Succession Planning for the Sole Practitioner by pzp12248


									                                                                               May 2008

                                                                               Succession Planning for the Sole

                                                                               By Joel Sinkin                                     cal to succession planning. It will help you
                                                                                                                                  successfully choose the right successor and
                                                     Highlights                This article was reprinted from a recent edi-      jointly develop a plan to transition those rela-
                                                                               tion of Small Firm Solutions, the AICPA            tionships to the successor. This is in turn will
                                                                               newsletter for small practitioners.                lead to capturing the value of your practice.
                                                     C2                                                                                How do you choose the right successor?
                                                     Retirement Plan           For most practitioners, the objectives of suc-     Chemistry between you and the buyer is the
                                                     Advice on Tax Talk        cession planning are to effectively transition     single most important aspect in determining
                                                     Today                     client relationships to the successor firm and     the right successor for a sole practitioner. In a
                                                                               to maximize the value of the firm as a result of   small practice, client handholding skills are

                                                     C3                        the transfer. The two are inextricably related.    critical. Start with a basic test. Do you like

                                                     FASB Codification:        Effectively transitioning your client                      your potential successor? If you don’t,
                                                     What CPAs Need to         relationships to a successor firm should                   why would your clients like him or her
                                                     Know                      also maximize the value of your prac-                      and want to stay with them? Next, ask
                                                                               tice.                                                      if the successor firm has a plan for inte-
                                                     C3                              The foundation of any succession                     grating your clients into their practice
                                                     Save the Dates for this   plan rests on the reasons that clients                     that is complete and makes sense. The
                                                     Year’s ABV Exam           select and stay with you in the first place.       plan should cover which of their firm’s part-
                                                                               Most people assume all CPAs are competent.         ners and staff will be assigned to your clients.
                                                     C4                        The primary reason your clients pick and stick     Ask about their current responsibilities and
                                                     IASB Discussion Paper     with you is not normally because of technical      capacity for new work and try to determine
                                                     on Post-Employment        skills. It is because of your personal style and   how your clients will fit into their schedules.
                                                     Benefits                  their trust in you. Larger firms have clients      You should be comfortable that they can pro-
                                                                               that typically are loyal to the brand as well as   vide your clients the same level of service
                                                     C4                        to individual partners. However, in smaller        they have been accustomed to receiving from
                                                     What Does Gen Y           firms, the loyalty is generally exclusive to the   you.
                                                     Want?                     owner (or sometimes key staff). Your staff,             If chemistry is foremost, surely next is
                                                                               location, fee level and services also are impor-   continuity in the way your clients are served.
                                                     C4                        tant. The intangibles in your practice are what    Your clients like the way you are sailing your
                                                     Write CPA Letter          count with clients.                                                           continued on page C2
                                                     Articles, Receive CPE           Recognizing these basic concepts is criti-
                                                                                 Small Firm Solutions
                                                                                 Are you familiar with Small Firm Solutions? This AICPA e-newsletter, which debuted last
                                                                                 year, contains a wealth of updates, information and advice for CPAs in the smallest firms.
                                                                                 Each issue contains an executive briefing from Jim Metzler, AICPA Vice President, Small
                                                                                 Firm Interests, as well as articles by and about small practitioners. To see the latest issues,
                                                                                 go to:
C2 T H E C PA L E T T E R / S M A L L F I R M S • M AY 2 0 0 8

continued from page C1—Succession Planning for the Sole Practitioner
ship. Ideally, you will find a firm that will maximized if you choose the right succes-           Some firms send announcement letters to
provide stability to your clients. Look for     sor and the transition is handled properly.       annual clients with tax organizers just
things like the firm’s proximity to your cur- Many deals are done with little or no subse-        before tax season, even if the deal was
rent location, fee structure, service offer-    quent client attrition other than what occurs     finalized in Oct., to avoid a long delay
ings, special expertise, if relevant, and naturally, especially when the seller stays             between the announcement and their next
client service philosophy. Assuming the         involved after closing. Rather than accept a      service event. You know your clients best
basics match up well, the endorsement you lower value for your practice, you may be               and you should have a strong influence in
provide the successor will also have an         better off doing the deal with a firm that is     structure and execution of the transition
important impact on your clients’ percep-       committed and capable of maximizing your          plan, especially if you bear client retention
tion of the new firm.                           value.                                            risk under the terms of the deal.
     You should expect, of course, that the          What is an appropriate transition                 One unique method of transitioning
successor firm will perform due diligence plan? Even if you have picked the perfect               clients is to affiliate with your successor
on your practice. You should also perform successor firm, client retention also                   prior to your retirement (see the Journal of
due diligence on them. In addition to the       depends on executing a transition plan. This      Accountancy article “Two-Stage Deals;”
basics, such as a financial and legal review, starts with how you communicate the                 Mar. 2006,
do some homework to determine their track       change to your clients. Present the transi-       mar2006/sinkin.htm). Under this technique,
record on key indicators. Has your potential    tion in the most positive light by emphasiz-      you work alongside and as a part of your
successor done a deal like yours before? If ing what the clients are gaining from the             successor firm for a specified period so that
so, how did it work? What is their retention    new firm, not what they are losing of yours.      clients can become comfortable with the
rate for their existing clients? If they can’t  Announcement letters should point out the         newly combined practice and the successor
keep their own clients, why would they be things that are key to clients, such as the             can take the necessary time to get to know
good at keeping yours? What is their repu-      fact that you are staying on, even if it’s in     the client base and their expectations while
tation and image in the community? Have an of-counsel role; the fee structure is                  you are still around to help.
they had any legal or professional ethics       remaining intact; the practice remains con-            Critical steps. An effective succession
problems? These determinations will help        veniently located; and critical staff are part    plan, and maximizing value, depend on
you evaluate their suitability.                 of the newly combined team. To ensure it is       choosing the right successor, focusing on
     Should the deal for your succession be     read, send the announcement letter in your        what will maximize client retention and
contingent on client retention? The extent envelope written on the new firm’s sta-                executing a proper transition plan.
to which deals are contingent on client         tionery.
retention varies considerably among trans-           Decide in advance how the phone will
actions. When considering this element of a be answered and whether clients will recog-           Joel Sinkin, an editorial advisor for Small
deal, look at it from the other side’s point of nize the new firm’s name. You and your            Firm Solutions, is a senior partner in
view. You might be willing to buy a practice    successor should consider using a generic         Accounting Transition Advisors, LLC
with no adjustment for clients that leave       greeting during the transition period, such       (, which exclu-
soon after closing, but the risk that might     as “accounting office” if a more descriptive      sively consults on the merger & acquisition
happen would probably cause you to offer name is too cumbersome. Decide who will                  of accounting practices nationwide. He can
significantly less compensation for the         receive a letter announcing the affiliation       be reached at 866/279–8550 or at
practice. Normally, client retention can be     and who will be told in person or by phone.

Retirement Plan Advice on Tax Talk                                                       future. The host will be Phyllis Grimes, Chief,
Today                                                                                    Stakeholder Liaison, Small Business/Self-Employed
                                                                                         Division of the IRS.
The next edition of Tax Talk Today®, “Retirement Plan                                          Those who view the expert panel discussion live
Pitfalls,” will take place on July 8 from 2:00–3:00 p.m.                                 have the opportunity to submit questions. According to
ET. Brought to you by the Internal Revenue Service, Tax                                  the IRS, “the programs are designed for learners (tax
Talk Today is a free, live, interactive Web cast aimed at educating tax   professionals) to exercise a practical understanding of new and cur-
professionals on the most contemporary and complex tax issues.            rent tax policies, as well as the latest changes, in a complex and
      When the IRS knocks on a client’s doors, it’s often too late to     continually changing industry.”
help them find, fix and avoid common retirement plan mistakes.                 CPE is available; see the Web site for more information and to
This program will explain how to use the IRS Fix-It Guides to iden-       register. In addition, archived programs are accessible for one year
tify and correct frequently encountered errors the IRS sees in retire-    after their initial presentation.
ment plans. In addition, the IRS will provide tips you can share
with your clients on how these mistakes can be avoided in the
Published for AICPA members in small firms. Opinions expressed in this supplement do not necessarily reflect policy of the AICPA.
Anita Dennis, Supplement Editor                                                            Ellen J. Goldstein, CPA Letter Editor
973/763–2608; fax 973/763–7036; e-mail:                                  212/596–6112;
                                                                                      M AY 2 0 0 8 • T H E C PA L E T T E R / S M A L L F I R M S C3

  FASB Codification: What CPAs                   back at the individual paragraph level as       and SEC staff shall continue to use exist-
  Need to Know                                   well as general system-related feedback.        ing SEC procedures for communicating
                                                 The FASB advised users that the                 new or revised SEC content. Accordingly,
  The Financial Accounting Standards             Codification content is not yet approved        there may be delays between SEC staff
  Board has released an important new            as authoritative and, therefore, it is neces-   changes and corresponding updates to the
  resource, the FASB Accounting Standards        sary to verify research results using exist-    Codification.
  Codification™. The Codification orga-          ing resources for the currently effective            The FASB noted that the
  nizes thousands of U.S. generally accepted     literature. In early 2009, the                                Codification does not replace
  accounting principles pronouncements           FASB expects to approve the                                   or affect requirements or
  under approximately 90 accounting topic        non-SEC Codification con-                                     guidance issued by the SEC
  areas.                                         tent as the single authoritative                              or its staff for public compa-
       In one recent step, the FASB said that    source of U.S. accounting                                     nies in their filings with the
  it had released selected portions of           and reporting standards.                                      SEC. In addition, as has been
  Securities and Exchange Commission and              The SEC sections contain content           a long-standing SEC policy, SEC staff
  SEC staff content onto the Codification        related to matters within the basic finan-      guidance does not constitute rules or
  for reference by public companies. The         cial statements. However, the sections do       interpretations of the SEC, nor does such
  Codification does not change the SEC           not contain the entire population of SEC        guidance bear official commission
  content; instead it includes the content       rules, regulations, interpretive releases and   approval.
  reorganized into the roughly 90 account-       staff guidance. For example, the                     The Codification does not include
  ing topics to more closely align with the      Codification does not include content           governmental accounting standards.
  non-SEC content.                               related to matters outside of the basic              The AICPA is encouraging all mem-
       The FASB launched the Codification        financial statements, such as manage-           bers to review the Codification and submit
  on Jan. 15 for a one-year verification         ment’s discussion and analysis, or audit-       their comments to the FASB. To view ani-
  phase. During the verification period, con-    ing or independence matters.                    mated tutorials related to the Codification
  stituents are encouraged to use the online          Content in the SEC sections is             on the FASB Web site, go to:
  Codification Research System free of           expected to change over time pursuant to
  charge to research accounting issues and       the normal procedures of the SEC and
  provide feedback on whether the                SEC staff for making changes to SEC                  There are four modules in the tutor-
  Codification content accurately reflects       rules, regulations, interpretations and         ial:
  existing U.S. GAAP for nongovernmental         staff guidance. The FASB said that it           • Codification Overview: 6 minutes
  entities. Users who register at   intends to work with the SEC to make            • Verification and Feedback: 4 minutes
  can review the Codification free of charge     every effort to provide timely updates as       • Navigation and Content: 7 minutes
  and provide specific content-related feed-     SEC content changes. However, the SEC           • Other features: 5 minutes

Save the Dates for this Year’s ABV Exam                                     This year there will be five review courses hosted by the follow-
This year’s AICPA Accredited in Business Valuation (ABV) Exam               ing state societies: California, Illinois, Florida, Maryland and
is scheduled for Nov. 10 through Dec. 13. Registration for the exam         Texas. To find our more about the courses and registration:
will begin in July and last through Oct. 31. The exam registration
fee is $550 for new registrants.
      With the increased demand for professionals having accred-            To learn about the ABV Exam and obtain an overview of the
ited valuation experience, now is the time to become a part of the       ABV Credential, go to:
most highly regarded valuation credential in the legal and business
community.                                                                   in+Business+Valuation+Credential.htm
      There are two types of courses offered to help prepare for the
exam:                                                                    Discounts & Incentives*
• The week-long AICPA-hosted BV schools. This year, with the             The AICPA is providing an early bird registration discount of $50
    increased demand for these informative sessions, the AICPA has       for candidates who register for the exam by July 31.
    increased the number of sessions offered from two to four, giv-           In addition, those who participate in an AICPA-hosted BV
    ing members more variety in location and timing. This year, BV       school will receive $100 off of the exam fee when they register for
    School sessions will be offered in Atlanta, New York, Phoenix        the exam. As an added bonus, those who participate in the three-day
    and Lewisville, Tex. For more information on scheduling and          review course will receive an additional $50 off. That adds up to a
    registration:                                                        possible savings of up to $200.                     Mark your calendars now to take advantage of these great
       Valuation+School.htm                                              opportunities. For questions, e-mail
• The intense three-day, state-society-hosted exam review courses.       *These discounts and incentives are for first-time applicants only.
C4 T H E C PA L E T T E R / S M A L L F I R M S • M AY 2 0 0 8

                  IASB Discussion Paper on                                      fit promises that include a promised return on contributions
                                                                                linked to an asset or an index.
                  Post-Employment Benefits
                                                                             Preliminary Views
                The International Accounting Standards Board has             The IASB said that its preliminary views on how to address those
                published for public comment a discussion paper              main issues are:
on IAS 19, Employee Benefits. The paper, Preliminary Views on                • To remove the options for deferred recognition of gains and
Amendments to IAS 19 Employee Benefits, sets out the IASB’s                     losses in defined benefit plans.
views on how the accounting for some post-employment benefits,               • To introduce a new classification of benefit promises into contri-
including pensions, could be improved.                                          bution-based promises and defined benefit promises, with a new
     The discussion paper, developed in consultation with the                   measurement attribute for contribution-based promises.
IASB’s Employee Benefits Working Group, addresses the main                         “Accounting for pensions is a complex area of huge impor-
concerns expressed by a wide range of interested parties that the            tance,” noted Sir David Tweedie, IASB chairman, in introducing
accounting model set out in IAS 19 is inadequate and should be               the paper. “In some cases, the pension liability even exceeds the
reviewed.                                                                    market capitalization of the company. The financial statement of a
                                                                             company must provide investors, analysts and companies with
Issues to Address                                                            clear, reliable and comparable information on a company’s pension
Constituents have pointed out that:                                          obligations. It is in the interest of all of us to find ways to improve
• The deferral of the recognition of gains and losses leads to mis-          this area of financial reporting, and the discussion paper on post-
  leading figures in the statement of financial position.                    employment benefits is the starting point.”
• The multiple options for deferring recognition lead to poor com-                 The comment deadline is Sept. 26. For more details on the pro-
  parability across companies.                                               ject:
• The lack of clarity in the definitions of benefit promises leads to
  inconsistencies and poor comparability for those benefit
  promises that include a promised return on contributions linked                 The IASB said that it plans to redeliberate the issues and pub-
  to an asset or an index.                                                   lish an exposure draft of proposed amendments to IAS 19, with a
• The required measurement method is inadequate for those bene-              view to issuing a revised standard by 2011.

What Does Gen Y                                             Generation Y workers were
                                                      asked, “What is your number-
Want?                                                 one career concern for the
                                                      future?” Their responses are
What career issues keep Generation Y pro-             shown in the exhibit.
fessionals awake at night? When asked to                    “The Gen Y professionals
name their chief career concern, one-third            we surveyed were focused on
(33%) of Gen Y workers polled cited com-              practical concerns, such as sav-
pensation and benefits issues. The second             ing enough money for retire-
most common response was finding and                  ment and being able to balance
keeping a job, provided by 26% of those               work and family obligations,”
surveyed; career satisfaction ranked third,           said Reesa Staten, senior vice
named by 23% of respondents.                          president and director of work-
     The survey, commissioned by Robert               place research for Robert Half
Half International and Yahoo! HotJobs,                International. “These basic qual-
examines the professional priorities of the           ity-of-life needs are common
most senior members of Generation Y or                among all demographics in the workplace.”       defined career paths. To recruit these pro-
the “Millennials”—those who have already                    Staten noted that survey respondents      fessionals, firms should make these pro-
started a career or will soon start one. The          placed the most emphasis on money, bene-        grams easy to understand, promote them in
findings are available in a report, What              fits and professional growth. “Gen Y work-      detail on the company Web site and high-
Millennial Workers Want: How to Attract               ers want the best healthcare and retirement     light them during the interview process,”
and Retain Gen Y Employees.                           benefits employers can provide as well as       she said.

Write CPA Letter Articles, Receive CPE Credit                                spent preparing the article (in accordance with the Joint
The CPA Letter Public Practice supplements encourage readers to              AICPA/NASBA Statement on Standards for Continuing
share information and experiences through bylined articles on sub-           Professional Education, revised as of Jan. 1, 2002). The first step is
jects of interest to your fellow practitioners. Moreover, if the topic       to submit article topics for approval to:
fits our editorial calendar and your article is featured, you may
claim continuing professional education credits for the time you

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