Lack of Succession is a Major Issue

There are three types of succession plans firm deploy. The industry statistics vary, but for the most part succession planning is not something widely addressed to the level it needs to be.

  1. Well Documented. 30% of the firms use this approach. A plan was created that is well thought through, typed up, and sits on the shelf until next year’s partner retreat.
  2. Zero Based Strategies. 50% of firms deploy this strategy. Zero based plans are code for they have done nothing and have no thoughts on what they are going to do.
  3. Functional Ones. 20% of firms use this approach. These are plans with quarterly reviews, support teams, training, and investment in the people identified as succession candidates.

The Impact and How Impaired Leverage is Fueling Problems

The Impact. We estimate 80% of firms do not have a functional succession plan. We derive that estimate from daily communications with firms of all size. If an internal succession is not actively under development, a firm’s only option will be to merge upward or sell. This becomes very apparent to your staff and contributes to turnover, impacts recruiting, and puts a firm’s value at risk.

Impaired Leverage. This is the lack of professionals who can develop business. The average impaired leverage is 5%. Take a 60-person firm. They may have 50 accounting professionals from staff to partners. The average number who can sell is 2-3 of them. A high performing firm does not translate to having professionals capable of selling. Resolving impaired leverage is key to succession. A firm needs a team who can replace the retiring rainmakers.

Significant Contributing Succession Factors

  • Non-funded retirement accounts
  • A lack of younger professionals wanting to own
  • The impaired leverage situation
  • Concerns about automation shrinking CPA firm revenues
  • A lack of movement by a firm to deliver more advisory services
  • Inactivity by firm leadership that demonstrates progressive thinking

Evaluate Your Succession Strategy at No-Cost

Let us invest an hour of our time to provide you twenty plus years of CPA growth, succession, and M&A experience. The worst case is you receive confirmation that your plan makes sense.

Two Key Parting Points

  1. Preparation. Buyers are third parties or your succession team. They want an asset that is a good investment and will pay what they feel the firm is worth.
  2. The Succession “Fantasy”. The fantasy of finding the young professional to groom. If they are not already on board and being trained, you will not find a qualified succession partner unless you merge one in.