It goes without saying that if a CPA firm – or any business – ignores its clients, they’ll simply go away. This holds true for your practice now and at retirement. Unfortunately, too many firms are not putting enough effort into transitioning their clients when the practice leader retires.

In a recent succession planning study by PCPS (Private Companies Practice Section), the AICPA’s alliance for firms, 36 percent of the nearly 500 practices surveyed said they did not have any owners retiring within the next five years, so they were not addressing client transition. However, experts recommend that five years is the minimum amount of time needed to mentor a potential leader and ensure the smooth transfer of clients.

Among the practices that were addressing client transition, 35 percent asked retiring partners to begin transferring clients two to three years before their departure. Another 21 percent did not request any transition efforts until about one year before the partners’ retirement. This short time frame leaves few opportunities for new leaders to get to know clients and their engagements, increasing the possibility that the firm will lose clients. Virtually no firms – only 1 percent – paid departing owners for clients transferred or financially penalized them for refraining from reassigning a specific number of clients within a set period.

The problem with failing to prepare for this transfer, or work it into a broader succession plan, goes beyond client loss. If your firm loses so much business after your retirement, death or possible disablement that it eventually closes, your retirement fund could end with it. A smooth client transition will help to shield you and your family’s assets by preventing this decline, while possibly even raising the firm’s value as business increases.

When creating a succession plan for your firm, consider these practical guidelines for a successful client transition.

• Be sure to ask yourself these questions: When and how will the managing partner and other executives give up control over major clients and engagements? How will younger staff get involved with the business your firm is currently attracting? Have you defined retirement, including whether it involves consulting work by retiring partners on an as-needed basis and what kind of client contact they will have? Will retirees continue to represent the firm to the public? How can the practice encourage the owner and other partners to provide staff with client contact? What other client transition policies should your plan include?
• Set a mandatory retirement age and stick to it. While it can be difficult to ask firm leaders to retire at a certain time, practice management experts agree that this step is crucial to the health of any firm. It not only assures future leaders that they can count on taking control at a set point, but also makes client transition easier.
• Chart your firm’s skill sets. What are your staff's talent and experience? Do they practice and reflect the firm’s strategic goals? In other words, do you have or are you developing the proper staff to support current and future client needs?
• Get partners actively involved. Many firms avoid this step because partners want to maintain their client relationships. While this may seem prudent in the short run, it’s not a practical long-term policy. The practice will stagnate if younger CPAs aren’t introduced to existing clients and taught how to bring in new ones. If it turns out younger staff are unskilled at building those relationships, it’s better you learn that early than in the last months before a partner retires.

For more information on succession planning, check out the following resources:

• Preparing for Transition: The State of Succession Planning and How to Handle the Process in Your Firm, a free PCPS white paper, and other complimentary resources available at the PCPS Firm Practice Center(pcps.aicpa.org/Resources/Succession+Planning).
• Securing the Future: Building a Succession Plan for Your Firm, a book written by Bill Reeb, CPA, and issued by PCPS (pcps.aicpa.org/Products; click the “Member Discounts” button and scroll toward the bottom of the first table).

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