How Small Firms Can Live the Succession Process

While succession planning in CPA firms has received a lot of attention – even to the level of anxiety – for a very long time, not enough firms have figured it all out.

In fact, according to the 2020 Rosenberg Survey, only a little more than half of the firms surveyed of all sizes had a written, approved succession plan in place. That percentage is far lower in smaller firms.

The lack of succession planning is reaching a troubling proportion as Baby Boomer managers and owners look for comfortable ways to exit the working world. The AICPA predicted in 2018 that 75 percent of all CPAs would retire in the next 15 years. It’s clear that a large number of practices are on the verge (if not already there) of grappling with succession and staffing issues.

With or without planned exits for their owners, firms still need to focus on the health and sustainability of their practices by continuing to develop and retain leaders. After all, team members in management positions want to grow with new challenges.

If they can’t find those opportunities in-house, they will look elsewhere or a disengaged kind of unhappiness and potential paralysis will set in. You may even be targeted as a firm where strong team members can be poached.

A need for succession may not be unique, but successors are potentially unique. Improving the viability of a firm’s succession requires ingraining a process of succession into the firm’s culture and day-to-day operations. Here are three ways to live the succession process and help your firm create a path for sustainability.

1. Build Successors Early

The first step is to really understand your firm – its values, culture, and key client services. That base knowledge will help you identify future leaders that will bolster the unique success factors for your particular firm.

Also, decide how deep you want your succession plan to be. Do you need a structure for everyone in the firm, or just top leaders and other key roles?

Assemble a succession planning team with responsibilities, targets, and deadlines. This team may include outside advisers, mentors, and/or retired and retiring leaders. Make sure job descriptions are created for every role and that strategic goals are built into performance reviews, development plans, and compensation structure.

The earlier in a person’s career that they become involved in the business plan, decision-making, and rainmaking, the more likely that a pool of potential successors will form. No firm is too small or too large to start the process early.

2. Delegate to Specialists

Make sure partners and future partners are in roles that maximize their client-service potential and they aren’t too entrenched in roles that are better suited for firm managers, tech experts, marketing and business development professionals, and other specialized team roles. Be open to promoting a non-CPA to ownership, especially one with strong administrative and operational management skills. If you need to outsource specialized positions, do it.

3. Be Flexible

Be open to the possibility of flex- and part-time partners. Remote work and flexible schedules became normalized during the pandemic, and now most firms are open to thinking differently about all positions – and that should include partners.

For example, if an exiting owner was full-time with a giant chunk of client business, two part-time partners might make more sense as a replacement. Don’t be afraid to think creatively about your senior leadership needs and what may attract the best successor candidates.

An effective succession process must be integrated with the strategic and business plans. Practices of all sizes will be better positioned to perpetuate the firm by being much more disciplined about building a succession plan and being more open to new and different perspectives.

Sole practitioners should be open to growing into becoming a small firm by adding a partner or adding management roles to be stronger and deeper. All firms must continue to study trends, pivot, and recalibrate their team and service offerings.

All firms have common succession concerns, but each firm will have its own path. Define your process and be sure it is compelling. Much like other valuable achievements, getting there is not about the ease; it is about the discipline and the quality of the effort. Succession is a must. The viability of succession will be all about how well you live the process.

The original article appeared in the Pennsylvania CPA Journal, the official publication of the Pennsylvania Institute of CPAs.