuable than speaking only with the people you know.
3. What are your clients looking for?
This may seem like an easy question. Yet firm owners looking at succession must look at future state needs, not just current ones.
Find out what services are important to your clients that you're not currently providing. Might you lose clients if you don't start providing them?
Ask clients what they would need from you if you were going to change leadership. This may be a scary question to consider. No one wants to alert clients of something that hasn't yet happened, but all firms have clients that have deep and trustworthy relationships.
It is normal for clients to ask their CPAs about their plans. They want to think ahead and not be left in the lurch at crunch time.
Ask them: "If our practice were to move forward with a merger, what kind of firm would compel you to stay?"
Surveys might be appropriate. Small focus groups may be another way to learn more on a deeper level. You might even use someone else's deal to get a barometer on client perspectives.
Gather the data and memorialize it. Partners should all have a good handle on the needs of everyone's top 10 clients.
4. What are you looking for?
Gather the criteria you need to guide your decisions on succession. What synergies do you expect on day one — whether it's a new firm or a new leader? Understand the firm culture needed. Learn what service or industry niches you need to perpetuate the firm.
What is keeping the partners and managers up at night? The last thing you want in a merger is a surprise.
When asked, firm leaders often say their primary concerns are personnel, technology including AI, industry regulations and leadership. For successful succession, leadership is even more relevant. No machine is going to lead the firm.
5. Have you built consensus — and trust?
Consensus and trust are important to any transition. The team must be a unified front whether you're considering a merger, a leadership change or PE ownership.
A normal place to start is within the partners/owners group. But it's crucial to also cultivate the entire management group, including, for example, the firm administrator, head of HR and CFO.
Admittedly, it is a bit scary to open the discussion broadly. And you must be prepared for new ideas and compromises. However, if you don't have consensus, trust will become a bigger issue and could derail any process.
When it comes to succession, firms often feel the easy solution is a merger. A successful merger is not easy. Succession is a hard, complex and customized process. The answers to the hard questions will clear the way to the right road for your firm.
