Generation game
The average age of equity partners is now 59, but firms are failing to plan for their exit and succession, writes Jonathan Russell
The average age of equity partners is now 59, but firms are failing to plan for their exit and succession, writes Jonathan Russell
Despite the average age of senior partners in smaller, independent accountancy practices now reaching the late 50s, many firms are failing to plan for their exit and succession. This is combined with the lack of younger accountants wishing to step up to become a partner. Younger accountants are looking at the work patterns of partners and deciding it is not for them – they value a good work/life balance far more than the perks of a partnership.
At the same time, the income differential between partners and senior staff in small practices has also narrowed, which makes the risk of being a partner less attractive. Combine this with the ever-increasing regulatory burden put on practices and the inevitable consequences for partners found guilty of non compliance and the result is that potential partners are being put off, leaving many smaller practices facing bleak futures.
And yet, ignoring these issues and failing to attach enough importance to succession planning can have disastrous consequences. Partners have to face up to the succession options they have available to them so that they can exit the firm. Leaving succession planning until the last minute is likely to mean effective transfer of ownership is not possible within the necessary timeframe.
A forced, or ill-informed decision could mean a business is transferred into reluctant or unqualified hands, leading to a loss of senior talent and leadership, the loss of key clients, unfunded retirements, defections or, in extreme cases, the failure of the practice.
Take time to plan
Setting aside sufficient time to think and formulate an effective succession plan is a key to success. A timeframe should be planned and adhered to and options assessed to ensure the success of the business. A succession plan, however, is of no use if it only exists in your mind – it needs to be formal and in writing.
In its simplest form, succession planning is nothing more than getting managers or owners of a company to use a systematic process to determine the current training and development requirements of staff.
Having this process in place is vital to the success of the organisation, because individuals identified during succession planning will eventually be responsible for tackling any future problems.
For any organisation to implement an effective succession plan, a number of key issues need to be considered:
Senior partners must take the lead
Senior partners must lead this effort and be a guiding light to the other partners and staff. The key elements of a succession plan for a senior partner include:
Like all succession planning, this structure should be submitted to all partners for final approval.
To try and encourage a bright future, many small firms are now looking at increasingly non-traditional exit routes, such as selling or merging. For example, many firms have formed limited companies, so the practice can be purchased from original equity partners.
This attracts younger accountants to take director positions, purchasing their equity by receiving shares based on their performance, thus removing the huge financial burden of directly purchasing equity.
Critically, firms should harness all the expertise and experience available to them. Succession planning is not something a well-run practice can ignore because the consequences of not being prepared to replace important members of staff will have a major impact on the organisation’s ability to achieve its goals and strategic targets.
Jonathan Russell is a partner at ReesRussell LLP and spokesman of the UK200Group