Perspectives

January 2004

Grow or Get Out: An Exit Strategy for Firms

By Neil D. Krug

Accountants are excellent at providing advice on business succession planning. Too few CPAs, however, take their own advice. When developing an exit strategy for an accountant’s own firm, too often it takes the hazy form of selling the practice to a younger partner, or merging with another firm, but not until the owners are ready for retirement.

That’s too late. By the time firm owners near retirement age, the value of their 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, continuity and client retention will drop. Clients will act in their own interest prior to a partner’s actual retirement, affecting the market value of the firm. This also serves to diminish the value to any partners who remain active.

Attracting good partners is also more difficult as time goes on. 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 10 or 20 years to assume control. More lucrative positions may lure them away.

The result in both cases is a firm that has less value, a reduced buyout, and less retirement income. What is the solution? The best time to merge firms is well before the partners are near retirement age. Make the move when the owners are still in their 40s or early 50s. A sale or merger at this point in one’s 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 decreases, and you actually increase the opportunity to secure the next generation of clients.

A merger at this time is not a retirement, but an investment in the future. Although the firm’s short-term income may be affected, this should be thought of as an investment in everyone’s retirement. 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 on the part of older partners. Finally, the larger firm is more likely to continue to generate revenue and be able to provide for the owners’ retirement.


Neil D. Krug, CPA, is managing partner of Gray, Gray & Gray, LLP, and chairman of CPAmerica International, a nationwide association of independent accounting firms.
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