Adamson Advisory

Building Your Bench for Succession – A Few Ideas to Help You

Thousands of firms are working through the succession and retirement of senior partners and deciding along the way whether or not they can pull it off internally and stay independent. The single most important factor for success is what we see when we look over our shoulder – is the bench of people there to succeed us? Here are some ideas to recruit and keep employees on your team:

• Make recruiting a constant effort in your firm meaning that you are always looking for people, not just when someone leaves. If you make the commitment to hire more than you need another very healthy thing will likely happen – you will actually be able to make choices and outplace the weaker players, strengthening the team along the way.

• Firms having the best success building their bench almost always have a commitment to grow their own. That means a commitment to a campus recruiting process and not being afraid to compete with the larger firms.

• Create an internship program in your firm. It is a tremendous way to get a test drive before you actually hire someone.

• Make sure that you have a staff bonus program for recruiting experienced people. You want your team talking to friends about how great it is to work for you and with some skin in the game, they will be more inclined to send you quality candidates.

• Do a better job in defining your position descriptions and what it takes to advance to the next level in your firm.

• Make it clear what the career progression is in your firm and what the ladder looks like. It is important that everyone else in the firm knows who is on the partner track and who is not. You will lose younger “stars” who want to move up if they think the ladder is clogged by too many people above them.

• The college grads that you are hiring today want to be “a part of it”. Short of putting new hires on the Executive Committee, there are things that you can do to make your people feel more engaged. Here are a few examples:

1. Find opportunities to talk about your mission and vision often and how the firm’s actions and direction are consistent with them.

2. Put young people on task forces and committees of the firm. Better yet, form an Inclusion Committee to get their ideas on how the firm can improve communications with and involvement of the team.

3. Create opportunities to communicate with the team especially from the firm’s management/leadership group. For example, meet with your manager group after partner meetings to keep them informed; hold an open forum lunch for staff with your managing partner a couple of times a year.

Building your bench is a big job and it involves several different fronts. For smaller firms it is much more difficult to devote the resources to get it done. With that said, it is the answer to perpetuating your firm and accomplishing internal succession. Read the full story on this topic here.

Admitting New Partners – Succession Best Practices

January 23, 2014GarySuccession Planning0

As we work through the succession and retirement of senior partners in our firms, a lot of us are also reviewing and updating our internal documents and agreements. A key part of the update should be focused around how we bring new partners into the firm to replace the “old guys”. There have been changes in valuations and process that we really need to be aware of. Following are some of the best practices you should consider:

• How many partners do you really need?

• Do you have a PIT (Partner-in-Training) program?

• Should your firm use Non Equity or Low Equity partner positions?

• Have you looked at how you’re calculating the buy-in?

• What percentage of ownership does the new partner get?

• Financing the Buy-In. How should it be structured?

Regardless of whether you change anything or not, the Baby Boomer succession wave presents an opportunity to review and challenge how we bring new partners into our firms. Read my latest article which discusses the above topics in more detail.

Cover These Bases For Every Retiring Partner in Succession Planning

October 31, 2013GarySuccession Planning0

Every firm is working through the succession maze and dealing with the exit of key partners in the firm. These partners leave holes in the firm that we have to fill. We need to recognize that our plans to fill them will be different depending on the role that the individual partner plays in the firm. With that said, there are four areas that you must cover for every partner. And each one deserves a plan of its own. They are:

Technical Skills and Expertise – Remember to focus on shoring up both service and industry knowledge for the firm.

Leadership – Leadership transition is one of the most difficult succession issues facing firms. Take a look at an article on my website for some ideas for the M.P. spot: Managing Partner 101 – Just What Exactly is the Job?

Hours – Because we need to move a particular client relationship, that doesn’t mean that we also have to replicate and move all of the partner hours intact to one individual. Make it a focus to leverage preparation and review time if you can.

Client Relationships – The client transition plan needs to be orchestrated over at least two years, it needs to be written and it needs to be supervised and managed by the firm’s managing partner. For the close personal relationships which are always the toughest to transition, you should plan on shadowing for at least two year-end cycles.

The retirements that we are just beginning to focus on are key to the future of our firms. Covering these bases will give you a better shot at a successful outcome. Read my full article on Succession – Cover These Bases for Every Retiring Partner.

The Inverted Pyramid – Does This Look Like Your Firm?

Inverted PyramidThere is no question that the most profitable firms (defined as high per partner income) in our profession have figured out that leverage and a well managed pyramid is one of the key ingredients. Why is it then that so many firms, and I would suggest the majority, are struggling with just the opposite – an upside down or inverted pyramid where there are lots of partners and managers but few staff.

We didn’t get here overnight and I would suggest that few of us planned to be here. We wound up with our top heavy firms due to a number of factors. Here are some of the primary culprits:

• Generational issues including the Baby Boomer Bubble, Xers, Millennials, etc.

• Lack of a people plan with effective, consistent recruiting and staff development processes in our firms. We don’t have a process to see enough new faces and we let people hang around too long.

• Promoting non-partner-track people or sometimes marginal folks to higher positions because “we’re preserving staff continuity” and “it’s best for the client” when perhaps it is just the path of least resistance and/or we have no one else.

• Partner compensation plans that focus on chargeable time. Partners stay busy first. Managers are doing staff work and no one has incentive to push the work down.

• “It’s just easier to do it myself and besides I’m a lot more efficient at it”.

If any of this sounds like you, here are some of the outcomes that are not desirable but pretty common. You have too few if any younger staff. You have a tough time keeping the ones you do have busy. Really talented staff, your “all stars”, leave because they don’t see any opportunity to advance in the firm. Managers and staff do the same work on the same clients year after year after year. You have a relatively expensive workforce and you have a difficult time getting paid at their billing rate for work that they have outgrown. Partners are full with compliance work and are not cultivating the high value consulting work. And, worst of all, you don’t have the talent at the right levels to succeed you as a partner in the firm.

Ouch! So, what do we do? First of all we need some time to work out of it. We didn’t get here overnight and we won’t fix it overnight either. Unfortunately, some firms are out of time and that is the reason the profession is seeing so much M&A activity. Hopefully that’s not you and you can start to make changes now, to work on the pyramid.

Read my full article on how to begin the journey in prioritizing and tackling the pyramid structure in your firm.

Partner Succession – It’s All About Client Transition and Retention

CPA firms are wrestling their way through partner retirements and the accompanying succession issues in numbers that the profession has never seen before. It’s the Baby Boomer Bubble, up close and personal. But the biggie and the focus of my latest article is the transition of client relationships.

If you buy into the critical importance of client transition and retention, then we should expect that most firms have developed both a pretty good transition process and some well defined requirements for the retiring partners. Unfortunately, more often than not, that is not the case. The 2012 Succession Survey conducted by PCPS and the Succession Institute reported that 78% of firms do not have client transition expectations with financial penalties for retiring partners, if they are not completed.

If you are one of those firms in the 78% bucket, my article will give you some ideas on how to do a better job with client transition. Please pull out your partner agreements, dust them off and see if they even deal with this critical issue at all.

As the Baby Boomers march toward retirement the likelihood of multiple partner payouts within your firm increases. A well executed client transition plan is the best protection for the firm and the best insurance a retiring partner has that they will receive those unfunded retirement payments down the road.

What is Your Practice Worth in the 2013 M&A Market?

Tax Season 2013 is over and the M&A frenzy will pick back up again where it left off. So, what is your practice worth? What can you expect whether you are a buyer or seller? One thing is for sure – Baby Boomers are selling at a rate that the profession has never seen before. It is still a sellers market, for now. But the demographics and the thousands of practices that will soon be for sale suggest  that may change over the next few years.

We are often asked by our clients about the market and what firms are selling for. Everyone wants to know “what’s the multiple?” But, it’s not just about the multiple; it’s about the overall deal structure and terms. The multiple is only one piece of the puzzle. The important components that go together to make up and influence the structure are:

  • Size of practice

  • Profitability of the practice

  • Location

  • Down payment

  • Term (number of years) of the payments

  • Length of time before the purchase price is fixed

  • Extent and quality of client transition

  • And finally, the multiple of revenue being paid

For more information and a discussion of the deal components outlined above click here.

M & A is Hot – Information to Help You Play the Game

There is no question that M&A is hot.  The 2012 PCPS Succession Survey asked multi owner firms (509 participants) whether they had been in active M&A discussions in the last 24 months and /or if they were planning to be active in the next 24 months.  Forty percent said yes!

One of the most interesting tidbits from the survey was a question directed to the 432 responding sole practitioners (solo) about practice continuation agreements.  The idea is that the solo enters into an agreement with a larger friendly firm to “step in” and acquire the practice in the event of the solo’s death or disability.

Ninety four percent of the solos said that they do not have a practice continuation agreement with another firm.  Your initial reaction might be that there is a big opportunity here and you should contact all of the solos in your area and start getting these negotiations and in place.  That would be the logical but incorrect answer.

The message here is that there is just something about the sole practitioner that makes them want to practice as a solo in the first place, that gets in the way of executing something that seems to make so much sense.  My suggestion is that if you are a larger firm, you probably should look to other options besides chasing practice continuation agreements.

One option is a two step deal.  The basic notion is that in step one the solo and the larger firm cohabitate while the solo maintains quite a bit of the desired independence and continues to serve clients.  Step two is down the road in two or three years and is when the buyout really begins.

The survey did provide some guidance on deal multiples and terms from the perspective of those same sole practitioners.  There are a lot of factors in any deal that influence the multiple including things like geography, projected profitability in the acquiring firm, up front cash, retention/guarantee clauses, payout periods and the overall size of the transaction.  Experience tells us that for most deals under two million dollars, four to six years is fairly common and we see most multiples ranging from 1 to 1.25.

If you are thinking about getting in the M&A game, I have heard a lot of partners say that they don’t want to do a particular deal with this or that firm because they will be fixing someone else’s problems.  I’ve got news for you.  If you are the acquirer, you are always fixing someone else’s problems.  Make sure that you fully understand what they are.

Announcing the formation of SurveyCPA

September 20, 2012GarySurveys0

As we work to move our firms forward and to improve them, feedback from our two most important contingencies, clients and employees, has never been more critical. Knowing how we are doing and where we need to focus to improve is especially important in this slow recovering economy. We just have less of a margin for error to work with as top line growth has slowed or disappeared and we have tightened our belts.

My clients are hungry for data and are turning more and more to surveys to gather it. When I was in the managing partner role with my prior firm, I wanted to know how we were doing and even more important, how do we compare relative to our peers. That data was not available.

The independence of the collection process combined with peer benchmarking (how do we compare?) elevate the value of the information and the ability of the firm to make good decisions based on the data.

Unfortunately there has not been a consistent, reliable source of data for the profession, beyond financial surveys, that firms can depend upon. Recognizing that void, a new company has been formed. It is and it is dedicated to building national benchmarking data and helping firms with the following surveys:

• Upward evaluations of partners and managers

• Employee engagement and satisfaction

• Client satisfaction

The surveys provided by SurveyCPA have been developed specifically for cpa firms and the questions reflect the uniqueness of our profession. The benchmarking data will be on a national scale with the plan to stratify that data both on geographic regions and also size of firm.

SurveyCPA is a joint venture between Rita Keller, a national consultant consistently named to the top 100 most influential people in the profession, and Gary Adamson, CPA, author of this article.


Save the Whales

Every firm has an “A” client list – the largest and most profitable clients for the firm. Hopefully, you have already identified them and you make sure that they receive the best “care and feeding’ and the highest priority from the firm.

If you haven’t, do it now and decide what it means in your firm to be an “A” client. We need to be reminded from time to time that our best clients are also the top targets for our competitors. And, they are being courted constantly.

Something that we did for our “A” clients when I was a managing partner is worth sharing because I don’t see it in a lot of firms. We called it our “Save the Whale” program and it worked as follows.

I visited our top clients along with the firm’s marketing director. Our purpose was to express our appreciation for their business, solicit input on our services and people, find out if they had any suggestions for the firm and to give them updates on what was happening at the firm. It was not a sales call.

If part of the above description sounds like a client satisfaction survey, you’re right, it was. How much better do you think it was received and perceived when the managing partner makes a personal visit to see them and talk about their satisfaction with the firm?

Your “A” clients deserve to be treated in a special way. This is an idea to show them how important they are to the firm and to help cement that relationship. It takes some time to work through the list, but we got a lot out of it and the clients loved it.



How to Tackle the Grapevine in Your Firm

Communication (or the lack thereof) in every organization is critical. It is especially important in the accounting world where we have populated our firms with great CPA’s who are most likely not also great communicators. It’s just the nature of the beast and we have to work a little harder at it.

Everyone wants to know what’s going on and in most firms your team has several methods for acquiring information. Those include staff meetings, internal newsletters, intranets, group emails, etc. But, what is number one in every firm? The Grapevine! And you as firm leadership don’t control it.

The Grapevine doesn’t sleep. It works 24/7, never takes a day off and if you’re lucky gets “it” about half right. The mystery in most firms about what is really going on is just too tasty and tempting for most of us to resist.

You’re never going to get rid of it but here are a couple of ideas for firm leadership to consider that will help. I’m not a big fan of meetings and especially creating more of them. But these are important and probably not happening in your firm.

First, get your managers together with your managing partner (MP) three or four times a year. Your managers are on the front line for the firm “managing” your clients and staff. The MP should bring an agenda of items to be shared and discussed and then open it up. Your purpose here is to have a dialogue about important issues inside the firm and to give them a consistent message from the top. Your managers are part of firm leadership and should be helping the entire partner group carry the torch.

Second, on a less frequent basis, set up a lunch for all team members, except partners and managers, with the MP. This should be more of an open forum. At first it may seem a little clumsy but the more you do it the more people will open up and talk. We used to call it our “stump the MP lunches”. Obviously not everything can be shared. But you will go a long way toward helping your team feel connected to the firm and, slowing down the grapevine.