Succession Planning Eases Transitions, Develops Leaders

In the midst of doing billable client work, one of the last things many partners or management committee members want to discuss is long-term, operational issues.

But the daily focus on serving clients and solving problems shouldn’t stop firm leaders from considering the firm’s future. That’s why succession planning is so important, not only to ease concerns of shareholders but also to prevent the worst-case scenario from happening – chaos, uncertainty and even the threat of a firm folding.

The biggest problem with succession planning is failing to have one, says Scott Cytron, owner of Cytron and Company in Dallas, a strategic marketing and communications firm. “The issue doesn’t take care of itself. Often the managers are more focused on billable hours because that is the world they live in.”

However, succession planning eases the transition after an upheaval, such as the death of the MP or a group of partners leaving to start a new firm or join a competitor, Cytron says. Firm professionals should understand who is running the firm and making the tough decisions since clients will often call the firm with questions in the aftermath of a major change.

Succession planning is also needed to develop future leaders of the organization, says Rita Keller, president and founder of Keller Advisors, LLC in Ohio. Too often CPA firm partners have the attitude that “no one can replace them,” but the reality is that the firm lacks a plan for mentoring associates or younger partners for more significant operational roles.

Partners should be mentoring at least two colleagues for more senior roles, Keller says. That should be one of a firm’s top strategies. More leadership training will naturally lead to more options for a smooth transition in the future. “One of the topics I discuss with some of my clients is that a partner’s compensation should be tied in some way to the number of quality people you recruit to the firm and how you take on the role of mentoring,” Keller says.

Leaders can work with individual CPAs to create goals in their own personal development plans for future management responsibilities. Over the last decade, more firms have used such leadership programs as the Rainmaker Academy and Upstream Academy, as well as programs through such professional organizations as the AICPA to help further develop associates and younger partners.

For those professionals who desire a possible role as a managing partner or member of a management committee, such goals should be written into these individual marketing or career plans years in advance, Keller said. “It’s a great way to keep your young leaders motivated and focused on firm needs.

Financial advisers and CPAs who have mapped out a succession plan typically lead their peers in revenue, profit and the amount of assets that they manage, a new study has found. Yet only about half of all advisers have developed even a rough plan for passing on their businesses to future owners, according to the 2012 Succession Planning Study by IN Adviser Solutions.

As part of the study, IN Adviser Solutions surveyed 404 advisers and found that 7% have executed a succession plan, 15% are ready to implement a plan and 28% are refining their plans. That leaves close to 44% of advisers who say they are planning to create a plan and 6% who are not even thinking about it yet.

A report titled, “CPA Firm Succession Planning: A Perfect Storm” authored by Marc Rosenberg, CPA, owner of The Rosenberg Associates, indicates that the issue of succession planning has become more crucial over the last few years.

According to the report:

“Before the (2008/2009) recession, the AICPA’s survey of firms’ top practice management issues consistently reported succession planning as the No. 1 area of concern. More recently, recessionrelated issues such as bringing in new clients, client retention and fee pressure have pushed succession planning back to No. 5, but most industry observers regard it as the No. 1 endemic problem in the profession. And it’s going to get worse before it gets better.”

According to the Rosenberg report the reason the problem is such an epidemic is based on several factors, including: aging partners, a shortage of talent, too few qualified accounting professors for the number of accounting majors, and what Rosenberg terms as a “fundamental flaw in firm management.” Partners are overloaded. “Devoting most of their attention to getting clients, keeping clients and performing client work, they lack the time and mental focus to develop people,” he writes. Rosenberg points to the number of firms that have folded or been acquired since the 1980s as evidence of this flaw.

One trend that Cytron sees becoming more relevant is having a non-traditional CEO/MP at the helm. Some firms will not have any interest in such a strategy, but a succession plan could include a non-CPA being a major part, or a leader, of a management committee. This can make sense because it naturally relieves such a managing partner of client account responsibilities.

“You can have an MP that is involved with the day-to-day operations and/or one who is focused on business development or client retention,” Cytron says, but “It’s really hard to do both. Keller doesn’t believe such a strategy is generally effective, saying the industry places high prestige on the CPA designation and so most would want a CPA in charge.

Even for firms that have a succession plan, they don’t update it as regularly as needed, Cytron says. The topic should be discussed annually. “You want to place someone at the helm who is responsible for bringing this topic up,” Cytron says. “You need to revisit it on a regular basis, even if the leadership hasn’t changed drastically over the year. You can control the process better if it is scheduled in.”

Another reason for an annual review is to keep up-and-coming leaders engaged and happy, Cytron says. “You want to keep your best people and give them an incentive such as becoming a partner and being involved in such decisions as succession planning.”

By MIKE SCOTT Special Writer