Yet, surprisingly, the vast majority of small and medium-sized practices have no formal succession strategy in place.
Firms in which most of the partners are in their forties and fifties are taking needless risks with the future of the practice itself if they ignore the warning signs influencing our profession.
Much too frequently firms take a laissez faire approach and then find themselves forced into raising additional finance to fund partner retirements through ‘sale’ by merger. The recent arrival in the UK of consolidators will doubtless provide an exit route for a few, but the majority of firms are unlikely to be offered or take this way out. There are many other options available, and providing firms make the effort to plan ahead M&A can be considered as an option rather than a necessity.
Retirement and succession planning is not rocket science. In the first instance it is important that all partners have a very clear idea of when they want to retire (age 55, 60, or even 65) and what financial provisions (including the payment of any goodwill/annuity!) they expect from the firm on their retirement. Once this has been incorporated in an updated partnership agreement, it is a matter of ensuring that the succession plan becomes an integral part of the firm’s overall development strategy.
In my mind, succession planning is the ability of management to employ and retain the best people, providing the right services to clients, whilst ensuring profit growth to fund retirements.
Aside from financial considerations, a major problem for many smaller firms is the recruitment, training and retention of the right calibre of people as potential partners. Forward planning will help create ‘home grown’ partners. However, not enough time is spent with these people to specifically train and develop them to be commercially minded partners, capable of bringing in new business and effective in portfolio management. It is important to create a culture within the practice that will attract the right people and allow them to flourish.
Who is going to provide the ‘new’ services to clients and generate future profits to fund partner retirements if the team is mainly audit/accountancy and tax compliance biased is as much a succession problem as any.
It is worthless having great up-and-coming staff who are not capable of providing the sort of service that clients will want in the futureA lifetime’s hard work should conclude with a happy and comfortable retirement, but unless some time and trouble is expended on succession planning, the result could be the opposite – avoid disappointment by acting now.
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