The numbers are shocking! An AICPA Private Companies Practice Section (PCPS) study shows that 60 percent of the CPA firms surveyed have owners between ages 55 and 62. In addition, 74 percent of these practices predicted that at least one of their staff members will retire in the next five years, according to the 2004 study. This study from PCPS, the AICPA’s alliance for firms, surveyed nearly 500 practices to understand how they’re handling succession planning.

Here, though, is the real shocker: 81 percent of the firms said they had no documented succession plan in writing. A worrisome figure, considering that the expected massive transfer of management could profoundly impact firms of all sizes. Not only is the number of retiring baby-boomer CPAs expected to soar, but with so little succession planning now, the next 10 years may see a shortage in management
staff and a likely buyers’ market for firms that must sell out to survive.

Fortunately, PCPS research indicates that firms are not oblivious to the trouble on the horizon. Over several years, the Survey of Top 5 Practice Management Issues has shown succession planning to be among firms’ biggest concerns. Additionally, the previously discussed study reveals that 62 percent believe succession planning will be a significant issue for them in the near future, with most practices stating they would face challenges with this issue before 2015. Of the total, 28 percent expected the need to address succession in five to 10 years, 18 percent in three to five and 14 percent in one to three. Along with that, 10 percent were in the midst of succession planning challenges, 16 percent did not expect challenges for a decade or more, and only 14 percent did not believe any issues in this area would be a problem.

At the same time, few practices have actually begun work in this arena. Fifty percent of those without a succession planning process stated they intended to start it soon, and 22 percent did not even see the need for one. A scant
23 percent indicated they had begun a plan and expected to complete it soon, while five percent had completed one but had yet to get it approved by others at their firm.

Why is succession planning so important?
Besides preventing the possible management shortage and buyers’ market for firms, such plans aid in a leader’s smooth transition to retirement and the long-term success for a practice of any size, building its strength and ultimately protecting its largest asset on the balance sheet: its staff.

Also, for smaller practices, if they lose a partner or other key player, they may feel the loss more keenly than a larger firm. With fewer people, smaller firms have more difficulty filling leadership roles, especially if such practices haven’t prepared or trained well in advance.

Beyond that, the importance of succession planning is about more than just finding the right person to take over. It’s also about always operating effectively in all aspects of your business, from marketing to strategy and management to grooming and training staff for leadership, thereby not only extending your firm’s life but also increasing its value.

So how can your firm begin tackling succession? Try these guidelines to start the process:

Each firm will have its own set of issues to address, but this list provides a draft outline for an initial written plan. For each strategic area, a practice can add its own questions, like the ones above, until it has a list of topics to discuss. Then that firm can begin to form its own answers to all of these questions. Once the answers are formulated and set in writing, they become a firm’s written succession plan.

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

• Preparing for Transition: The State of Succession Planning and How to Handle the Process in Your Firm, a free white paper available from the PCPS web site, select valuable information and resources,
  then Succession Planning. Other free resources are also available.
• Securing the Future: Building a Succession Plan for Your Firm, a book written by Bill Reeb, CPA, and issued by PCPS (http://pcps.aicpa.org/products;
  press the “Member Discounts” button, and scroll toward the bottom of the “AICPA Practice Management Publications” column).

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