Securing the Future, Volume 1 Building Your Firm's Succession Plan

Is your firm poised for long-term success and viability? Do you even know what that looks like for your firm?

The reality is that most CPA firms have their work cut out for them if they want exiting partners to retire comfortably and future leaders to flourish. In the new edition of this popular book and its companion workbook, Reeb and Cingoranelli impart the same no-nonsense advice on succession planning and management that they share with their clients, providing you with the benefits of their years of experience, research, and methodologies.

Volume 1 covers fundamental succession and management concepts to ensure that every partner and manager is on the same page and working toward a shared vision. After reading this book you will be able to:

• Take steps to maximize your firm’s value
• Shore up your business strategy and operations
• Remove personal preferences and entitlements from partner discussions
• Build a strong partner group
• Ensure your firm survives the departure of key people by creating or improving your succession plan, and more!

Bill Reeb has been consulting for over three decades to all sizes of businesses, from mom and pop operations to Fortune 100 companies. Prior to his life as a CPA, he worked for IBM in sales in the late 1970s. As an entrepreneur, he has founded seven small businesses, from retail to software development to advisory work. An award-winning public speaker, Reeb lectures throughout the United States. and Canada to thousands of executives and CPAs each year. As an award-winning author, he is internationally published, with numerous magazines, journals, newspapers, and books to his credit. Besides Securing the Future, Reed and his partner Dom Cingoranelli have also authored Becoming a Trusted Business Advisor: How to Add Value, Improve Client Loyalty, and Increase Profits.

Dom Cingoranelli is a  consultant whose engagements over the last three decades includes organizational development work for CPA firms and associations, as well as on construction projects for the Big Three auto makers; for regional, national, and international contractors; and for organizations in a variety of other industries. He has performed strategy consulting and planning; process improvement studies; management consulting, training, and development; team building; coaching; and group process facilitation for a variety of groups. He co-authored Securing the Future and Becoming a Trusted Business Advisor: How to Add Value, Improve Client Loyalty, and Increase Profits, as well as the AICPA PCPS Succession Resource Center and Trusted Business Advisor Resource Center. Cingoranelli has also written numerous articles and CPE offerings on executive recruiting, performance management, leadership, planning, and organizational culture. He speaks frequently on management and consulting topics throughout the country.

1 Why Now? 1

Why Does This Matter, and Why Now? 1

Why CPAs Don’t Develop Successors As They Should 4

Crisis Succession Planning 5

Orderly Succession Planning 6

Component Parts of an Orderly Succession Plan 7

Chapter 2—Start With Strategy 7

Chapter 3—Clean Up Your Operations 7

Chapter 4—Identify and Describe Your Business Model 8

Chapter 5—Examine Retirement Benefits 9

Chapter 6—Describe Governance, Roles, and Responsibilities 10

Chapter 7—Establish Voting Rights, Decision Making, and Equity Distribution or Redistribution 10

Chapter 8—Define the Managing Partner Role 10

Chapter 9—Build Capacity for Long-Term Sustainability 11

Chapter 10—Transition Client and Referral Relationships 11

Chapter 11—Describe the Admission to Ownership and Development Process 11

Chapter 12—Build a Strong Partner Group 11

Chapter 13—Establish Processes and Procedures for Retired Partners Still Working for the Firm 12

Chapter 14—Define the Maximum Payout Process and Other Buyout- Related Issues 12

Chapter 15—Create a Partner Accountability and Compensation Plan 12

Chapter 16—Address Death and Disability in Your Buy-Sell and Retirement Policies 13

In Conclusion 13

2 Start With Strategy 15

Strategy Should Drive the Rest of Your Decisions 15

Thinking Strategically 16

Strategic Planning Overview 17

Getting Started 17

Core Philosophy 18

Long-Term Vision 18

Strategies, Action Plans, and Metrics 20

Some Typical Strategic Initiatives 21

Partner Accountability and Compensation 21

Attracting, Retaining, and Developing People 21

Growth, Business Development, and Client Retention 22

Infrastructure, Consistency, and Efficiency 22

Improved Communication and Transparency 22

In Conclusion 23

3 Clean Up Your Operations 25

Get the Basics Right 25

Information Systems and Performance Metrics 26

Performance Metrics 26

Strategies for Improvement That Will Yield High Return on Investment 29

Create Capacity at the Top 29

Improve Your Overall Profit Stream 32

Charge Clients a Fair Fee 33

Manage Through the Trough 36

In Conclusion 36

4 Identify and Describe Your Business Model 39

Eat What You Kill Versus Building a Village 39

The Problem With Replacing the Superstar 42

Modes of Operation Within the EWYK and BAV Models 43

Survival Mode 44

Safety Net Mode 44

Success Mode 44

Continuation Mode 45

The Most Commonly Found Disconnect 46

Modes of Operation Summary 46

Important Distinctions Between the EWYK and BAV Models 47

In Conclusion 49

5 Examine Retirement Benefits 51

The Nuances of a Fair Retirement Benefit 51

Determining the Value 52

Other Issues to Consider 53

Mandatory Sale of Ownership 54

The Importance of Vesting 56

Actions That Should Negatively Affect Value 59

In Conclusion 60

6 Describe Governance, Roles, and Responsibilities 61

Creating Accountability 61

Enabler One: Decision-Making Authority 62

The Problem 62

The Solution 63

Enabler Two: Standard Operating Procedures Foundation 63

Enablers and Synergy 64

Enablers and Firm Size 66

Enablers in Firms of Up to $2Million to $3Million 66

Enablers in $3Million to $10Million Firms 67

Enablers in Firms in Excess of $10Million Dollars 69

Decision-Making Authority 70

Voting Control Properties 70

Organization Infrastructure Properties 70

SOP Infrastructure Properties 71

Administrative Policies 71

Accountability Policies 72

Processes 73

Avoiding Common Traps 73

In Conclusion 74

7 Establish Voting Rights, Decision Making, and Equity Distribution or Redistribution 75

Voting and Decision Making 75

To Vote or Not to Vote: That Is the Question 75

Formal or Informal Votes 76

Types of Votes 77

Equity Ownership and Why It Matters 78

Equity Reallocation 78

Equity Allocation and Reallocation: What, Why, and How 78

Determining Equity Allocations 83

In Conclusion 86

8 Define the Managing Partner Role 87

Defining the Managing Partner’s Role 87

Why the Managing Partner Is the One Charged With Implementation and Accountability 89

Electing and Dismissing the Managing Partner 92

The Term of the Managing Partner 93

Firing the Managing Partner 94

The Managing Partner Compensation System 95

In Conclusion 95

9 Build Capacity for Long-Term Sustainability 97

The Importance of Building Capacity Through Your People 97

Developing Real People-Management Skills 98

Learning How to Develop People More Quickly 99

Motivating Your People 100

Culture and People Development 101

Competencies Form the Foundation 101

Examples of Some Competency Definitions 103

People Development in Three Steps 104

Setting People Up for Success Through Clear Expectations 104

The Effect of Your Expectations on Others’ Performance 107

Values Matter 108

Reporting Models 108

In Conclusion 109

10 Transition Client and Referral Relationships 111

Why You Need Solid Transitioning 111

Benefits of Proper Transitioning 112

A Transitioning Process 113

Penalties for Not Transitioning 115

Referral Sources 116

Sample Transitioning Plans 116

Transition Compensation Plan 117

In Conclusion 118

11 Describe the Admission to Ownership and Development Process 119

Who Should Become Owners in Your Firm? 119

Career Paths for Prospective Owners 120

New Partner Admission 121

Admission to Equity Ownership 122

Nurturing New Partners 122

Dead Weight 123

In Conclusion 124

12 Build a Strong Partner Group 127

Turnover Basics 127

Cranking the Vise 127

Terminating a Partner 128

Leaving and Going to Work in Industry 129

Leaving and Competing 130

Other Issues 131

Employment Agreements 131

Total Loss of Retirement Benefits 131

Terminations for Cause 131

Severance Packages 132

In Conclusion 132

13 Establish Processes and Procedures for Retired Partners Still Working for the Firm 133

Continuing to Work After Sale of Ownership 133

Boundaries Are Necessary 133

Annual Contracts 135

Retired Partner Employee Compensation 136

In Conclusion 137

14 Define the Maximum Payout Process and Other Buyout-Related Issues 139

Personal Liability of Remaining Owners for Retired Owners’ Full Payout 139

Specific Recourse or Cures Should a Retired Owner Not Be Paid in Full 140

Sale or Merger of a Practice 140

Ability of Retired Owners to Block Mergers or Total Sale of the Business Unless Retirement Obligation Is Paid in Full Prior to Transaction 141

Ability of Retired Owners to Block the Sale of a Line of Business Unless Retirement Obligation Is Paid in Full Prior to Transaction 142

Partially Funded Retirement Plans 142

Maximum Payout Provision 143

Purchase Price of Other Companies and Real Estate 143

In Conclusion 144

15 Create a Partner Accountability and Compensation Plan 145

Accountability: It Should Apply to Everyone 145

Setting Clear Expectations to Create Accountability 146

Commitment to Results 147

Delegation or Dumping? 147

Revisiting the Notion of Accountability 147

Accountability for Partners 148

Accountability Requires Action and Commitment 149

Accountability and Performance Variability 150

Objective Performance Criteria 150

Subjective Performance Criteria 151

Establishing the Accountability Process 151

Benefits of Implementing the Accountability Process 152

Who’s in Charge? 153

Performance Pay for the Managing Partner’s Allocation 155

In Conclusion 156

16 Address Death and Disability in Your Buy-Sell and Retirement Policies 157

Now Is the Time 157

Policies Dealing With the Death of a Partner 157

Policies Dealing With Disability 159

Policies Dealing With Partial Disability 159

In Conclusion 160

Conclusion 161

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