By Neil D. Krug, CPA
Gray, Gray & Gray, LLP
Accountants are wonderfully adept at helping their clients plan for the future. In particular, we have created a mini-industry out of business succession planning. However, too few of us bother to take our own advice.
When it comes to developing an exit strategy for our own firms, too often it takes the form of a hazy idea of someday selling the practice to a younger partner, or perhaps merging with another firm. Waiting, of course, until you are good and ready to retire.
That's too late. By the time you are at or near retirement age, the value of your firm is likely to have dropped dramatically, for a number of reasons.
First, with a principal on the cusp of walking away from the business, you can expect a drop in continuity and client retention. Clients will act in their own interest prior to your actual retirement, affecting the market value of your firm. This also serves to diminish the value to any partners who remain active.
Another problem that may develop if you wait too long is attracting good partners. Bringing aboard competent, ambitious young accountants with an eye toward grooming them for succession is difficult if they are going to be forced to wait an extra ten or twenty years to assume control. More lucrative positions are sure to lure them away, leaving you with a less-than-ideal staff to carry the load.
The result in both cases is a firm that has less value, leaving you with a reduced buyout and declining retirement income.
What is the solution? The best time to merge your accounting firm is well before you and your partners are ready to retire. Making the move when you are in your late 40s or early 50s puts you in a much better position.
A sale or merger at this point in your career makes good business sense. Linking with another firm almost always results in an expanded scope of services and access to new markets and new income. The danger of clients leaving the firm disappears, and you actually increase the opportunity to secure the next generation of many clients.
A merger at this time is not a retirement, but an investment in your future. Although your short-term income may be affected, you are making an important investment in your "retirement plan."
Aside from the business considerations, a sale or merger at an earlier age offers many personal benefits. The change offers an exciting challenge that may revive flagging interest in the field. Yet you are still close enough to retirement that you can maximize your income for several years before stepping down.
Finally, as a partner in a larger firm, you are much more likely to earn a healthy income after retirement, as the firm continues to generate revenue.
Culture is still the number one issue when considering a merger. The type of firm, partners, staff, clients and work ethic are key elements to any merger.
Over the past twenty-five years, our firm has gone through a number of mergers and acquisitions with accounting firms of various sizes. In every case, the most successful unions occurred when the partners were far from retirement age, still active in the business and eager to achieve even more success. The smart move they made at a relatively early age paid off handsomely at retirement time.
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Neil D. Krug is Managing Partner of Gray, Gray & Gray, LLP, Certified Public Accountants, Westwood, Massachusetts. Mr. Krug can be contacted at (781) 407-0300, or by e-mail at nkrug@graygraygray.com.