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Succession: It’s Not Only About The Golden Years

Polls in CPA Letter Daily offer an insight to the readers’ opinions about topics taking place in today’s world.

Last week’s poll question, with nearly 500 responses: Does your organization have a formal succession plan in place?

  • Yes, my organization has a formal succession plan in place. - 23.71%
  • Yes, but it is an informal succession plan. - 21.99%
  • No, but my organization plans to develop one. - 18.93%
  • No, and we do not have plans to create one.- 35.37%

There’s a saying that the best time to plant a tree is twenty years ago. The second best time is now.

For many years, the AICPA has been encouraging firms of all sizes to take a serious approach to and place a heavy focus on succession planning.  With 44,000 firms in the U.S., combined with an aging population, it’s simply an imperative. I’ve seen many firms that are so busy taking care of “today” that they never get around to planning for tomorrow.

Steve Jobs shows off iPhone 4Image via Wikipedia

Recently, Apple demonstrated the importance of having a succession plan when CEO Steve Jobs stepped down, amid health concerns. His sudden announcement triggered a plan that was put in place well before his health forced him to step down. This preparation allowed Apple to seamlessly transition to new leadership and continued success. This plan was well communicated to employees and investors for months, reducing the potential for negative reactions. Examples like this, unfortunately, are the exception, rather than the rule.

In the last month, another event led me to believe that awareness regarding succession planning is both timely and needed, especially in the case of an unexpected life event.   

Without a practice continuation agreement, a death could leave your family uncertain about your practice's future and the assets you have built. Sole practitioners especially should seek out agreements while healthy that align the firm with a buyer if the unimaginable happens. Of the 30,000 sole practitioners in the U.S., only 8% have a practice continuation agreement.

Recently, I received an email from an AICPA board member who wrote a blog post of his own. His post was a stark reminder that even larger firms need succession plans, and that in today's world, debilitating diseases and the progression toward them can be just as damaging and equally stressful.

With his permission, I share his words because they couldn't be said any better

One of the benefits of being a CPA is that we can often still function at a high level with disabilities that would greatly impact many other people in the world.  Take away our legs and we are still fully functional in our chosen profession.  Take away an arm and it might slow us down the typing a bit, but CPAs can still make it and be very productive.  Take away our mind, well, even a CPA can’t overcome that.  What am I talking about – taking away a mind?  I’m talking about Alzheimer’s.  This is a disease that we are seeing more of as the profession ages and something I am seeing first hand with my Father-in-Law.

My Father-in-Law was a great CPA (aren’t we all).  He was managing partner of a small firm in a small town.  His name was on the sign along with the founding partner.  It was the kind of place where you went into the bank or a business and said you were related to him, and everyone new exactly who he was.  He is now retired – forced out if you ask him – because he couldn’t do the work any more (not according to him of course).

And it’s not just the complicated things like taxes or pension accounting that are a challenge, it is the little things like playing a game of cards.  Thankfully he has a wife that takes that “in sickness and in health” vow to heart and daughters (one a fellow CPA) that are making sure the financial affairs are kept in some sort of order.

Another very difficult role is played by his partner.  Like many with Alzheimer’s, my Father-in-Law is in denial about his condition.  He sees his partner as out to get him and doing things behind his back to avoid giving him his fair share. He even started bad-mouthing his partner to now former clients.  That had to stop so my Father-in-law was no longer allowed to meet with clients.  Of course this was just seen as another take away.

So what is the point of all this?  Simply that all of my CPA friends in public practice – especially in small partnerships – need to create a mechanism to deal with the mental incapacity of a partner.  Many firms have life insurance to buy out a deceased partner and some even have succession plans in place for retirement, but almost no firm has a plan on how to deal with a partner that is no longer mentally able to perform his job.  In today’s world with longer life spans and delayed retirement, firms need to think about this possibility.   Winging it doesn’t serve the firm, your clients, or the incapacitated partner well.

The AICPA's PCPS has resources for succession planning that can help your firm or company prepare. Do you have a succession plan? If not, do you plan to now?

Barry C. Melancon, CPA, President and CEO, American Institute of CPAs.


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