Succession Planning For Accounting Firms

Joel SinkinAccounting Transition Advisors

Accounting Transition AdvisorsAbout the firm:• Merger and transition advisors exclusively serving the

accounting industry• Customized solutions• Over 950 transactions, over 18 years of experience• Represent the buyer or seller• Services include:

Buyer-seller introductions Merger and acquisition transaction structure Document preparation/review, valuation and due diligence Post-transaction business planning General consulting and coaching

If there are 50 things you need to think about in a transaction…….

……the smartest of us will think of only 35

Why is Activity So High?Competition

Staffing

Technology

Niche Development

Aging of the partners/staff

The economy

Three Ways to Grow

One client at a time

Develop marketable niches

Merge or acquire another firm

Starting the Transition ProcessWhen should we start?

How many more tax seasons doyou want to work?

Client “face time”

Investments including technology, leases, staff

Start succession process during establishment of new firm and partnership agreements are in draft

How Do You Find a Candidate? Advertising

Networking

Direct Mail

Outside consultant or broker

Internal search

Is Your Successor Ready? Do you know……….

……why the other firm wants to merge?

....... the staffing situation/excess capacity?

…… their physical space requirements?

…… current technology and equipment?

…… financial strength or issues?

Bigger is not always better!

How to Select a SuccessorSpecialties that you offer that they would need to understand

Size of successor, retention rates and excess capacity

Billing rates/ Professional credentials Location(s)

Culture

How to Select a SuccessorFinancial strength

Professional/staffing strength

Ethnic/language considerations

Longevity of partners

Employee track record

What is the Seller Thinking?

“I am irreplaceable”

“I am MASTER of my owndomain!”

“Clients NEED me”

“If I retire, I’ll die!”

Sales – Internal v. ExternalInternal Sales

•Almost always go for less•Often no retention period•Death, disability and penalty buyouts•Remaining partners making more•Non multiple formulas on gross are more common•Accounts Receivable & WIP

External sales are more of a “business” deal and go for high dollars

Sales – Internal v. ExternalThings to be wary of…………

•Multiple partners, leaving simultaneously

•Partners reducing time commitment, but not income or control

•Replace the role, not the body

•Cannot replace the administrator with a “Rainmaker”

•Must have excess capacity

•Partnership agreements (check them annually)

Attracting the Best Talent

WANTED: Smart, energetic, hardworking,client-focused, future thinking,flexible professionals to join our fabulous firm!

Pointers for Finding TalentYou can’t attract talent with empty offices

Quality of life issues are important

Reward the Rainmaker

Need staff to do the work

Leadership qualities

Sweat equity should count!

Baby boomer crisis looms ahead

MERGERS FOR SUCCESSION

•Two Stage Deals▫Concept is remain whole in compensation,

remain in control while commencing transition

▫Structure▫Case Study Example▫Built in practice continuation agreements

Do Practice Continuation Agreements work

MERGERS FOR SUCCESSION

•Have agreed upon time tables for the role reductions of the retiring partners

•Cull out sale•Have everything in place before you start:

▫Terms▫Transition plan▫The capacity to takeover the retiring

partners▫Space, staff, firm name

Do your homework!

History and background of the firm

Client retention rates

Billings vs. collections, billing rates

Compensation packages of all firm members

Employee manual, employee contracts

Furniture, equipment, assets and leases

Pricing, billing and collections

Profitability

Due Diligence

Due DiligenceClients

Who does the workWhere is the work completed?How many clients require face time?FeesIndustries servedServices for clients

Collections age analysis of A/R and cash flow (per month)

Focus on how you will run the firm,

not how it is currently managed

Due DiligenceFirm culture

Potential exposure issues

Quality control issues

Retention rate of employees

Work papers

Leases or other obligations

Other ThoughtsGeneral “chemistry” between the parties

Continuity of relationships will help retain clients

A good deal is a fair deal

Remember, it’s the package, not the individual variables

Staff merging

Other ThoughtsDocumentation

Restrictive covenants

Roles and responsibilities

Hold Harmless

Basic firm contact information

Arbitration for disputes

Divorce clauses, where appropriate

Accountability of both parties

The Transition…..

Client Communications

Roles for new staff members

Specialization

Other Thoughts

For more information

Please visit our website for resources includingfree reports, whitepapers and case studies.

Joel SinkinJsinkin@transitionadvisors.com

1-866-279-8550www.TransitionAdvisors.com