Dilemma – Stay Solo or Take on a Partner?
“There are two dilemmas that rattle the human skull: How do you hang on to someone who won’t stay? And how do you get rid of someone who won’t go?”
Danny DeVito, in The War of the Roses
We talk with solo accountants that are facing this decision quite often. There are a lot of good reasons to add a partner, but there are a few crucial things to consider in terms of your overall succession planning before doing so. Partnerships can be difficult. There are a lot of great reasons to stay solo! Hopefully by being aware of some of the pitfalls, you can mitigate the risks accordingly. Unfortunately for many accounting practice owners, the gaps in succession planning are only exposed when it’s time to exit from your firm. Here are the big issues we frequently see:
Many owners rely on co-ownership as a means of retaining employees …and because they see it as a way to get more for less. By making an employee a partner, they are essentially putting cheap handcuffs on that person. What these owners tend to overlook is the fact that that same shackled junior will hold the key to those handcuffs when you’re ready to leave. You can avoid this predicament by being careful about who you hire, by paying your employees fairly, and by treating them with respect. Do these things and your staff turnover will be low. Far better to use a generous paycheck as the tether, leaving everyone the freedom to stay or go. If you’re charging clients appropriately, compensating your staff well should not be an issue.
No buy-sell agreement in place. There are a variety of options for making an orderly and fair exit. One popular tactic is a “shotgun clause.” Essentially this covenant stipulates that if one owner approaches the other for a buyout, then the owner receiving the offer has one of two choices. He can either take the deal or turn the tables and buy the share for that offer price, thereby enabling him to sell the entire business on the open market. I’m not suggesting this method per se, but it is an example of some clever lawyering that can be done. Spend some time and money on your partnership agreement and make sure the lawyer you use has significant experience in this area. You’ll be glad you did.
When it comes to practice sales, timing is everything. It’s rare for practice partners to have the same exit timetable. Tensions mount when one partner wants out and the remaining partner either doesn’t want to buy the business himself/herself or sell to a third party. If partners are the same age, the odds for a smooth dissolution are improved, but even a couple of years’ difference can strain the sale of a practice. Accounting practice buyers are very sensitive to these dynamics. When you have a partner, there is no substitute for planning and candid communication.
Agreements that don’t allow for differences. Make sure your goals and objectives are aligned and that you are compatible. No two people will work in the same way and it is common for one or both partners to feel like the other is not pulling his/her weight in the practice. Your partnership agreement should allow for differences in compensation to balance out differences in results. It should also include clear methods for measuring results and for resolving disputes over such matters.
If you think you need a partner, think long and hard before you do. Plan for potential problems. A good partnership can make for a great practice and quality of life for the partners. A bad one…well…can be very unpleasant.
Update: Accountant’s Flight Plan is now available as an eBook on the AICPA’s website. If you would like to purchase an electronic copy, please visit: http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/PracticeManagement/PRDOVR~PC-PPM1205/PC-PPM1205.jsp
About the author
Brannon Poe, CPA
An author and experienced intermediary specializing in accounting practice sales, mergers and acquisitions, Brannon has efficiently and effectively facilitated hundreds of successful practice transitions. He has a unique ability to help creatively integrate information to develop clear, focused plans. He enjoys helping clients implement these plans to achieve their most important goals.