1. Presented by August Aquila, CEO AQUILA Global Advisors, LLC

2.  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

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

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

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

6. What You Need to Know

7. 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. 8 “Succession Planning is about creating opportunities” August Aquila

9. 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

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

11.  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

12.  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

13.  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

14.  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

15.  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

16.  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

17. Working on the firm, not in the firm.

18. 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. 19 “It’s easier to live with ambiguity”

20. 20 SUCCESSION RECRUITINGRETENTION NEW PARTNERS

21. 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

22. It’s Time to Face the Music! 22

23.  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

24.  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

25.  “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

26.  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

27. “This firm would be nothing without me.” 27

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

29.  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

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

31.  Funded plan  Unfunded plan  No plan 31

32.  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

33.  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

34.  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

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

36.  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

37.  Multipliers – Salary ◦ Less than one year’s salary6% ◦ One year’s salary8% ◦ One year’s salary x 1.53% ◦ One year’s salary x 2.0 17% ◦ One year’s salary x 2.5 14% ◦ One year’s salary x 3.0 38% ◦ One year’s salary x 3.5 3% ◦ More than one year’s salary x 3.5 5% Source: AICPA 2008 Succession Survey 37

38.  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

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

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

43.  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

44. ◦ 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

45.  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

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

47.  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. 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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51.  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. 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.

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

54.  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

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

58.  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

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

60. 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. 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. 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. 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. 64 What did I forget to address?

65.  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

66.  For a free consultation please contact: August J. Aquila 952-930-1295 aaquila@aquilaadvisors.com 66

67. 67 THANK YOU – YOU’VE BEEN A GREAT AUDIENCE