Accounting firm succession planning

At The Access Group, we work with accounting firms in Australia and New Zealand daily, building their capacity through our smart and scalable software for accountants. Working closely with accounting professionals as we do, we must emphasise the importance of creating leadership continuity for your accounting practice once you have retired.

The reality is: you will not be able to run your accounting practice forever. We hope that, in reading this article, you will better understand the accounting firm succession planning process so that when the time comes to retire and hand over your firm to another, you are as prepared as possible.

What is succession planning in accounting?

Succession planning refers to the transition of ownership and leadership from the current owner to another. A succession plan will usually occur once the current firm owner or founder retires or decides to leave the firm because they cannot continue with their responsibilities.

Implementing an accounting firm succession plan will:

Protect your client relationships,
Protect the interests of your staff and other practice stakeholders,
Preserve the value of your accounting firm.

Developing an accounting firm succession planning strategy for a smooth transition of ownership will typically involve the following:

Identifying and guiding potential successors to take over your firm,
Agreeing on a timeframe for succession,
Including risk management details,
Preparing a communication strategy for firm succession,
Considering changes to key accounting firm personnel, and
Addressing financial and legal considerations of the transition.

When should an accounting firm commence succession planning?

With the average age of accounting practice owners in Australia and New Zealand being greater than 50 years, it is better to start accounting firm succession planning sooner rather than later. You can start your succession plan years or decades ahead, even as early as starting your accounting practice.

Without a succession plan in place, the future of your accounting firm could be at stake. Something unplanned happens, such as death before retirement or a prolonged illness or health event that precludes you from continuing in public practice.

Remember that as part of the Accounting Professional and Ethical Standards Board's risk management framework for accounting firms (APES 325), it is a mandatory requirement to document a succession plan for accountants in public practice.

What can go wrong with accounting firm succession planning?

Accounting firm succession planning can be overwhelming for accountants, as effectively documenting an accounting practice succession plan will include many moving parts and considerations.

Here are some common pitfalls in succession planning for accountants that can be easily avoided:

Keeping the accounting firm's succession plan a secret: A lack of transparency over succession planning may lead to employees seeking opportunities elsewhere if they perceive no opportunities to advance within the firm. An accounting practice succession plan is an essential strategic process, and it is important to communicate it through your accounting practice rather than keep it under lock and key.
Failing to update the succession plan regularly: Accounting firms can go through the hard work of developing an accounting firm succession plan and then never recheck it. Succession planning in accounting is a dynamic process, so review your accounting firm succession plan every six months to ensure it still has currency and update it if necessary.
Underestimating accounting industry changes: The COVID-19 pandemic has shown us how radically the work landscape can evolve with the rise of flexible working arrangements, ongoing recruitment challenges in the accounting profession, and AI in accounting practice software. Succession planning for accountants is a future-proof tactic, anticipating what accounting firms of the future might need. Therefore, hypothetical changes in the accounting profession, technology and within your firm must be considered during the accounting firm succession planning process.

What are the elements of succession planning for accountants?

Here are some steps to consider when developing a succession plan for your accounting practice:

1. Identifying potential successors

Public practitioners looking to implement an accounting firm succession plan will usually have the following options at their disposal:

An outright sale of your accounting practice,
A sale to existing partners,
Introducing new partners,
Merging with another accounting practice,
Winding up your practice in an orderly fashion, and
Appointing an internal successor.

When looking for individuals within your firm to take over your practice, you should also consider their skills, experience, and leadership qualities to ensure they are the right match.

Other considerations for internal successors will include:

their technical expertise,
Their accounting client relationship management skills, and
Their compatibility with your firm's culture and values.

Accounting firm owners should consider keeping in mind changing demographics with who is running small businesses in Australia or New Zealand. Consider the need to recruit Gen Z accountants to future-proof your firm.

2. Provide development opportunities

Once a successor has been identified, you could nurture opportunities for them to further their skills and sets.

Examples of development opportunities include:

Training programs,
Mentorship, and
Assignments that expose them to various aspects of the business, such as client management, strategic planning, financial management and upskilling them on your accounting practice management software.

If you do not have accounting practice management software, read our handy guide: why do you need accounting practice management software? This will help you to future-proof your accounting practice in the age of digital transformation.

For more information on learning and development opportunities for accountants, please read our guide: the best free CPD resources for accountants.

3. Financial planning

When you are in the throes of the accounting practice succession planning process, you must consider how the transition will be handled financially.

Financial planning in succession planning for accountants can include:

Focusing on how you can maximise the value of your practice through the accounting services you offer, the inherent profitability of the firm and the quality of your client base.
Considering financial support options for the transition, such as:
Internal finance provided by a partnership;
External finance supported by the equity of the firm.

All financial arrangements for your accounting practice succession planning need to be fully documented and agreed to by all parties. You should ensure these are communicated clearly in your succession plan so that transactions are never left open to interpretation. Consider a consultation with a financial advisor and a business valuator to help with this stage of the accounting firm succession planning process.

4. Legal considerations

Consult with legal professionals to address the legal aspects of the accounting practice succession plan.

The following documents should be in place as part of the permanent records of your accounting practice succession plan:

A current will,
Power of attorney,
Any partnership agreements,
Any agreements in place concerning the selling or buying of your accounting practice.

5. Communication and transparency

You should advise clients of any changes happening within your firm. Using open and effective communication helps to reduce uncertainty, manage expectations, and maintain morale.

Try communicating changes openly using one of the following mediums:

An email, letter or using your practice's client management software to announce changes to your accounting clients,
An announcement on your accounting practice's website and social media channels,
An update in your newsletter,
Organising a formal client function as a farewell to the current owner or an introduction to the new accounting practice owner.

For more communication strategy ideas for your accounting clients, check out our blog: marketing for accountants.

6. Make sure you have considered other options

Other options for exiting your accounting practice will not involve succession when deciding to move on.

You should ensure that you have considered these options carefully:

Selling your accounting practice
Closing your accounting practice
Hiring outside management to run the accounting practice

A financial or business advisor can provide insight into the best option in circumstances where succession is not deemed the right approach.

Think about your firm's future

To summarise, accounting firm succession planning is a process that requires careful thought, preparation, and flexibility, but the result will be a document that preserves all the hard work you have done within your accounting firm, including nurturing those all-important accountant-client relationships.

Your accounting firm succession planning will require plenty of time, and it is advisable to involve experienced professionals, such as business consultants and lawyers, to guide you through the succession planning process.

Before you commence your accounting firm succession planning, consider the convenience of having client information available from one centralised location to prepare for the eventual transfer of accounting firm ownership. Client management software for accountants can do this and much more, helping you connect with clients in an entirely new way by accessing all client information from one place. Why not talk to a specialist today to find out more?