Are you a baby boomer and a CPA? Well, you’re not alone. The vast majority of practicing CPAs are baby boomers, about 75% according to the AICPA. This concentration of CPAs in one generation, a generation reaching retirement age, means that we are beginning to see a major exodus from the industry. In 15 years, only a quarter of today’s CPAs are expected to be left practicing. In fact, the average age span of CPA partners is 54-62, and nearly 50% of them are expected to retire in the next 5-7 years alone. What happens when all of the baby boomer CPAs enter into their golden years of relaxation? What happens to their clients? What happens with their practices?
What is Your Plan?
Most CPAs would answer with a resounding, “I don’t know!” Eighty-one percent of the firms surveyed by the AICPA do not have a documented succession plan. In the state of Connecticut alone, over half of the CPAs are over 50, yet 98% of the sole proprietor CPA firms do not have a written succession plan in place. Most industry observers regard succession planning as the #1 endemic problem in the CPA profession.
Since most CPAs don’t have a plan, what usually happens when it comes time to retire? Two different things are common in these situations. Either the CPA sells their practice to another CPA or they just shut down the business and refer their clients elsewhere. Most CPAs prefer to keep the doors open by selling their practice because of the money they can make off of the sale and so that they know their clients and staff are being taken care of and not left to fend for themselves. In fact, 84% of the Connecticut CPAs that do have a plan in place will transition to someone within their existing firm.
So if so many CPAs are nearing retirement, and they truly care about the people that they work with and that work in their practices, why don’t they have an exit strategy? For most it’s either because they don’t know what succession approach they want to take or they don’t have someone suitable to pass it on to, as 44% of the Connecticut respondents said.
A written succession plan is crucial for any business, especially as the owner nears retirement age. Without a plan in place, employees begin to get concerned, unsure as to the future of the firm and, therefore, their jobs. Excellent employees can be lost as they seek security elsewhere. Some clients may also have the foresight to begin shopping for a new CPA if theirs is aging and doesn’t seem to have any plan in place. Clients will expect to be served with the same care and consideration through their accountant’s retirement transition as they have been through the years they have been working with the firm. Being suddenly left without a CPA or going through a hastily patched together transition can be traumatic for clients and employees alike.
The lack of a succession strategy is not only a problem for business continuity, but for the retiring CPA’s retirement itself. In fact, 73% of CPA firms surveyed by the AICPA do not have a fully funded retirement plan for partners nearing retirement. Many CPAs are counting on proceeds from the sale of their business to help fund their retirement. Therefore, their ability to retire hinges on their ability to find someone to succeed them in the business.
In an environment where the majority of CPAs are looking to retire soon, the competition to find a worthy successor is fierce. You don’t want to sell your practice to just anyone with the letters CPA after their name. You want to find someone with the same work ethic and passion that you have for your clients, someone that will be a good fit with the culture and personality of your firm. Unfortunately, everyone else is looking for that same thing, too, and with the limited pool of skilled professionals that we see today, there are only so many qualified buyers to go around.
Ways to Attract a Successor or Buyer
In order to attract the best possible buyers, your firm needs to stand out from the competition and offer something more than just what every other CPA firm has to offer. One way to do this is by adding wealth management services to your firm’s offerings.
A firm that offers wealth management in addition to the usual tax and auditing services is very enticing to a buyer. The additional revenue stream makes the firm much more profitable, by up to 10-20%. This is a huge draw for potential buyers looking for a lucrative purchase. Just as wealth management services sets you apart from the competition in your quest to find a successor, your successor will appreciate the differentiation as they seek to grow the business.
Offering wealth management services will enable them to seek out more clients, especially as the baby boomers are retiring and needing help managing their nest eggs. Also, on a very personal level, a firm that offers wealth management services is more appealing to an accountant because it is more interesting and challenging, offering more room for personal growth for the firm owner.
By simply adding this one service to your firm’s offerings, you can distinguish yourself from among the plethora of firms out there looking for a successor. Providing wealth management at your firm will not only attract prime up-and-coming CPAs, but also current firms looking to diversify their offerings. Such mergers and acquisitions may be even more appealing to you as the seller because currently established firms may be in a better financial position to not only buy, but pay top dollar for the firm that you have so carefully built.
How to Add Wealth Management Services
The benefits of adding wealth management to your firm’s offering are obvious, but it can be a large and time-consuming undertaking that requires highly specialized skills. How can a busy CPA looking towards retirement and trying to put together a succession plan possibly have the time for that? You don’t need to. We will do it for you.
At CPA Squared we have a successful track record of helping CPAs just like you position themselves to attract the best possible successors by expanding their business beyond the traditional services offered by accountants through an excellent co-source arrangement. With our CPA Squared program, we have a proven model, turnkey system, and step-by-step process to enable you to integrate wealth management into your CPA firm.
If this sounds like something you might be interested in, or if you have questions about how this can better position you for a successful exit strategy, please contact me directly at 860-659-5977 ext. 204.