In 2015, millennial workers surpassed Generation X as the largest generation in the workforce. As baby boomers and Gen Xers start to retire, nearly 80 million millennials are positioning themselves to move into leadership roles. However, not all accounting firms are ready to make the transition.

CPA succession planning has been on the back burner for many firms, according to the Association of International Certified Professional Accountants' (AICPA) 2016 PCPS Succession Survey, a joint project between AICPA's Private Companies Practice Section and the Succession Institute.

The Majority of Firms Lack Succession Plans

Of the multi-owner firms surveyed, only 44 percent reported having a written and approved succession plan in place. That's actually down 2 percent from 2012, when the last survey was conducted. While just over a quarter of firms plan to start succession planning within the next one to two years, 48 percent anticipate a succession planning challenge in the next one to five years.

Yet with goal-oriented millennials looking for ways to develop professionally and earn promotions, the time is ripe for accounting firms to identify future potential owners and leaders within their firms. This level of interest in looking to the future — coupled with the fact that 84 percent of the firms surveyed reported they expect succession planning challenges in the next five years — suggests it's time to make CPA succession planning a priority.

Who's Retiring When?

Part of the reason for the anticipated challenges, the respondents indicated, was that "a great number of partners are unwilling to give a final indication as to when they plan on retiring or if they plan to partially retire or fully retire." It's hard to begin grooming future leaders when it's unknown when they will be needed. AICPA recommends that firms may want to institute requirements regarding when retiring partners have to give formal notice, so that formal transition guidelines can be implemented.

While 65 percent of firms have no mandatory age for the sale of ownership or retirement for owners, those firms that do have a required age are delaying it. In 2012, 54 percent of firms required retirement at age 65. In 2016, that number had dropped to 45 percent, while required retirement at 66-69 and 70 rose a total of 9 percent. Firms seem to be buying time to determine who will take over key leadership roles.

Succession Strategies

As firms begin to plan for the future, one of the best first steps is asking retiring partners for suggestions regarding who might be best suited to take over their client relationships when they leave.

Identifying staff and training them for specific competencies is another smart first step that 53 percent of firms are now doing in order to develop future leaders.

Also consider creating a non-equity/income partner track to help transition millennials into ownership roles down the line. By providing the opportunity for them to participate in partner-level discussions, equity owners can get a better sense of the capabilities of younger workers, the report suggests.

While thorough succession planning may seem like it's taking precious time away from more urgent business tasks, it's necessary for long-term success and legacy.

Tags: Succession Planning Millennials Accounting