insight magazine

Stop Planning and Start Living a Succession Lifestyle

Succession planning should be more than a last-minute search for a leader’s replacement; it should be an intrinsic part of the culture that firms practice every day. By Ira Rosenbloom, CPA (LR) | Digital Exclusive - 2021

CPA firms everywhere have been evolving into new and exciting engines of service and depth. This is due, in part, to innovative technology that enhances practices across the globe. To propel that evolution, the people part of the business—the talent management aspect—is even more critical and valuable to ensuring the perpetuity and security of CPA firms.

Talent and succession have always been issues that keep owners up at night. In fact, many accounting firms pursue merger and combination opportunities because they don’t have the people to take the firm forward. CPA firm partners and managers often say they had no succession plan, or they started too late. However, firms that can remain independent with a practice combination are able to do so, not because they had a plan in place, but because they have found ways to immerse their people in a succession culture and perpetuate succession throughout an employee’s career with their firm.

Perpetuate a Culture of Progress

Not every firm will have the same quality of succession culture, but all firms will be able to enhance their security and longevity if they focus their actions in a few strategic ways:

  • Creating a culture that promotes growth in skills, knowledge, responsibility, and leadership must come from the top leaders and owners.
  • Entry-level team members should be groomed for partner responsibilities on their first anniversary; people with four or more years’ experience should be groomed even sooner.
  • Job descriptions should be in place for every team member.
  • A clear path for growth must be defined for every team member, including a professional development plan that outlines what it takes to reach partner level. Of course, not all people are trying to reach that goal, and not all team members are cut out for those roles. The sooner the firm can determine what level employees are trying to reach, the easier it will be to direct their needs and manage progress for those in the leadership channel.
  • Firms with an operational leader (e.g., firm manager/administrator or chief operating officer) should update that job description every two to three years. Those leaders must be motivated to continue to grow and adapt to changing circumstances. Bonuses and other incentives may help fuel performance success—and those rewards, in turn, can also take administrative pressure off partners, which will strengthen the team even more.
  • Be transparent. Partner job descriptions should be common knowledge, and partners should feel free to discuss the highs and lows of being an owner or partner. Grooming talent and improving teamwork in everyone’s responsibility.

Examine Market Intelligence

An effective succession culture must continually look both internally and externally. Recognize the needs and concerns of your clients and potential clients, as those expectations will impact the way you build your professional profile and the skills you need to deliver. Survey your clients, examine findings, and be ready to respond to trends and needs. While the work of many CPA firms is primarily compliance-based, even the most traditional clients expect added value, security, and other services from their accounting firm.

Evaluate your team to make sure you are staffed correctly with the right skills and personalities to meet client needs.

Understand your competition. Are some competitors more attractive to your current staff and clients? Why? You may need to change direction to keep your talent in place. Are you aware of competitors who seem to be lagging, and thus, at risk of losing talent that you may want to pursue? Keeping a pulse on what’s happening outside your walls can help fuel your succession culture.

Manage and Facilitate Leadership Change

There are several reasons—planned and unplanned—that top leaders may stop performing their roles and exit. Three of the most common change scenarios are traditional retirement, managing partner turnover, and sudden retirement. Those would be best addressed as follows:

Traditional retirement: When accountants retire, it is important to handle the transition thoughtfully to maintain client trust and service. The right successor should be identified well before the retirement date and introduced by the retiree to the client for smoother transition. Having time—as much as three to five years—to build those relationships creates better outcomes. Plan out client interactions with agendas, including an agreed-upon number of client interactions. Document what takes place, including feedback and necessary follow-up. Create an action plan for those clients. You may want to maintain the current billing structure for a time to minimize impact.

Managing partner turnover: Most firms have a process to elect a managing partner, but few plan for turnover in that role. As a start, update the managing partner job description at least every two years and analyze the functions performed in that position. This will help ensure consensus on what it takes to lead the firm. In addition, set term limits to the job description if you haven’t already done so. Setting a term for the managing partner role will help potential successors see that there may be an opening for them to advance. You may wish to form a committee to handle the process for turnover and/or hire an outside expert to help. It will take time to make worth candidates comfortable stepping into the role, and time for the current managing partner to comfortably navigate away. Make sure that time is allotted, and that time for any necessary coaching and mentoring is appropriately planned.

Sudden and unexpected transitions: Many businesses plan for natural disasters or other severe external events, but how many plan for an internal crisis, such as the death or disability of a firm leader? A practice continuation agreement (PCA) is an arrangement—either temporary or longer term—through which another firm or leader steps in to ensure service continuity in unsettling times. A PCA, typically created by a consultant and documented by an attorney, is especially helpful in small- to mid-sized firms where there aren’t enough people or skills to cover for an absent leader. A PCA should be tested periodically, much like a fire drill or burglar alarm. Firms should check in to make sure both (or all) parties are still interested and can still meet client service requirements.

Succession as the Pulse of the Firm

Building a solid succession culture doesn’t happen overnight; it is a process that must live 365 days a year. Be disciplined about your succession approach, and make sure it is integrated with you overall strategic and business plans. Monitor efforts quarterly, and review the overall succession plan every two years at minimum. Gather feedback from influential sources inside and outside the firm. Continue to study trends and be ready to recalibrate your team and service offerings. Follow other business best practices, which include being structured while also being open to new and different perspectives. Find out how other companies tackle and succeed at succession—and how they succeed in general.

Don’t let the size of your firm distract you from thinking about succession strategies. Start building that stronger and deeper talent pool no matter how many people you currently have. If you are a sole practitioner, condition yourself to start thinking and operating like a small firm. Add a partner or another management role as a first step—or simply start to build a succession mindset to plan out how your practice will continue in the future.

You don’t have to map out an answer to every what-if scenario. Be prepared, however, to handle common situations, and be ready to navigate through the scenarios you can predict, such as inevitable leadership change, and consider other common scenarios that can pop up when you least expect them. It may not be easy to conquer, but succession is a must. Every firm has staffing and succession concerns, and each firm has its own path. Define what succession means at and to your firm—and make sure it is reasonable and sustainable. Getting to live the succession lifestyle comes with discipline and the quality of effort you put into it. Live the succession process and the rewards will emerge.

Ira Rosenbloom, CPA (LR), is the chief operating executive of Optimum Strategies and regularly contributes to accounting industry publications and events as an author and speaker. Contact him at [email protected]. This article is reprinted with permission by the Massachusetts Society of CPAs.

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