Every CPA firm should have a succession plan. Not only will it help ensure that your clients and staff are taken care of when you retire, it can also help you get the highest possible payout for all your years of hard work.
Only 28 percent of CPA firms have a succession plan, according to the National Society of Accounting. While this number is low, it's also understandable; succession planning for CPA firms can take a back seat when you're busy managing a full schedule of day-to-day work. However, not having a succession plan could create serious problems down the road, particularly if you need to leave your firm earlier than expected.
The following four steps can help master succession planning for CPA firms.
1. Start Planning Early
Being proactive and starting early will give you more time to prepare your clients and staff for the eventual transition. It also gives you time to increase the value of the firm. Preparing for the future can even increase your income today because you may find ways to increase your billings. Some consultants may be willing to give you a free evaluation on how to best increase your firm's value, which can help you kick-start your planning.
2. Increase Your Firm's Value
As you prepare to sell or transfer your firm in the future, your goal should be to increase the firm's value now and make it as attractive as possible to potential buyers. Think about your core competencies and highest-margin services. Try to focus on these services as much as possible while minimizing the time you spend on less profitable work.
3. Consider Selling in Stages
You may get a better deal if you sell your firm in stages rather than transferring the entire firm all at once. For example, it may be a good choice to sell your payroll client base separately. Not all CPA firms handle payroll, so offering this service could turn off some buyers.
Additionally, you may be able to get a better price if you sell your payroll client base to a payroll specialist rather than to another accounting firm. A payroll portfolio generally sells at a higher multiple when it is sold independently than when it is combined with the rest of a firm's portfolio.
Finally, since payroll is such a time-consuming task, selling this part of your business could also free up time for more profitable work. Lewis Andrews of Andrews & Company found that partnering with ADP for payroll gave him back the time he needed to build his business. "ADP made it so I could go on to do the things I wanted to do and increase my growth by 40 percent in just this past year," he reports.
4. Get Help From a Professional
Getting professional help with your succession planning is always a smart idea. There are CPAs and other financial professionals who specialize in advising CPA firms on their succession plans. Organizations such as the American Institute of CPAs also offer online guides and networking opportunities where you can connect with other CPAs who may be interested in your firm.
Succession planning for CPA firms has to be a priority. By following these steps, you may be able to improve your profitability while preparing your firm for a bright future.
For more information on succession planning, check out ADP’s free strategy brief, “3 Myths for Succession Planning for Accounting Firms.”