When it comes to partnerships, some of the most common pitfalls that we see CPA firms face are growth decision-making conflicts and exit strategy misalignment. Left unaddressed, these issues can lead to stagnation, client dissatisfaction, and even the failure of an otherwise promising sale. Interestingly, we are starting to see more widespread adoption of alternative business structures in public accounting that create favorable environments for more “corporate” management practices. These structures allow firms to be led by fewer people so that changes can be implemented more swiftly. We are of the opinion that in the current business environment, where technology is changing quickly and talent is becoming more difficult to acquire and retain, firms that can change faster will have significant competitive advantages.
Decision-Making Conflicts: Who Has the Final Say?
In our experience coaching firms and selling accounting practices, we have been privy to partner disagreements over major business decisions. Fortunately, they don’t happen often, but often enough to warrant some planning to prevent. Whether it’s investing in technology, determining pricing structures, or deciding when and how to exit the firm, decision-making conflicts can create tension and slow or no change. The more decision makers you have, the slower that change seems to be. If you already have a practice with multiple partners, we have some suggestions.
- Gain and maintain a 30,000 foot perspective. This requires a regular investment of time but the payoff is enormous. In Accounting Practice Academy, we are always advocating for the 30,000-foot view, and we take this advice in our own firm. We frequently “zoom out” to get that broader perspective. We even run on an operating system called EOS which helps us do that. The concept of this is pretty simple: have meetings where you are focusing on the broader growth objectives of your CPA firm rather than the day-to-day tasks. Setting aside weekly, biweekly and quarterly time to discuss the bigger issues for your firm gives you and your partners opportunities to align on the vision of the firm and hash out disagreements in a productive way.
- Implement a Partnership Agreement. If you don’t already have a comprehensive partnership agreement that outlines who has the final say on different types of decisions, or how disagreements will be mediated, then that is problematic (and common). Ideally, partnership agreements are negotiated long before serious issues arise. We have seen far too many situations where one partner wants to exit and the other doesn’t want to help enable that exit. They can’t decide when or how to sell. This can end up damaging the practice as one partner “checks out” or worse, has to keep plugging away long after they are ready to retire. It can end up creating uncertainty for employees and clients and can jeopardize the firm’s stability.A good agreement can mitigate this to some degree.
- Develop a Written Exit & Succession Plan. To the point above, you need a written succession plan. A documented exit strategy should address your ideal timeline and conditions for partner exits, and who has the right of first refusal, i.e., remaining partners, or internal employees vs. an external buyer. Knowing and agreeing on the terms of a desired sale and the desired transition timeline is also crucial to a successful plan. We offer complimentary valuation estimates if you would like to gain an understanding of how your practice would fair in the marketplace.
- Regularly Review and Update the Succession Plan. Conditions evolve, so CPA firms should revisit their succession plans periodically to ensure they align with the firm’s growth strategies and market trends. This will become evident if you are conducting those regular strategy meetings. If you created a succession plan before private equity became prevalent in the space, now is likely a good time to talk through your potential buyer options and consider how your firm may be valued now that there is so much interest in the accounting space.
Partnerships can be great but can sometimes become messy. That becomes evident to us as intermediaries when we work with partners who feel stuck in a stagnant practice or don’t see eye to eye about a sale. We have had instances where one seller blows up deals for the other partners because goals and vision were not aligned. These things can be prevented with some regular, strategic communication along the way before an exit. You can check out our Succession planning guide for tips on creating your plan.
PS – Whenever you’re ready, here are 4 other ways we can help:
- Seller FAQ: Answers to the questions sellers are asking. From practice value, to timing, we’ve got you covered.
- Strategic Guide to Selling your CPA Practice Video: The how-to of selling a CPA firm.
- Accounting Practice Academy: If you’re looking for benchmarks, our 8-week workshop has a community of established firm owners that will help you get perspective, reduce your owner hours, and raise your bottom line. Reply to the email with “APA” and we will fill you in on the details.
- If you want to chat about your exit strategy, reply to this email with “strategy call” or request a call here.
