About the Authors ix
Acknowledgments xi
Introduction xiii
1 The Marketplace 1
What Are the Marketplace Trends? 2
The Overall Economy and CPA Firms 2
International Trends 4
Trends in CPA Firm Demographics 4
Technology Trends 7
Gender Trends 8
Where Do Firms Stand on Succession? 9
So, Is It a Buyer’s or a Seller’s Market? 10
Sizing Up the Seller 11
Shifts in the Mid-Size Firm Market 11
Get Ahead of the Trend 12
Exceptions to the Rule 13
Let’s Talk Technology 14
Finding Alignment 15
2 Succession: Getting the Timing Right 17
Let Me Count the Days 17
Where Do Client Loyalties Lie? 19
Unique Skills 20
What Are Your Commitments? 21
Personal and Professional Roadblocks 22
Committing to Retirement or Sale of Ownership 24
Jump Start Change 25
Sooner Rather Than Later 27
Action Agenda 27
3 How to Choose a Successor You and Your Clients Will Love 29
Think About the Four Cs 30
Chemistry 30
Capacity 32
Culture 32
Continuity 33
3 How to Choose a Successor You and Your Clients Will Love—continued What Is the Worst That Could Happen? 34
Smart Ways to Smooth the Transition 35
Worth the Effort 38
Action Agenda 39
4 Our Managers Will Buy Us Out, Right? Speed Bumps to Avoid on the Road to Internal Succession 41
What Is on Your Partners’ Minds? 42
Strengthening the Partnership Agreement 43
Protect Against Risk 44
CoverAll the Angles 45
Be Sure It Is a Workable Plan 46
Who Should Lead? 47
Training Future Leaders 47
Nonequity Partners 49
Using Mergers for Leadership Development 53
Do Not Overlook These Keys to Making a Deal Work 53
The Buyout Formula Must Be Attractive 53
Lifestyle Issues Have Become More Important to Younger Potential Successors 54
Leadership Is a Critical Attribute for Successors 54
Keep Succession in Mind With Each New Hire 55
Teamwork Is Essential to Success 55
Will the Transition Work? 55
Transitioning Client Relationships 57
Identify Critical Issues 58
Don’t Forget the Safety Net 59
Action Agenda 59
5 What Is a Firm Worth? 61
External Versus Internal Sales 61
What Is the Multiple? 62
Negotiating an Internal Sale 63
A Willing Seller Still Needs a Willing Buyer 66
Effect of Tax Treatment and Interest on Deferred Payments in Buyout Terms 72
5 What Is a Firm Worth?—continued Using Mergers and Acquisitions to Build a Succession Team and Preserve Value 72
Positioning the Firm for Possible Merger 75
What You Need to Know About External Sales 76
Net Tangible Assets 77
The Intangible Value 78
The Structure of an Acquisition 79
Price Equals Value Plus Terms 81
Factors That Affect Value 82
A Practice of Under $1Million 82
Negotiating a Deal for a Larger Firm 88
Types of Clients and Services 88
Staff 88
New Marketplaces 88
Capacity 89
Steps to Increase Value Before You Sell 89
Action Agenda 94
6 Alternative Deal Structures 95
Immediate Buyout 95
The Two-Stage Deal 97
The Cull Out Sale 101
Mergers Versus Acquisitions 103
Combination Deals in Mergers 104
Adding It Up 107
Relative Values of Two Firms in Mergers 107
Compensation Gaps 108
Dealing With Conflicting Policies 111
Other Postmerger Issues 112
Client Transition 112
Advising Clients 112
What Is Left Hanging 113
Perks 113
The Right Deal for You 114
Action Agenda 114
7 Managing Merger Minefields 115
Reasons Some Mergers Fail 115
Mergers for the Wrong Reasons 116
Poor Deal Structure 116
Business Plan Execution 116
Differences in Overhead and Profitability 117
Transition 118
Equity 119
Billing Rates 119
Differences in the Client Experience 120
Differences in Quality Control Systems 121
A Failure to Communicate 121
Ego 121
Timing 121
Potholes in the Partnership Agreement 123
Do Not Forget Accounts Receivable and Work in Process 125
Let’s Call the Whole Thing Off 127
Terms to Address 130
When a De-merger Clause Is Definitely Not Appropriate 132
Partial De-mergers 133
Merger Costs 133
Combination Affiliations 133
Action Agenda 133
8 The Power of a Practice Continuation Agreement 135
Why PCAs Matter 136
An Exit Strategy 138
What Is in a PCA? 140
The Triggering Events 140
Compensation Terms 141
Restrictive Covenants 142
Your PCA Partner:A Trusted Internal Employee 142
Your PCA Partner:A Successor Firm 143
Capacity 144
Client Service Approach 144
Service Pricing 145
8 The Power of a Practice Continuation Agreement—continued Expertise 145
Partner Demographics 145
Culture or Chemistry 145
Do Not Overlook the Small Stuff 146
Why a PCAIs Not a Good Retirement Vehicle 146
Plan for the Business of Transition 147
Planning for Leadership Interruption 148
ActionAgenda 149
9 The Keys to Due Diligence 151
Laying the Groundwork 152
What Is Due Diligence? 152
Timing:When Should the Due Diligence Review Begin? 153
Preliminary Versus Field Due Diligence 154
Protecting Proprietary Information 156
Conducting Field Due Diligence 157
Field Due Diligence for Buyers and Successors in Mergers 157
Field Due Diligence for Sellers and Firms Merging Upstream 163
Deal Terms and Due Diligence 167
Reacting to Due Diligence Findings 167
Action Agenda 167
10 Getting the Transition Just Right 169
Client Retention 170
Timing of the Announcement 170
The Message 170
Introducing the Successor 171
Involvement of Both Firms in the Communication Process 171
The Seller’s Time Commitment to the Transition 171
Staff Retention 173
Inform the Most Senior Staff Members First 173
Make a Special Announcement 174
Send an Upbeat and Positive Message 174
Tackle Compensation and Benefit Concerns 174
10 Getting the Transition Just Right—continued Address Employment Agreements 174
Clarify Reporting Relationships 175
Emphasize Career Opportunities 175
Orient New Employees 175
Maintain an Open Dialogue 175
The Transition Plan: Steps to Consider 175
Action Agenda 178
11 The Art of the Deal 181
When the Firm Opens Its Doors 181
If the Firm Is Already Up and Running 182
If You Are Planning on Internal Succession 183
If the Firm Is Very Small 183
When You Are Considering a Deal 184
When You Are Ready to Meet Candidates 184
When You Are Thinking About Timing 185
When the Deal Is Being Finalized 186
Embrace the Opportunities 187
Appendix Page
A National Management of an Accounting Practice Survey Data 189
B Annual Succession Planning Checklist 195
C Sample Practice Continuation Agreement 199
D Sample Client Announcements 209
E Due Diligence Tools 213
F Sample Transition Letters 239
G Practice Summary Sheets 249
