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By Suzanne M. Holl, CPA

No one likes to think about it, but as we age the prospect of “something happening” to us only grows. What would happen to our clients in such a scenario? Damage to a client’s business is a big risk exposure that comes into play when a CPA becomes ill or disabled. CPAs who have not yet taken the time to develop a continuation plan are inviting future lawsuits against themselves or their estates and leaving their spouses, families, and heirs with the daunting task of trying to figure out what to do.

The best time to plan for a crisis is before it happens. Just taking the first steps in the planning process can go a long way toward facilitating the continuation of your practice, making sure clients are taken care of, and preserving the value of the practice. There are numerous articles and professional advisers that can help you along the way, but in this blog I’ll provide some basic tips on how to get a plan started.

Create a checklist of important resources and phone numbers

As you draw up this list, be sure to include your professional liability insurance carrier, the state board of accountancy, and your state and local CPA societies. Other important contacts may include your office building manager, technical computer help, telephone service, and other utilities.

Assemble a set of practice and operating documents

These documents can be divided into sections:

• A profile of the business, including types of services offered, names of key employees, location of accounting records, bank account information, and location of contracts and lease agreements.
• A client list, including key contacts, services provided, and important deadlines. This will need to be much more detailed if you are interested in the option of negotiating a buy/sell agreement as part of a contingency plan.
• Procedures used to monitor work in progress. This will enable others to determine the status of uncompleted work.
• A guide to using the firm’s computers.
• Location of work papers.
• Description of filing system.
• Office procedures for handling the receipt and return of client information.
• Billing schedules and collection policies.
• Procedures for identifying and paying accounts payable.
• Location of personnel files.

Decide on a continuation arrangement/agreement

One option is the one-to-one agreement with a local CPA firm that you have identified as a good fit with your firm. The agreement between the firms should cover the critical areas that are necessary to ensure a smooth transition (both short-term and long-term) if it becomes necessary. The agreement usually has a buy/sell component with a clear formula for calculating the sales price of the firm, along with payment period and terms in the event of the CPA’s permanent disability or death.

You may also want to consider a group agreement in which several CPAs may act as successors/partners to each other’s firms. CPA firm alliances may serve this purpose among its other offerings.

A variety of elements can be addressed in a continuation agreement, providing for a number of conditions and terms. Consult with an attorney when drafting a formal contract. The agreement can include the following details:

• Prescribe the circumstances under which assistance will be triggered (e.g., long-term or permanent disability, or leave of absence).
• Specify a temporary timeframe. If the agreement addresses temporary disability versus permanent disability, definitions of the covered disabilities under the agreement should be included. Other applicable provisions, including client transition requirements, should be addressed in the event that a permanent replacement of the CPA who is unable to work is required. Keep in mind, though, that people can be disabled for several months and still make a return to full-time work. Therefore, you may want to consider a buy-back provision in the agreement.
• Describe the responsibilities to be performed by the assisting party, including financial terms or compensation for assistance, and provisions for billing, collection, record retention, confidentiality, and noncompete and restrictive covenants.

Identify, approach, and partner with the suitable

To find good matches, network among good sources of referrals. The best organization for this kind of networking is often a CPA society. Other sources include bankers, attorneys, and community groups.

Some CPA sole practitioner groups meet to discuss their businesses and get to know each other. Some groups work together over a period of many years, enabling members to develop a high level of trust with each other and with their firms’ employees in case one of the CPAs needs to temporarily take over for another.

Practices that have certain niches or specialties will need potential stand-ins who have similar competencies, which may include special licenses. Another factor is whether a replacement CPA will be able to dedicate enough time to perform the role that the absent CPA had performed.

Implement the plan

Contact your attorney to draft any agreements required by a plan. Discuss the plan with your spouse and successor/partner. Communicate in writing the instructions for all parties, and set up dates for annual reviews of the plan.

The worst time to craft notifications to clients is during a crisis. Prepare template notifications and referral sources ahead of time. Also, there’s a chance that the CPA being replaced will not be available for guidance during a crisis, so the CPA who is stepping in must be well apprised beforehand of as much information as possible.

Major goals for practice continuation planning include avoiding losses of clients, keeping them happy, and allaying their fears about changes in service and operations. An organized transition that is well communicated to clients is a big step toward attaining those goals.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

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