Winning Continuity Plans for Owners, Clients, and Successors

CPA firm owners, especially those of smaller firms with 15 or fewer team members, are often challenged by the prospects of succession and practice continuity.

According to the AICPA’s CPA Firm Succession Planning Survey, 73% of firms expect succession challenges in the next 10 years. More than half (55%) were already facing them at the time the survey was last conducted in 2020. Fifty-seven percent of firms had no written and approved succession plan in place. Small-firm owners in particular are at risk when prolonged illness, death, or competition is at hand. Strong practices deserve a chance at continuity.

No matter the circumstances in the marketplace, successful practice continuity is dependent on making three parties happy: clients, firm owners, and the next set of owners, successors, or protectors. This column provides a few options to establish a framework for a win for all three parties.

Practice Continuation Agreements

A practice continuation agreement (PCA) is one way to manage unforeseen circumstances, such as the illness, disability, or death of a firm owner.

Typically structured by a consultant and documented by an attorney, a PCA is an agreement with another firm or valued employee (or employees) who agrees to step in to ensure client service consistency and competency. This agreement also creates security for the team members.

Finding the right match for a PCA is critical, so outlining the terms of an agreement must be precise. The compensation for such a protector needs to be fair to both sides.

The responsibilities and limitations of services when temporarily provided must be delineated, and the expansion of responsibilities if the role becomes permanent must be agreed to as well. The PCA will also provide for the terms of a purchase should there be a death or permanent disability.

While it is hoped that a PCA will not need to be triggered, it is beneficial to collaborate to build confidence in the compatibility of the firms and processes. The protector will commonly ask for the right of first refusal to acquire the firm if the owner looks to sell ahead of an activation. The win for the protector is the collaborative discovery and the option to buy.

The existence of a PCA will also be a win for clients of the firm because it provides security under stress. They don’t have to find a new CPA or wonder if the successor firm could do the work.

The win for a firm under stress is the security of having a protector in the wings. In the event of a death or disability, the family will not have to scurry for help.

When planned and effectuated properly, PCAs can be a win for all parties.

Strategic Collaboration

Smaller firms have business vulnerabilities when it comes to services they can’t provide. Loss of major clients or poor conversions will put these firms under pressure and impact continuity.

Entering a strategic collaboration arrangement with firms that offer more comprehensive services – or ones that have a different niche focus – will combat continuity vulnerability.

These arrangements are typically for firms that are not ready to merge but realize they can benefit from an alliance. Collaborative activities must be protected with noncompete and no-solicitation restrictions. A larger firm may benefit from collaborating with a smaller practice for price-sensitive or specific niche services.

When collaborations work well, again you will have three winners. Clients win because they have access to more services through their CPA’s strategic relationships. The firms in collaboration win because more revenue is generated for the provider and the referring firm can gain access to more resources.

While these alliances are rooted in the business at hand, they provide staff members with a level of familiarity, comfort, and trust that may be the basis for a more formal transition in the future.

Office Sharing

Firms may simply agree to share space in the same office, which can be particularly beneficial in this era of remote work. Yes, a shared office offers a way to split expenses, but many office-sharing situations are a stepping stone to a strategic collaboration. Firms that know each other well are inclined to be strong collaborators.

The advantages to clients are similar to a strategic collaboration, but there are also cost savings added to the mix. It provides the same kind of familiarity and comfort, and it gives both firms a deeper understanding of strengths, work ethic, client service, and more.

Make a Plan

Perpetuating a practice – even the best managed business – is not simple. Planning ahead and orchestrating viable arrangements for the protection and security of the firm is strategically smart.

Some owners will be fortunate to find a merger under no real stress. Others will find themselves in situations entangled with stress. Still others will encounter merger candidates that are not good at all.

There is no single solution. Firm owners must find the path that makes sense to themselves and their firms, and then take actions to implement arrangements that will be a win for everyone involved.