Documenting Retirement Plans And Strategies Helps Ensure That Firms Remain Independent And...

So you're planning to work a few more years, sell your firm, and get the price you want? Better be prepared with a well-reasoned strategy. The market for accounting firms is shifting dramatically, and selling your firm today may be easier - and more lucrative - than selling it tomorrow. On the other

If you want to position your firm for continuity, lay the groundwork, urges consultant and accounting firm succession expert Bill Reeb, who is based in Austin, Texas. Keep the goals of ownership transfer in mind as you plan your continuity strategy:

* Reward owners for their years of service;

* Recognize the retiring partners' contributions to the overall value of the firm;

* Motivate all partners to always do the right thing for the firm;

* Motivate partners to stay at the firm and work hard until it's time for them to retire;

* Encourage them to schedule their retirement in a planned, orderly way;

* Inspire partners to facilitate seamless client transitions;

* Allow partners to retire gracefully and honorably while remaining a positive influence in the community and supportive of the firm.

Keep Your Firm's Retirement Plans Up To Date

Remember that a retirement plan isn't a stagnant document. It must be updated regularly, says Reeb. "Retirement plans must be updated all the time to address possible conflicts of interest in order to protect the viability of the firm. Without such an effort, when the retiring partner's benefit or the remaining partners' remaining value are too far out of balance with the market, bad things are likely to happen, such as a splitoff or a split-up rather than a retirement," he points out.

Unbundle retirement, ownership and compensation, Reeb urges. Retirement plans vary widely, but most have some component of multiple of salary, ownership percentage times revenue, an agreed-upon fixed price, a pay-out period of five to 10 years, and a cash flow cap that extends the payment terms if cash flow is tight.

Reeb encourages firms to have a mandatory retirement age. "Too many CPAs are 'retired in place,' and they dimmish the allure of partnership for the next generation," he says. "Why would anybody else want to be a partner? Have you seen what you're offering? 'I stay here as long as I want, make the most important decisions, make the most money, take everything out, and then you pay me when I'm ready to go.' Get real," says Reeb. (In IPA's 2005 Annual Analysis of Firms, 55% of nonnational firms report having a mandatory retirement age. The most common mandatory retirement age reported is age 65. Small firms are less likely to have a mandatory retirement age than large firms.)

Lack of a mandatory retirement age eats up sharable salary dollars and stagnates the firm, because older partners want to minimize risk and maintain the status quo until they're gone, Reeb adds. In addition, long-time partners often are reluctant to relinquish their roles as firm leaders, reducing the attractiveness of partnership for younger partners who may sense that their opportunities are restricted.

The alternative to mandatory retirement is for senior partners approaching retirement age to ease out of leadership roles and facilitate passing of the torch to future leaders. Reeb encourages outgoing leaders to shift from an ownership-based salary to a pay-for-performance salary. He urges firms to freeze the retirement benefit those partners will receive to the point in time when they had the leadership reins. Transition client management roles to the younger partners.

Don't Lose Sight Of The Real Goal Of Transition

Remember: transition is simply about giving clients more reason to stay with the firm than to leave it upon retirement of the partners with whom they have long-standing relationships. "Retiring partners should leave clients feeling that they got a better deal with the transition," Reeb says. He gives the following advice for transitioning clients:

* The CEO or MP should be in charge of developing the plan.

* The retiring partner's current compensation and future retirement benefits should be contingent on following the plan.

* The transition process should be at least three years.

* Create a list of clients who must be transitioned.

* Identify who is taking over responsibility for each account.

* Create a calendar specifying the order and tuning of initial contacts for each client.

* Transition the largest and most important clients first.

* If appropriate, create a team approach to serving the largest clients.

* Create standard operating procedures that outline allowable follow-up and involvement from retiring partners once the transition begins, for example, what to do in the first year when the client calls.

The plan should cover every client whom the retiring partner manages, and a partner or manager should be assigned to take over every account. Create a plan for each account that details what actions the new manager of the account and the retiring partner should take.

Spell out the consequences if the plan isn't executed properly, Reeb advises. Take related costs out of retiring partners' benefits if they don't cooperate with the plan's implementation. If the retiring partner doesn't follow the plan and any clients are lost within 24 months of the partner's retirement, then reduce the retirement benefit by one year's annual fees of each lost client. Reeb likes a two-year client retention minimum. "Two years gives you time to wheedle your way into the relationship. A client who stays with the firm for one year often is doing it as a favor to the retiring partner," he says.

Watch out for the following pitfalls, Reeb warns:

* Lack of decision-making authority;

* A dominant owner who maintains control until the end;

* Continuing roles for retiring partners;

* A designated rainmaker whose individual strengths become a weakness for the firm;

* Rotating managing partners, because it's a role that demands the best person for the job and consistency;

* Fragmenting the firm by basing it on book-of-business empires;

* Lack of interest in becoming a partner among young professionals with leadership potential.

"Succession begins with the identification of the firm's strategy, followed by empowering a management team with the necessary powers, establishing firmwide foundations of standard operating procedures that support your strategy, developing integrated systems that support the foundation, and tying compensation to the achievement of key objectives," Reeb says. "It's about working on your business and finally taking the steps you know you've needed to take for years. Most firms don't want to deal with this stuff, but you must deal with it, because it's coming whether you deal with it or not.

"Succession is also about making 'you' less important and developing a team of stars - not a team that's built around superstars. When you can leave and things go on fine without you, then you're successful. One person being so important that the business can't go on without them is the death knell for your organization."