Presented by August Aquila, CEO AQUILA Global Advisors, LLC

 August is the CEO of AQUILA Global Advisors, LLC which specializes in succession planning, mergers and acquisitions, compensation plans and transformational strategic planning  Selected as one of the “Top 100 Most Influential People” in the Accounting Profession by Accounting Today in 2004, 2007 and 2009  Former partner in top 100 firm – Friedman, Eisenstein, Raemer & Schwartz (FERS)  Former executive with American Express Tax & Business Services, Inc  August counts among his CPA clients firms ranging from more than $110 million in revenue to as small as $1 million.  What differentiates August from other advisors is his unending devotion to implementation and his in-depth knowledge and experience 2

 Compensation Plans  Mergers & Acquisitions  Strategic Planning  Succession Planning 3

 Current Succession Planning Landscape  Recent Survey Results  Getting Started – Working on the firm not in it  Value creation 4

 What do you want to achieve today?  What will be your greatest take away? 5

What You Need to Know

7 “Failure to plan for succession is the greatest current threat to the future of the accounting profession and should be the firm’s most important strategic issue”

8 “Succession Planning is about creating opportunities” August Aquila

PARTNERS LIFE IS GOOD, I MADE IT TO THE TOP MANAGERS CAN’T WAIT TO BECOME AN OWNER STAFF GALORE UP AND OUT WHO CARES 9

STAFF WHAT DO THEY LOOK LIKE? MANAGERS TELL ME AGAIN WHY I SHOULD BE AN OWNER PARTNERS NOW, WHAT DO WE DO? 10

 Will I get paid?  Will the clients stay?  How will the payments be structured? ◦ Capital gains or ordinary income  Should I sell the firm or merge?  Should I sell now or wait?` 11

 Can we afford to pay THIS MUCH?  Can we retain his/her clients?  Should we put a cap on our retirement payments?  Should we have a mandatory retirement age? 12

 Multi-Owner Firms ◦ Have started plan 35% ◦ Will start in next 2 years 32% ◦ Will start in next 5 years 10% ◦ Will start in next 10 years 3% ◦ Plan drafted 9% ◦ No need 10%  Sole Practitioners ◦ Have started plan 17% ◦ Will start in next 2 years 43% ◦ Will start in next 5 years 23% ◦ Will start in next 10 years 3% ◦ Plan drafted 3% ◦ No need 10% Source AICPA 2008 Succession Planning Survey 13

 Multi-Owner Firms ◦ Current 20% ◦ Next 1 to 2 years 13% ◦ Next 3 to 5 years 30% ◦ Next 6 to 10 years 17% ◦ More than 10 years away 3% ◦ No challenges16%  Sole Practitioners ◦ Current 14% ◦ Next 1 to 2 years 18% ◦ Next 3 to 5 years 33% ◦ Next 6 to 10 years 27% ◦ More than 10 years away 5% ◦ No challenges3% 14

 No one does it better  Key rainmaker  Don’t talk to me about succession  Next in command is not a threat  Younger partners not ready  Internal political issues  Won’t transition clients  Senior partners won’t retire 15

 Succession planning is the ultimate management challenge.  It addresses our own mortality.  It deeply touches a wide range of emotions:  Dreams (met and unmet)  Hopes  Security  Relationships with family and co-workers  Ambitions  Fears 16

Working on the firm, not in the firm.

1. Separate personal identify from practice 2. Develop 3 prong plan 3. Determine what your practice is worth 4. Cultivate a team 5. Develop other interests 6. Have a well-written partnership agreement 7. Choose a successor 8. Develop plans for successor 9. Create your succession plan 18

19 “It’s easier to live with ambiguity”

20 SUCCESSION RECRUITINGRETENTION NEW PARTNERS

1. Safeguard the long-term health of the practice 2. Ultimately plan for your own retirement security 3. Prepare for and install a successor 4. Let go of a business that you spent a lifetime building 21

It’s Time to Face the Music! 22

 Do you have a succession plan?  Is some or all of your retirement plan funded?  Do you expect to be bought out?  Do you know who will buy you out?  Do you have afixed date? 23

 What do you think is the first and second best choice for your firm and why? ◦ Do nothing and eventually let the practice die ◦ Split up ◦ Sell to consolidator (such as McGladrey, Cbiz, Fiducial) or an independent public accounting firm ◦ Merge – downstream, upstream or lateral ◦ Bring in people to take over ◦ Transition to existing group of employees 24

 “This firm would be nothing without me.”  72% don’t have funded retirement plans  Senior management stays in place too long  Firm founder is key rainmaker  Founders/MP wear too many hats  All or most partners come from within “In the US our heroes die with their boots on. They don’t fade into the sunset.” 25

 What is the value of the practice without me?  How can I transfer what I do to others?  How do I pass on my skills?  How do I pass on my business and client relationships?  How do I start taking a secondary role in the firm? 26

“This firm would be nothing without me.” 27

Learn to delegate How do you start giving up control? 28

 A strategic plan for the firm  A policy around funding or not funding partner deferred compensation plans  A personal financial security plan for the retiring owner, including an estate plan for your spouse, children 29

 What do you want the firm to become?  What do you need to do to realize this dream? 30

 Funded plan  Unfunded plan  No plan 31

 Trade off between current compensation and long-term security  Funding with qualified retirement plans ◦ Tax deductions for funding the plan ◦ Assets protected from creditor claims ◦ Qualified trust earnings are tax deferred ◦ Qualified plan should not discriminate in favor of highly-compensated employees 32

 Funding with non-qualified plans ◦ Funding a non-qualified plan does not results in a tax deduction ◦ Creditor claims can erode plan assets ◦ Can discriminate in favor of highly compensated owners ◦ Plan earnings are currently taxed to the firm 33

 Based on trust and goodwill  Pay as you go  Base on agreed upon valuation formula ◦ Equity or multiple of compensation ◦ Return of owner’s capital 34

 Very small buy in and very small buy out  Typical law firm retirement plan 35

 Multipliers – Revenue or Book Size* ◦ More than $1 on the $17% ◦ $1 on the $1 42% ◦ 95 cents on the $12% ◦ 90 cents on the $13% ◦ 85 cents on the $12% ◦ 80 cents on the $17% ◦ 75 cents on the $1 14% ◦ 70 cents on the $13% ◦ 65 cents or less on the $1 13% *Source AICPA Succession Planning Survey 36

 Multipliers – Salary ◦ Less than one year’s salary6% ◦ One year’s salary8% ◦ One year’s salary x 1.53% ◦ One year’s salary x % ◦ One year’s salary x % ◦ One year’s salary x % ◦ One year’s salary x 3.5 3% ◦ More than one year’s salary x 3.5 5% Source: AICPA 2008 Succession Survey 37

 Accrual basis capital account (ABC) ◦ Paid over 5 years ◦ Often with interest  Goodwill (computed on cash basis) ◦ Larger firms use a multiple of compensation ◦ Smaller firms use a calculation base on fees ◦ Usually paid out over 10 years ◦ No interest ◦ Annual cap on payments  Usually 5-10% of revenue 38

 Learn to delegate ◦ Identify your transition team ◦ Build their competencies ◦ Create trust in the organization 39

 Single owner ◦ Two managers  Firm has revenue in excess of $700,000  Owner has transitioned 5080% of work to the two managers  Margins 45%+  Should the owner sell to the managers or look for a firm to buy him/her out? 40

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 What will you do with the rest of your life? ◦ New business opportunities ◦ Civic, charitable endeavors ◦ Travel, play golf, etc 42

 Key Partnership Agreement Issues ◦ Mandatory retirement age from partnership ◦ Client transition tied to benefits ◦ Cap total dollars to be paid in any one year ◦ Determine vesting period ◦ Define partner disability 43

◦ How much advanced notice should be given ◦ Non-compete and non-solicitation agreements ◦ Early retirement penalty ◦ Termination with and without cause ◦ Continued use of firm’s name 44

 Unplanned exit of the owner (death) ◦ Financial hardship to family ◦ No one else in family qualified to hold interest in practice  Loss of clients and goodwill o Remaining asset have little value 45

 What it is  How to get started  Analyze the practice  The deal structure ◦ What size firm 46

 Have a buy-sell agreement with a key employee if possible  Have a practice continuation agreement with a larger firm  Selecta trusted advisors to quickly sell the practice 47

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49  Identify possible replacements.  Look inside and outside of the firm.  Evaluate all potential successors.  List your first, second, and third choices.  Have key players document information.  Cross-train your employees.  Ask for help to formalize your plan.

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 Identify specific competencies  Provide informal coaching by assigned partner  Give on-the-job training opportunities  Offer formal training in interpersonal skills  Make available formal training in delegation and supervision  Send future leader to external leadership training program 51

52  Empower people throughout the organization to do their jobs responsibly and autonomously.  Identify managers or other staff with potential.  Mentor promising staff.  Include junior staff in decision making.  Set up a timetable for new leadership.

◦ Looks at a 1 – 3 year window ◦ Don’t copy another’s plan ◦ Use outside advisors 53

 Will I be financially secure after retirement?  Have I identified a successor?  Do I believe that there is meaning to my life outside of the practice?  Do I have new challenges to look forward to after retirement?  Am I committed to an effective succession plan?  Can I delegate authority to others?  Have I announced a firm date for my retirement? 54

 7 yeses - you didn’t need this program  6 yeses - you are almost there  5 yeses - you are more than half way there  4 yeses - start getting serious  3 yeses - get an outside advisor  2 yeses - at least you are thinking  1 yes - you are under 40 or plan to work forever 55

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 Hold a brainstorming meeting ◦ Spouse ◦ Major clients ◦ Advisors ◦ Employees  Failure to plan... ◦ Fire Sale?? ◦ Lower price ◦ Force to sell at a weak time 57

 When you reach mid to late 50s  Gives you a 5 to10 year window  Know when to leave  Tie succession/retirement plan to your personal wealth accumulation 58

 Liquidity  Provide new owners opportunities  Enhance value of your firm  Release energy of successors 59

60  Start while the partner is still there  Communicate personally with key clients  Don’t assume that clients know what is going on  Create a script

61  Mandatory Retirement ◦ Only 36% of firms have one ◦ Retirement does not mean leaving  Identify New Role – don’t let the intellectual capital escape ◦ Senior statesperson ◦ Mentor ◦ Business development

62  Set up a timetable for the transition ◦ Two to four years  Identify future skills and talents  Create a process ◦ Self nomination ◦ Describe candidates platform

63  Make Sure You Plan  Develop and nurture the next generation  Know when to leave  Retirement plans should be good for everyone  Succession planning is a natural course of running a practice  A good plan provides the firm with choices

64 What did I forget to address?

 Practice Continuation Agreements: A Practice Survival Guide, Second Edition by John A. Eads, AICPA  Compensation as a Strategic Asset by August Aquila and Coral Rice, AICPA  AICPA/PCPS Human Capital Resource Center www/aicpa.org/pcps 65

 For a free consultation please contact: August J. Aquila

67 THANK YOU – YOU’VE BEEN A GREAT AUDIENCE