Owners and partners of smaller-sized CPA firms who are nearing retirement age often face two options on how to pass along their practice: a) make themselves attractive to be bought by a larger firm, or b) find and train their future replacements at their organizations.

Unfortunately for small-size firm owners, it is a buyer’s market for the larger firms that see a field saturated by baby boomers who are electing to retire without a successor. This has led to a “merger frenzy,” according to a Bloomberg BNA article by Courtney Rozen (“Succession Plan Top Concern at CPA Firms, as Baby Boomers Retire”, July 17, 2018).

Topping the wish list for large firms: specialty expertise, such as a real estate practice; a roster of younger talent; and firms that embrace technology (reliance on paper rather than computers is considered a red flag).

“You see a lot of these deals get deferred or not completed because in the end, the retiring partner couldn’t accept that he’s not going to get the dollars he thought he was going to get,” according to Carl Peterson, AICPA vice president of small firms.

Other trends in the article include:

  • CPA firms are more often including a mandatory retirement age in partner contracts (but not necessarily for owners) to coordinate clear timelines for partner-track accountants and thus eliminate a leadership gap
  • Younger CPAs are seeing an “immense opportunity” to buy into firms, so long as differences in operational philosophies can be bridged. Examples of these technological generation gaps can include if clients are met face-to-face or remotely via technology, and how much work remains on paper
  • Some AICPA studies in 2016 indicated that 10% of multi-owner firms say they’ll seek a merger after senior owners retire, and 84% of multi-owner firms believe succession will be a big issue over the next 10 years

Reminder: As per Regulation 1-12(A), adopted in 2007, all South Carolina firm licensees must have a designated successor who will assume responsibility for client files in the case of a licensee’s incapacity or death. The successor must be an active licensee who has agreed to assume the responsibility. For more guidance on succession planning, consult these resources from NASBA and AICPA.