Who is Going to Take Over My Practice? July 11, 2011 Timothy I. Michel, CPA M ICHEL CONSULTING GROUP LLC Creating Practice Value

PositionNumber CEO/Managing Partner ___ Service line or industry leader ___ Practice Partner ___ COO/Firm Administrator ___ Department head (HR, IT, Mktg.) ___

M ICHEL CONSULTING GROUP LLC Creating Practice Value PositionNumber CEO/Managing Partner ___ Service line or industry leader ___ Practice Partner ___ COO/Firm Administrator ___ Department head (HR, IT, Mktg.) ___

M ICHEL CONSULTING GROUP LLC Creating Practice Value

 Leadership and management  Established relationships  Knowledge and expertise  Work ethic  Ability to deliver value M ICHEL CONSULTING GROUP LLC Creating Practice Value

 Long-term viability of the firm  Loss of clients  Loss of knowledge and expertise  Loss of established relationships  Affordability of partner buy-outs  Providing ongoing leadership, management and business development  Growing the firm’s value  Retaining firm succession options

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Aging Baby-boomer partners and key department leaders  Leadership program is often lacking  Future partner candidates Some have left public accounting Many are not willing to make the commitment  Many firms have not addressed their issues  Result - M&A opportunities

Regarding multi-owner firms:  63% will have succession issues within 5 years  Only 35% have a succession plan in place  41% have a partner track program in place M ICHEL CONSULTING GROUP LLC Creating Practice Value

 Year = 2003  Top 100 firm – average growth = 12%  About 25 shareholders, 10 offices, 200 people  Polled partner group re: retirement plans  Close to one-half retiring within 10 years

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Question – How do we create enough leaders to replace those who are retiring and provide for future growth? Determine the super-stars Rea NextGen program Manager and Senior workshops Coaching – mentoring – training emphasis – awards Addressed specific issues Create the Rea Academy

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Discuss the succession issues facing firms  Review approaches to address succession  Discuss structural, cultural and operational solutions

Does your firm have a formal written succession plan in place identifying specific upcoming retirements and plans to transition the clients, knowledge and relationships of the retirees? Yes ___ No ___ M ICHEL CONSULTING GROUP LLC Creating Practice Value

 First generation partners  Desire to pass on something of value  Book of business = security blanket  Trusted advisor relationships  A loss of status, position, value or worth  Like estate planning, it is easy to put off

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Easier to ignore than deal with  Our people are busy and committed  You can’t replace the person or the passion  Kickback from clients  “No one is ready or willing to step up”  The firm hasn’t addressed training  Perhaps not a priority to retiring partner

M ICHEL CONSULTING GROUP LLC Creating Practice Value

1. Poll partners and department heads 2. Create a firm succession timetable 3. Require individual transition plans 4. Prepare an overall firm plan 5. Provide for accountability

M ICHEL CONSULTING GROUP LLC Creating Practice Value Poll partners and department heads ***  Desired retirement date  Full or partial retirement  Current roles and responsibilities  Client relationships  Specialized knowledge, expertise, certifications  Important relationships  Potential successors and their state of readiness  Short-term contingency issues

Create a succession timetable ***  Paints a picture of the succession issue  Raises awareness among the partners  Place succession as a firm priority M ICHEL CONSULTING GROUP LLC Creating Practice Value

 Require individual written transition plans, detailing ***  Specific successors  Transition steps to be completed  Assignments and timelines

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Prepare an overall written firm succession plan, including  The key-person retirement schedule  A firm impact report  The plan to mitigate risks related to specific retirements  A means of accountability

M ICHEL CONSULTING GROUP LLC Creating Practice Value

Generally, my firm begins the formal transition process from a retiring partner/department head to his/her successor at the following time frame before retirement: ___ Not specific___ 3 years ___ 1 year___ 4 years ___ 2 years___ 5 years

M ICHEL CONSULTING GROUP LLC Creating Practice Value Has your firm defined roles, responsibilities and attributes for positions of leadership (CEO/MP, COO, Services line and industry niche leaders, department heads, etc.)? Yes___ No ___

M ICHEL CONSULTING GROUP LLC Creating Practice Value  Define the role based upon the firm’s needs  Create a profile of the position  Determine the candidates  Do personality profiling of candidates  Interview candidates & make selection  Transition  Clients  Referral sources  Key relationships  Knowledge and expertise

M ICHEL CONSULTING GROUP LLC Creating Practice Value My firm operating agreements require an equity owner to retire at: ___ Age 65 ___ Social security normal retirement age ___ Not addressed in the agreement ___ Other

M ICHEL CONSULTING GROUP LLC Creating Practice Value My firm operating agreements require an owner to give the following notice before retirement : ___ Not specific___ 3 years ___ 1 year___ 4 years ___ 2 years___ 5 years

M ICHEL CONSULTING GROUP LLC Creating Practice Value Operating and owner agreement provisions  Require adequate notice  Consider death, disability, early and normal retirement, involuntary withdrawal  Covenant-not- to-compete clauses  Clients  Staff  Realistic and fair valuation methods  Require continual cooperation and goodwill

M ICHEL CONSULTING GROUP LLC Creating Practice Value

1. Create a partner development program  Define desired partner attributes  Define the core competencies needed  Introduce attributes and competencies into staff development  Identify superstars  Provide training, development and coaching *** 2. Create a contract partner position  Flexible plan defining their role, number of hours and the determination of pay  Always at the firm’s discretion

M ICHEL CONSULTING GROUP LLC Creating Practice Value Has your firm developed a formal program to allow retiring partners to continue with the firm as an employee or in a similar capacity on a reduced schedule? Yes___ No ___

M ICHEL CONSULTING GROUP LLC Creating Practice Value Has your firm developed a formal leadership development program or partner development program, either in-house or in conjunction with outside programs? Yes___ No ___

M ICHEL CONSULTING GROUP LLC Creating Practice Value 3. Other partner items  Utilize income-partner-in-training program  Provide an easy partner buy-in and buy-out 4. Promote the right partner behavior  Increase leverage  Delegate challenging work  Train and coach staff  Share relationships with clients, business referrals and distribution channels

M ICHEL CONSULTING GROUP LLC Creating Practice Value 5. Plug the 6-8 year exodus from the profession  Share the best parts of public accounting  Relationships  Clients  Reward and recognition  Have open discussions about the opportunities  Involve them in firm matters  Provide leadership, soft skill and BD training  Offer an array of career opportunities  Make it personal

M ICHEL CONSULTING GROUP LLC Creating Practice Value 6. Make the partner role more appealing  Lose the “It sucks to be you” syndrome  Get partners to behave better – be a role model  Create a career path that is attractive  Make it fun, interesting, challenging & rewarding  Inform staff about the partner world  Inform staff that industry also has its demands  Educate staff on the advantages  Personal achievement and growth  Good money  Making a difference in people’s lives – clients, staff, and community

M ICHEL CONSULTING GROUP LLC Creating Practice Value 7. Joint partner/manager meetings – discuss issues and make them responsible for solutions 8. Tie transition steps to partner compensation 9. De-emphasize book-of-business model  Promote – ‘Firm clients – firm resources’  Build a team to serve the clients  Reward behavior through compensation

10. Create a firm structure and culture that promotes continual succession M ICHEL CONSULTING GROUP LLC Creating Practice Value

11. Develop talented staff  Communicate the firm vision  Provide challenging work  Hold them accountable for responsibilities  Involve in decision making  Timely performance feedback  Provide advancement opportunities  Training, coaching and mentoring  Recognition and reward  Make it fun

M ICHEL CONSULTING GROUP LLC Creating Practice Value