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Succession Planning for Tax Preparers

Succession Planning for Tax Preparers

More than four out of five small businesses – including tax preparation firms and solo-practitioner CPA firms, have no plan for succession should the need arise.  That’s according to a four-year study conducted by Baker and Tilly International, a major business consulting and accounting firm.  The results are outlined in the report, "Succession Reset: Family Business Succession in the 21st Century."

The report was authored by Dr. Richard Shrapnel, PhD, an Executive Director/Partner of Baker Tilly Pitcher Partners, Melbourne, Australia, and also a Chief Investigator of the Baker Tilly Pitcher Partners/Swinburne University Succession Planning research project, from which the findings and data contained in the report are drawn.

“We’re in a new era of succession. The notion that the eldest child is going to take over the business when the parent is ready to retire is not a viable option for the continuity of family owned businesses,” says Carl Johnson, chairman of the North American Regional Advisory Council of Baker Tilly International.

“Succession today is just as much about the transfer of knowledge and skills as it is about the transfer of wealth. This is because the level of skills required to effectively run a business in today’s environment is far greater than it was in previous generations. If business owners haven’t helped the next generation develop these skills, the capital value of the business is going to be impacted. If a skills gap causes a vacancy in leadership, then it’s going be hard to maintain the desired business continuity,” Johnson adds.

The report includes a review of the existing literature, in-depth interviews with 77 persons across 49 families, and the analysis of survey responses by some 2,650 persons across 56 countries in nine languages.  It focuses specifically on succession planning among those who have completed a plan (16 percent); those who have initiated a planning process (33 percent); and those without a plan (51 percent).   Of the respondents surveyed, 9% were greater than 67 years of age, 35% were less than 49 years with 56% baby boomers between the ages 49 and 67.  Males represented 80% of respondents and 20% were female.

Succession planning is not simply about passing ownership and management of the firm to another family member.  Today, succession can also mean the sale of the business to an outside party; sale of the business to employees; merger with another firm; or simply allowing the business to slide into decline.  What it is not about, author Richard Shrapnel notes, is retirement – succession planning as the owner or principal retires comes too late.

This is especially important in today’s business environment, in which 73 percent of business owners do not see a compelling reasons to pass the business to a family member and would consider an outright sale.  While maintaining family harmony and maintaining jobs is a desired outcome of succession planning, US-based companies report a significantly higher level of conflict within families as succession planning is undertaken.

There are a host of mistakes that companies make when creating a succession plan.  Among these are:

  • A fear of the future. Like funeral planning and wills, there is an inherent feeling that planning for these events will somehow cause them to happen sooner.
  • Choosing to maintain the past rather than foster the future. In many small businesses, it founder/principal knows what must be done today, but not necessarily tomorrow.  This means that the successor may be chosen for his or her ability to carry out the founder’s vision rather than meeting unforeseen challenges in the future.
  • Planning only for the loss of the principal. A succession plan must consider successors for the whole management team or permanent staff.  There are time when the loss of the office manager is as bad – or worse – than losing the principal.
  • Making succession a popularity contest. By playing favorites or pre-selecting a candidate in secret, the process is subverted and will foster only disappointment and ill will.  A good planning process will identify the positions that require a successor, and then identify the skills and experience needed to make that position the most valuable it can be for the firm.
  • Failing to revisit the plan. It is easy to believe that once a plan is printed and bound, the issues have been resolved and requires no further attention.  But with changing market and industry environments, it is critical to review the plan on a regular basis to ensure it is still realistic and viable.

Fortunately, there are a wide range of tools to assist in succession planning.  Workforce magazine, for example, has a roadmap to succession planning online.  It includes a review of software modules from SAP, Oracle, Halogen, Peoplefluent and Silkroad Wingspan.  Cornerstone On Demand likewise has a number of resources that include white papers and planning advice.  More software to assist in planning is reviewed for 2015 here.



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