Succession Dilemma for Accounting Practices
The boomer populations of CPAs and accounting practice principals have started exiting their practice entities but find little hope in the traditional succession practices of the industry. Historically, senior partners inside of larger CPA firms or accounting practice firms have used a succession planning method to exit. A business broker can help you develop an effective succession planning method. In this method, young college grads, industry CPAs and existing minority partners buy into the firm’s ownership. When there are enough buyers/partners and large enough buy-ins, the senior partners can assume lower levels of responsibility and ultimately exit from the firm. There are a few significant problems that arise in this method.
- There are fewer accounting graduates that are opting to work for larger accounting firms and most do not want to work for one of the largest. There are simply fewer entrants into the public accounting field and senior partners can no longer count on the traditional succession process. With the new challenges, these firms are beginning to look for other alternatives to succession, as they are now ready to retire.
- The existing partners are aging as well and often do not want to spend their cash to buy into larger levels, so the older principal can retire.
- Younger professionals are very different from the senior partners desiring retirement. This younger generation has different ideas for how they will experience life and have larger desires to experience the world than to make their way to the top of an accounting firm. These younger professionals will not let work become a priority for them, but will spend substantial time and resources to balance their home/work life.
- These younger professionals also are more outsourcing, technology and efficiency minded as they have grown up in the technology age and they may have very different ideas about how a firm should be run. These professionals will gauge how the firm is positioned for the next 20 years before they sink their money into practices that have not made the transition to technology.
- The clients of older firms are often older as well. The significant relationships are generally long-time clients who are close to selling their own companies as they look to retire. These folks may not like the new methods of doing business through technology.
With this in mind, some firms are choosing to merge with (like minded) larger firms, which will give them some cash out now, but will give them a multiple year exit strategy after the transition is complete. In these transactions, the selling firm receives shares of the buying firm’s entity that are valued through a third-party valuation company as well as some cash. They then become an active partner in the new firm and are paid out through ongoing profits of the combined firm over a period of time. These agreements are generally 3-7 years, but require adequate planning and a principal willing to work for a number of years into the future.
Others are searching out specialty brokers who bring buyers and sellers together in a specific industry. These brokers often have a real understanding of the market dynamics of the buy/sell environment within the accounting and tax industry and may actually know of larger entities that are currently looking to buy or merge. Introducing these firms with plenty of time to get to know each other is important, as is the development of a robust transition plan. Third-party sales can take a number of different structures and payouts as well as risk and reward structures including the merger listed above. If you are going this route, make sure to find a qualified specialist in the accounting practice industry to help you. Berkshire Business Sales and Acquisitions (www.berkshirebsa.com) have tremendous experience in selling and merging both large and small accounting firms and CPA firms in the Arizona market.