Looking ahead: too often, CPAs ignore their own succession planning advice.

• Author: Karp, Jonathan A.
• Position: SUCCESSIONPLANNING

It's a sad, but true fact: most CPAs treat succession planning for their own practices the same way the cobblers treat their barefoot children: While they advise clients of the importance of succession planning for their businesses, far too many CPAs have ignored their own advice for their own practices.

In fact, only 20 percent of firms facing succession issues in the next five years have addressed these issues, according to a recent AICPA survey.

And as more CPAs near retirement age, they are realizing that they haven't planned how to convert one of their most valuable assets into cash. Further, CPAs who fail to plan in advance and start trying to sell their practice in the year they want to retire are often dissatisfied with the results.

This article provides an overview of the succession planning process and discusses issues that CPAs must address.

BEGIN AT THE BEGINNING

Your clients often ask you how early they need to start planning for the sale of their businesses and how to prepare their businesses for sale. You respond that planning for the sale or disposition of the business should occur at the time the business is formed, when the type of entity for the business is chosen. This same advice applies to a CPA's practice.

You advise your clients that very few buyers want to buy a business' stock, preferring buying assets to minimize their exposure to the selling entity's potential liabilities and to gain tax advantages. The same wisdom applies to accounting practices. What buyer wants to purchase the stock of an accountancy corporation and assume liability for claims against the selling entity, such as malpractice or employment-based claims?

Thus, as part of this early planning, CPAs setting up a practice should consider organizing it as an S corp or LLP to facilitate asset sales, maximize flexibility and avoid adverse tax consequences.

At least three years before any planned sale, the selling firm should start preparing for the buyer's due diligence. Careful buyers will review books and records, malpractice claims history, client files, financial information, retirement plans, practice policies and procedures, and all contracts, including leases, employment agreements and policy manuals, to identify and correct any possible issues and problems.

IMPORTANCE OF DUE DILIGENCE

Due diligence often occurs after the buyer and seller have agreed upon price and payment terms. The buyer will then conduct its due diligence to ensure that there...