Building Tax Bench Strength and Driving Growth for Succession Presented by: Art Kuesel LEA Tax Partner SIG June 6, 2016

Art Kuesel, President Growth Plan Development/Implementation EXPERTISE (Cont.) Growth Plan Development/Implementation Managing Partner Coaching Sales & Marketing Recruiting Partner Roundtables STREET CRED Top 100 Most Influential Person in Public Accounting: 2014 In-house and external experience Clients include scores of T250 Firms including a third of the T100 Frequent writer and blogger for Accounting Today Accomplished speaker and presenter on growth trends EXPERIENCE Sales Executive 3 years @ $225M CPA firm 5 years @ $40M CPA firm 6 years at PDI/Koltin Consulting 3 years at Kuesel Consulting EXPERTISE Leadership and Sales Coaching Sales/Marketing Training

Today’s Discussion Survey Results Industry Trends What’s in a Succession Plan Your Succession Planning Matrix Building your Bench Starting the Conversation @ Various Levels Getting them Ready: Skills & Plans Timeline, Contingencies and Best Practices 3

Tax Survey Results

Succession Planning @ LEA Firms 1. What percentage of LEA firms have a formal, written succession plan in place? LEA Yes = 55% Tax Yes = 47% Nationally/Top 250 Yes = 30% (AICPA) 2. Does your firm have a mandatory retirement age? LEA Yes = 91% Tax Yes = 90% Nationally/Top 250 Yes = 64% (Rosenberg)

Succession Planning @ LEA Firms 3. We want to remain independent? LEA Yes = 91% Tax Yes = 95% Nationally/Top 250 Yes = “vast majority” 4. What percentage of your partners will retire in the next five years? LEA 1-24% = 45% Tax = 55% LEA 25-49% = 55% Tax = 35% 50-74% = 0% Tax = 10% 75+% = 0%

Succession Planning @ our Firms 5. Please rate your firm’s “bench”: LEA 18% Tax 14% = GREAT (more candidates than partner slots) LEA 73% Tax 76% = GOOD (1:1 ratio) LEA 9% Tax 10% = FAIR (maybe 1 rising star) 0% = POOR (bench is empty)

Succession Planning @ LEA Firms 6. Do your firm’s “rising stars” know what it takes to be a partner? LEA 86% Tax 76%= Yes LEA 14% Tax 24% = No

Succession Planning @ our Firms 7. What is your firm doing to build the bench and develop top talent? LEA 86% Tax 71% = Mentorship LEA 59% Tax 62%= Personal development plans for rising stars LEA 41% Tax 62%= Performance Coaching LEA 64% Tax 57%= External dev. Programs LEA 50% Tax 57% = Internal development programs for rising stars (XYZ Path to Partner Program)

Succession Planning @ LEA Firms 7. What is your firm doing to build the bench and develop top talent? LEA 45% Tax 52% = Internal development programs (XYZ University) LEA 41% Tax 47% = Experienced lateral hires aligning with our current practices LEA 41% Tax 43%= Real-time feedback LEA 36% Tax 33%= Experienced lateral hires bringing new practices/niches

Succession Planning @ our Firms 8. How is your firm fueling growth? LEA 86% Tax 95% = Active client development LEA 95% Tax 86% = Service line expansion LEA 48% Tax 49% = Practice innovation LEA 62% Tax 48% = M&A LEA 38% Tax 43% = Lateral hires LEA 29% Tax 19% = “Productization” Giving great service to enable XS and Referrals ??% = BDE’s

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge (LEA FIRMS): (4) Finding the time to develop/train future partners especially in BD/rainmaking (3) Getting Partners to Transition Clients by 65 (2) Fueling Growth (2) People Retention Building the Bench with Laterals Effectively using BDE’s

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge: Aligning all Partners under Common Vision/Strategy Keeping outgoing partners busy during last three years while work is being transitioned Equity vs Income Partners (Income want it handed to me vs growing it) Not enough 4-8 year talent to allow rising stars at SM level to become partner

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge: Commitment of NG partners to relationship development, problem solving, and consulting Finding good leaders 10 years out Gap in business strategy knowledge among HP’s

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge (TAX): (5) Outgoing partners not fully willing to transition or step aside for benefit of firm (3) Continuously feeding the talent pipeline to address succession (2) Future partners are not rainmakers Finding young talent that wants to put in the time and effort and doesn’t feel entitled right away

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge (TAX): Rising stars have the desire and ability but are overall quite inexperienced No time limit for selling of equity Developing specialized niche services Hiring and maintaining seniors and managers to allow senior managers and partners to optimize roles Timing: several big books are transitioning at once

Succession Planning @ LEA Firms 9. My Firms biggest Succession Planning Challenge (TAX): The gap between partners with 12-15 years of experience and partners with 30-40 years of experience Some niches in great shape for succession while others not so much. Who’s job is it to push the issue?

Industry Trends

#1 Average Age of Equity Partners In 1995: 46 In 2000: 48 In 2015: 52 Percent of Partners 50+ in 2015 61% Source Rosenberg Survey and IPA

#2 Population Size by Generation Availability of Accounting Grads Source: Pew Research

#3 Labor Force Size by Generation Population Size

#4 Availability of Accounting Grads Source: AICPA 2003: 53,000 2009: 35,000

#5 MP Job description Turn lights on @ 5:05am, client service, business development, people issues, partner issues, technical knowledge, physical space issues, financial management, hiring decisions, niche expansion, competitive intelligence, public relations, client retention, technology, vision, leadership, sports tickets, vendor relationships, industry knowledge, referral sources, recruiting and retention, legal and liability issues, lateral hires, M&A, partner performance, realization, profitability, strategic alliances, partner compensation, succession planning, and turn lights off @ 9:27pm.

#6 Perceptions Our perception of the immediacy of this issue Our perception of the need to help/develop the next generation Our perception of the work ethic or style of the next generation of partner Their (NG) perception of our firm Their perception of the partner role Their perception of the current partners Our perception of our options And the list goes on>>>>

What’s in a Comprehensive Succession Plan?

What’s in a Succession Plan? Strategic Vision: 5-10+++ Years (vision, mission, size goal, services, geography, niches, etc.) ID retirement scope for each current partner Identify people development needs to fill retirements and meet growth targets Assess gaps & how we’ll fill them Define criteria for future partners ID partner candidates and plans for each Buyout plan, buy-in plan Client transition plans for “A” and “B” (process for “C”)

Your Succession Planning Matrix

Step 1: Your Partner Age Matrix Partners & Ages 2016 2017 2018 2019 2020 Jim 64 65 66 Nancy 62 63 Mike 53 54 55 56 57 Graham 49 50 51 52 Jennifer 42 43 44 45 46

Step 2: Revenue/Partners Needed Year Revenue Growth at 9% Partners Desired Fees/ Partner Retiring Needed Need to Prep 2016 $10M 5 $2M > 2017 $10.9M $2.2M 2018 $11.8M 6 1 2 ??? 2019 $13M 2020 $14M 7

> What Percentage of Managers “With Potential” Actually Make Partner? 10% 33% 50% 75% 100%

Step 2: Revenue/Partners Needed Year Revenue Growth at 9% Partners Desired Fees/ Partner Retiring Needed Need to Prep 2016 $10M 5 $2M > 2017 $10.9M $2.2M 2018 $11.8M 6 1 2 3-4 2019 $13M 2020 $14M 7 ???

> What Percentage of Supervisors “With Potential” Make Partner? 10% 33% 50% 75% 100%

Step 2: Revenue/Partners Needed Year Revenue Growth at 9% Partners Desired Fees/ Partner Retiring Needed Need to Prep 2016 $10M 5 $2M > 2017 $10.9M $2.2M 2018 $11.8M 6 1 2 3-4 2019 $13M 2020 $14M 7 OMG

Building your Bench

So, Who’s on the Bench for 12/31/18? 2 spots open and we have 2 potentials… Our Statistics tell us that up to 50% will: Get recruited away, leave the profession, be terminated, have a major family change, have a personal life crisis, doesn’t end up being partner material, won’t delegate, can’t develop business, can’t develop people, cause internal issues, etc. and so on… So We Ideally Need 3-4 Partner Potentials in Development…NOW.

Building the Bench for 12/31/18 Finding 1-2 more… a) Accelerated development of YP’s with HP 8 years to partner? Why not! There is no law that says it needs to be 12-15 years “just because that’s the way it was for me…” (In fact, we can’t afford that luxury right now) Create a customized internal plan* for your HP’s that are a bit “green” but are clearly partner material Plug these people into external programs or internal programs earlier ADVOCATE and SPONSOR

Building the Bench for 12/31/18 Finding 1-2 more… b) Laterals/Experienced Recruitment Retained search firm – with acute target(s) in mind Recruiters on-staff Staff communication and bonuses to recruit their friends Personal talent pipelines – required @ all levels Boomerangs (geography and firm) WHITE GLOVES OFF

Building the Bench for 12/31/18 Finding 1-2 more… c) Rewrite the Requirements Non-Equity PT, Virtual, Flex, 70% Non-CPA’s?!?!?! Look outside our market Use better VALUE PROPOSITIONS

Building the Bench for 12/31/18 Finding 1-2 more… d) M&A If the talent matrix works – why not? Just make sure the culture is right

Who’s on the Bench for 12/31/20

Who’s on the Bench for 12/31/25

Bench Building Programs

“Path to Partner” Program (2018’s) An intense program that combines evaluation, mentoring, coaching, sponsorship, shadowing, training/CPE, leadership project(s), roundtable forums, information sharing, Q&A, and more Eligible candidates are senior managers (or equivalent) Usually time-limited (for example 2 years) Monthly touch-points and quarterly review-points Significant commitment from participants and direct supervisors Annual self-review/review Partner memo

“Leadership Development” Program (2020’s) A program that combines mentoring, training/CPE, roundtable forums, leadership projects, sponsorship, information sharing, Q&A, and more Eligible candidates are new managers Usually time-limited (for example 4 years) 6x annual touch points Moderate commitment from participants and direct supervisors Annual self-review/review

“XYZ Firm University/Academy” (2025’s) A program that combines mentorship and training/CPE Everyone is eligible, no time limits 4-12x annual touch points Limited commitment from participants Limited commitment from direct supervisors

Boosting the Bench

Core Skills for Leaders in CPA Firms Firm Development Business Development People Development Client Development Personal/Professional Development

Personal and Professional Development Technical Expertise Personal SWOT/Defining your Personal Leadership Style Time Management 101 Accounting Firm 101 Credibility Communication Strong Work Ethic Billable Hours/Realization Goals

Client Development Understanding your Role with the Client Being a Proactive Advisor Developing Relationships and Building Trust Cross-Serving/Selling Achieving Loyalty – and Referrals!

People Development Delegation and Leverage as a Development Tool Team Building 101 Serving as a Mentor and Coach to your Team Performance Management of Others Delivering Effective Feedback

Business Development Building a Personal Brand and/or Niche Capitalizing on your Biggest Asset: Clients Developing a Referral Source Network Succeeding at the Sales Process Achieving a Goal for Originations

Firm Development Herding Cats: Leading Other Partners Creating a Culture of Accountability Strategic Planning 101 Leveraging Technology Talent Acquisition Niche Growth and Expansion

Each Plan will be Different Firm Development Business Development People Development Client Development Personal/Professional Development

Plan as Foundation Objective Strategies/Actions Goals Advisors/Coaches Process/Approach

Timeline, Contingencies and Best Practices

Service Line Expansion: Tax Centric Percentage of Top 100 Reporting Growth in these niches/service line specialties: SALT 80% International Tax 78% Estate/Trust/Gift 78% Family Office 60% Cost Segregation 45% R&D Tax/ICDISC XX? What other service lines can we develop from within Tax?

Starting the Conversation with 2018’s (Path to Partner Program) We think you are partner material here at the firm… We’d like to work with you on a plan that rounds out your skills in areas we see as important to being a successful partner at this firm… Short and medium term we’d like to expose you to more opportunities to lead and demonstrate your strengths while propping up acute weaknesses… We don’t have all the answers you are probably seeking – yet – but we will find them together Ideally we’d have you ready sometime between X and Y…

Fueling Growth: Three Ingredients 1 Part Organic + 1 Part Laterals + 1 Part M&A = Growth!

Client Transition Guidelines A and B Clients = 3 Year Runway Minimum of 4 Transition Activities/Year Definitions apply! Goal is that by 12th touch all aspects of relationship have transitioned. Closely managed by MP Smaller Clients/C Clients Full “hand-off” as early as possible Priority should be on A’s and B’s

Budget Path to Partner Leadership Academy XYZ University $4,000-7,500 per candidate per year 100-200 hours/year per candidate Leadership Academy $1,500 - $2,000 per learner per year 100-150 hours/year per candidate XYZ University $1,000 – $1,500 per learner per year 50-99 hours/year per candidate Does not include time and resources used in establishing the programs.

Reasonable BD Targets for P2P Candidates Year 1: $50K Years 2-3: $50-100K Years 4+: $100K+ Requirements for Originations to be Made Partner: $100K-500K Yes, this is more than many of your current partners!

Deconstructing a Successful BDE Culture, Culture, Culture Previous Success Consultative Selling Knows our Services Worked in a Partnership Strong Network of Ideal Clients 2 Year Runway for Success Motivating Compensation Structure

What goes into High EE Retention? Vision and mission Ongoing Learning and Development Opportunities to lead Flexibility Recognition and Frequent Feedback Great leadership @ firm Challenging assignments Strong employer brand Community responsibility Innovation Internal Forums for YP’s Communicate the Career Track/ Advancement Opportunities Great compensation and benefits

Learning and Development Directors A person responsible solely for the development of our people and creating and driving programs (like discussed today) Not to be confused with a HR Director, HR Manager, HR Coordinator, Office Manager, COO, etc.

External Programs Rainmaker Upstream Academy The Growth Partnership

LEA Support LEA YP Group Promotes professional growth and advancement for future leaders: Conference Calls In-Person Sessions @ LEA Conferences LEA YP Volunteer Week Best Practices Sharing

Find Resources: kueselconsulting.com/LEA

THANK YOU! Art Kuesel, President Kuesel Consulting, Inc. 312.208.8774 art@kueselconsulting.com www.kueselconsulting.com