Has your firm got what it takes for a successful succession?

• Author: Sinkin, Joel
• Position: MAKING THE TRANSITION

With the aging of the baby boomers, succession is on the radar screen for most accounting firms. According to the PCPS 2008 Succession Survey, 63% of multipartner firms expected at least one partner to retire within five years, with over half saying more than one partner will retire. A total of 65% of the sole owners were more than 55 years old. The majority of these firms hope to transition their clients and ownership internally to other partners or experienced staff members. But how do you know whether that transition will work or whether it will be necessary to take on new outside partners or turn to another firm for a merger or similar arrangement?

[ILLUSTRATION OMITTED]

Who Will Do the Work?

The first litmus test we use is that of capacity. Recently I met with the leaders of a five-partner firm that has two partners seeking to reduce their time commitment over the next two to three years, another who wants to begin cutting back in five to six years and two remaining partners who are very young. Their plan was to transition most of the client relationships to other partners and potentially promote two staff. The first problem we discussed was capacity. The three partners nearing retirement (who plan to remain on part time for additional years) each devote approximately 2,200 total hours annually. They estimated that approximately 70% was chargeable. Given those numbers, I suggested they needed to consider whether their current structure was prepared to replace 6,600 total partner level hours and over 4,600 partner level chargeable hours. Weren't the other two younger partners already working full time, as were other staff members? If so, who would take on this significant amount of work? Firms need to realistically assess their ability to push down enough work to absorb the responsibilities of the partners retiring from full time.

Making the Right Fit

Another consideration is the roles performed by the partners or even critical staff who are nearing retirement. Many firms want to promote the rainmaker, but we need to remember that a good succession plan replaces the role, not the body! If the partner slowing down is the quality control or administrative partner, does it make sense to take the rainmaker away from what they do best and install them in this role? When planning on succession, it's critical to understand the time commitment and function of the partners being replaced. We're not simply filling a slot, but replacing talents...