CPA Firm Succession Management

Getting Ready for Succession - Vision and Strategy

In my previous post, I talked about what firms need to do to get ready for succession management. This post covers the first step--creating a clear and shared sense of direction or vision for your firm.

Without a clear direction or vision for your business, how can you establish any coherent goals and objectives for succession planning or any other major initiative?

Without a clear direction or vision, you run the risk of being so opportunistic in your business management that everything looks like an opportunity to pursue regardless of how good it really might be or might not be for your business.

Without a clear direction or vision, you can waste a lot of time heading off in directions that really don't make sense for you, and it will be difficult to get everyone in the organization to stay on the same page.

Enough about what can happen without a clear direction and vision! What is a vision, and how do you create this direction or vision? A vision is simply a statement of what you perceive to be the unique, ideal future of your firm at some point in the future. It articulates briefly and succinctly how good it could be. It's not the same thing as a mission statement. A mission statement or statement of core purpose explains why you exist and what you do. It usually is accompanied by a statement of core values--the guiding principles that govern how you will behave as you carry out your mission. The vision answers the questions, "What will it be like in x years here?--How good could it be?"

Start with a scan of your environment--what's going on out there in your profession, in your marketplace(s) and your clients' marketplaces? What are the key external driving forces that could present either or both challenges or opportunities for you? Driving forces to consider probably would include demographics, regulation/legislation, the economy, and technology, to name a few.

Consider also what your firm brings to the table in terms of strengths and weaknesses, or internal driving forces. How does the marketplace perceive you? (Remember that we all tend to be a legend in our own minds--but what really counts is the perception of clients, prospects and referral sources.)

Given all of this food for thought, what should the firm focus on in the future, over the next three years, in terms of markets pursued and services offered? What will it be like for your clients who work with you and your staff? What does your growth look like? Answering these questions gets you to a vision. By looking at what the vision is compared to what you are doing now, you can identify those key areas (limit them to two to four in order to not spread yourselves too thin on change initiatives) you need to work on to achieve the vision.

Next, put together action plans and metrics, and create a budget with responsibility assignments. What has to be done, in what order/by when and by whom, to move you along the path toward the vision? What are the performance metrics you need to monitor to assure that the actions are resulting in outcomes you desire (how will you know if it's working)? What commitments must the firm make in terms of dollars and time to allow this to happen?

It's really pretty simple, but it takes some quality thinking and discussion to create a robust vision that is viable for your company.

CPA Firm Succession Management

Getting Ready for Succession

What are your exit plans? Do you plan on passing the torch internally? Or are you looking to merge into someone or sell out externally? Regardless of your favored option, you need to get your house in order. The practice will bring you the best return on your years of effort if it is positioned to allow the successor or successors to be profitable after your leave.

To begin to get ready for succession management, consider focusing on the following areas:
- Overall firm strategy and vision
- Business mdoel
- Management and governance
- Standardized procedures
- Developing your people
- Improving the bottom line

Each of the above areas must be considered and most likely will need some attention and investment of time and other resources to optimize your buy-out value. We'll be looking at each of these areas in subsequent posts.

Dom Cingoranelli
dom@successioninstitute.com

Question: How much client attrition can I expect after I merge or sell my practice?

Answer: It depends.

It depends on a variety of factors, not the least of which is your continuing level of involvement with the clients after the transaction. Additionally, it depends on what you've done as a seller after the transaction to try to jump start relationship building with the new firm. If it's a merger and you plan on retiring in two to three years, what will you and the new firm be doing to create a smooth transition of client relationships over that time period?

It also depends on the nature of your practice vis a vis the practice taking over the business. Do the two firms provide similar types of service offerings and similar levels of client service and attention, at similar rates? If you had your clients trained to expect their CPA to function as their trusted advisor, and the partners at the new firm just want to do taxes and accounting, this could be a problem for smooth transitions and retention. If your clients expect to pay significantly less than the new firm is charging, you can bet that this will limit client retention.

Similarly, how many of your people are staying with the practice after you leave? Familiar faces arguably bolster retention. Getting used to a new firm, new people, new rates and fees can be tough for clients. Before you make the decision to sell or merge, think about how compatible your practice is with the acquiring practice and what each party to the merger or sale will truly commit to in order to maximize client retention.

Succession planning is about so much more than just buy-sells and retirement policies. It goes to the heart of how you run your business. Well-run organizations should have little trouble with their succession management process.