WHY SUCCESSION PLANNING MATTERS

According to the AICPA’s 2016 Private Companies Practice Section (PCPS) Succession Survey, only 46% of multi-owner firms and 6% of sole practitioners have a written succession plan. This is because being succession-ready has not been at the forefront of the minds of many CPA firms. Another crushing blow: Baby boomers are aging and running out of time. The average baby boomer is about 65 years old. As more aging firms want out, the market will be flooded with sellers. The majority of these firms are compliance-focused. Values will fall. Some firms will not be saleable. The true value of these firms is now impeded upon because of the lack of a succession plan. The cost and loss in this scenario are devastating for a firm that perhaps spent decades building up its value only to have it be stripped down and gutted due to not prioritizing succession planning. In the accounting industry, the “true” reality of the CPA succession landscape is:

•  Fifty percent of firms have no clue how to exit. No plan. Nothing.

• Thirty percent think they have a plan. They put a plan on paper with names, but there are no execution steps. Most of the people in the plan have never sold, and their financial path to partnership is undefined and unclear. They look at the buyout numbers, know they cannot sell because they fear it, and the math does not add up. This is not a succession plan.

• Only 20 percent have a functioning plan. One in writing supported by training to help the upcoming succession team run the firm and teach them how to sell. All the technical expertise and management training has limited value if no one can bring in work.

WHAT IS SUCCESSION PLANNING?

What exactly is succession planning? It is the process of transitioning ownership of your firm to another person or firm. Succession usually occurs either when the founder or owner of the firm decides to retire, or when they cannot continue to manage their responsibilities due to unavoidable circumstances. Succession ensures that your organization is future-ready.

BENEFITS OF STARTING A SUCCESSION PLAN

Among the many benefits of having a defined strategy, there are three key reasons to create your succession plan as soon as possible. Let’s dig deeper into each of the three reasons for developing a succession plan, as well as the advantages of being proactive.

1. Succession Planning mitigates the risk of sudden leadership changes.

With an impending retirement, there is frequently a time of awareness of a few months, if not a year, during which successors can be contemplated. However, if the crucial job is vacated due to sudden resignation, firing, or illness, the transition can be abrupt and unpleasant. The quality and stability of your company’s senior leadership are critical to its success. A sudden absence in a vital position might destabilize your organization.

Companies shouldn’t start planning for a transition after the announcement is made. Instead, planning for leadership transitions should start years in advance. As a result, it will better prepare your organization for a smoother transition — even if it’s a sudden one.

2. Establish trust, leadership, and commitment to all shareholders and stakeholder

Maintaining the trust of the company’s shareholders and stakeholders is crucial to the success of your organization. Having a clearly defined and stated succession plan communicates that you are proactive in managing existing employees and planning for the future. This procedure or exercise will safeguard important assets and the interests of all stakeholders by demonstrating strategic leadership, foresight, and initiative.

3. You can plan the ideal exit strategy for your business.

Developing an exit strategy takes time, whether you intend to transfer your company to family, partners, managers, a third party, private equity, or a strategic buyer. Remember that your company represents your life’s effort, a legacy that ought to be protected. An appropriate succession plan maps out and considers every aspect of your business to achieve your desired exit outcome. It means you don’t waste all your hard work.

Conclusion

Creating a succession plan is a critical undertaking for any business. To obtain a fair and impartial procedure a firm must select and develop the best exit strategy. This translates into needing more time for the process of succession to be successful which will, in turn, ensure getting the best value for your business.

Planning to have a succession plan in the early stages of your firm can help to bring a competitive edge while reinforcing your company values and securing the future of your firm. Bottom line: If you own a business and haven’t built out your succession plan yet, it’s time to get started.

How HWAA Can Help you

As you develop a succession plan, you must also monitor and protect your company’s value. If you want to prepare for your company’s future effectively, you must first determine its worth. While succession planning isn’t only about the numbers, they are crucial, and your valuation is one of them. The financial actions you must plan for and your business value dictates the more subjective decisions regarding your company’s future.

HWA Alliance of CPA Firms (HWAA) has professional expertise and real-world experience to assess the objective value of your company and its underlying assets. Our business valuation experts collaborate with you to learn about your company from all areas to provide you with a fair, accurate, and secure image of its value. We use professionalism, good judgment, and a complete understanding of accounting, taxation, financial statements, and business functions to offer objective and fair value reports for the success of your succession planning.

HWAA is committed to your success. We calculate the best opportunities for you. To learn more about the business valuation services, talk to our Business Valuation experts.