As they approach retirement age, accountants face questions over what to do with their practices. Along with finding qualified people to work in their firms, succession planning is one of the top issues facing accountants today. The two problems go hand in hand if there are no younger accountants willing to take on partnership and managerial roles. Who will carry on a firm’s business after the senior partners leave? “Succession becomes a problem if there is nobody coming up behind you,” said Mark H. Fowler, a management consultant to accounting firms and himself a CPA. “Who is there to succeed?” Accounting firms may dish out advice on planning for the future but are not so good at doing the same for themselves, industry observers say. Succession planning can give peace of mind to the retiring partner, ensure long-term success of a practice and protect staff. A 2004 study of 500 practices by the private companies practice section of the American Institute of CPAs found that 81 percent had no documented succession plan in writing. The same study revealed that 74 percent of the practices predicted at least one member of their staff would retire in the next five years. Succession comes in three ways internal in which a firm develops and trains the junior staff who buy out the senior partners and continue the firm; external in which a firm is acquired or merged with another firm; and not doing anything at all and allowing a firm to dissolve upon the death of the key partners. Sole practitioners and partners in smaller firms tend to lean toward the external route because there are no partners qualified enough or desirous to want to buy out the retiring partners, said Jonathan Karp, an attorney representing accounting firms in succession planning. Consolidation among CPA firms has been healthy in the past year, especially among mid-size firms. Fowler is currently brokering a merger deal between a South Bay firm and a Valley firm. In January, Hecox, Horn & Wheeler merged with Kellogg & Andelson Accountancy Corp. in Sherman Oaks resulting in partner Nancy Chandler becoming a senior vice president at the new firm. The merger took place because one partner at Hecox, Horn had retired and the other partner was preparing to do the same and an internal succession plan was not possible because of a lack of qualified accountants to hire, Chandler said. Different climate “The old model of bringing people in and moving them up to manager and partner is not happening as much as it was,” Chandler said. At Kellogg, Chandler continues to work with the clients she brought over from Hecox, Horn and transitioned the business management, audit and tax work into those practice areas at Kellogg. Ideally, when these mergers take place, said Fowler, the acquired firm brings something in terms of location, people and niche practice areas. Without those three criteria Fowler will not complete the deal because if a firm is looking to merge in another practice just for the sake of it, internal growth by hiring new staff is more cost effective. “You need to look for opportunities that really add value,” Fowler said. Kellogg President and CEO Christian Payne came to that firm as a result of an acquisition and now guides the firm as it actively seeks to buy out smaller firms doing basic tax and bookkeeping work. The firm is looking to grow and acquisitions are an efficient way to do it, Payne said. He does recognize there are firms out there with partners and managers nearing retirement age and a merger with Kellogg is an alternative for what to do with their practice, Payne said. “The business is great,” Payne said. “There is plenty of demand and not a whole lot of supply (of accountants).” The process of selling a firm can take up to 18 months, said Fowler, who compares it to selling a home. Karp recommends that correcting any problems with a firm begin at least three years before a planned sale. If no preparation is done it may be because the partners don’t believe there is any value in their firm. Karp told of one set of accountants he met with who declared they wouldn’t sell their practice at all and they would die at their desks. That approach is fraught with problems. “If they wait too long the practice is un-saleable,” Karp said.
