Transitioning Firm Ownership: Big Issue, Baby Steps

Not long ago — and as recently as 2019 — the American Institute of CPAs' biennial Private Company Practice Section (PCPS) survey on top issues affecting CPA firms routinely identified CPA firm succession as one of the top issues facing the profession. In the 2021 edition of the survey, respondents identified keeping up with current developments in tax law and COVID relief as well as finding and retaining qualified staff as top priorities. Developing the next generation of leaders is also listed, but there is no mention of firm succession planning as a higher-priority issue. The fallout from a worldwide pandemic and industry staffing shortages seems to have relegated succession planning to the back burner.

There is no doubt the world continues to change and evolve at a rapid pace. Meanwhile, each evolutionary development seems to push firm succession planning further down the priority list. For many, succession planning can seem like an overwhelming task that would be fraught with legal agreement structuring, internal maneuvering or planning to make the right type and level of investment in the next generation of future owners. Furthermore, many CPAs find it difficult to let go of a firm that they grew and has been the primary source of their livelihood.

Start Small and Find Your Groove

Here are some tips to help the team get started:

• View the initiative as a process and not an event.
• Define success and set the objective.
• Establish a realistic timeline.
• Adopt a mindset of “chipping away.”
• Assess the firm and develop a plan.
• Align strategy, people and business processes.

Many owners have been conditioned to believe they will always be able to sell their firm for a market valuation. This is a “swing for the fences” mentality and places all of one’s eggs in one basket. Instead, the initiative should be viewed as a process and not a one-time event. A commitment of even a couple of hours a month can make an impact.

The first thing to do is define success and envision what the team is seeking to accomplish. A clear understanding of the overall objective will serve to guide the transition journey. Consider the following questions:

• Will the firm transition internally to a lateral partner or to the next generation?
• Will the firm sell to a third party?
• Will the firm seek to recruit a successor?

It’s important to set the objective at building a sustainable and transferable firm. A valuable firm is characterized as having sustainable revenues, relationships and processes that are transferable to a different owner. This concept will resonate with the next ownership group, whether it’s an internal team, a third-party buyer or a recruited future successor.

Establishing a timeline with milestones and chipping away over a period of time is the best path to gaining traction. Tailor the intensity of the effort to the firm’s available time. Start small and be realistic. Seek to achieve a sense of momentum and then accelerate when the time is right.

Assess, Plan and Execute

Once you have a sense of direction and timing, envision the firm’s definition of success. Assess the current state of the firm against that objective, then remediate and optimize where necessary. Why would a buyer be interested in the firm? Do you have a sense of the current valuation?