CPA Firms Are Not Good At Succession Planning: Why Is This?
Marc Rosenberg, CPA60-80% of local CPA firms never make it to the 2nd generation. A similar percentage of firms report that they do NOT have a written succession plan. Why is this?
For the record, a good succession plan addresses leadership development, training, transition of the MP, merging in smaller firms and lateral hires, transition of practice development & technical expertise and a current partner buyout plan (complete with younger partners willing and able to write the checks).
I would like your thoughts on this. Why do YOU think CPA firms are not very good at succession planning?
Post a comment and let me know!
Here’s what I think:
1. $354,000. This is the income per partner of multi-partner firms today. Until this is in jeopardy, succession planning won’t get the attention it needs.
2. Management know how. It takes highly capable, committed management to lead the succession planning charge. Many firms don’t have this talent.
3. Commitment to developing people isn’t nearly high enough. At most local firms, developing and mentoring staff plays a very minor role, at best, in allocating partner income. You get what you pay for.
4. Firms feel they can always merge up. Most partners feel that if their efforts to bring along younger partners fails, merging into a larger firm will always be a good fallback. The reality is that many firms will be sadly disappointed with their upward merger options.
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I think it’s even simpler then that. People in power have a hard time letting go of power. In order for succession to work. The older partner needs to let go of the power and control. That’s what makes succession so difficult.
Marc – I agree with your comments. I have helped a number of other professional service firms including CPAs and financial advisors and their lack of succession planning usually has very little to do with maintaining control/power as Jody’s comment indicates (although it can be one of the issues). Instead, I believe the lack of succession planning is driven by a lack of time, internal talent, and motivation. Its easier to put off succession planning until there is a problem, and at that point its usually too late or the firm/value suffers as a result. The upward merger/sale can be a good “Plan B” but is generally far less rewarding and actually produces a lower value in most cases (though it is usually a little less risky since you don’t have the issues around seller financing like you do on an internal succession plan).