Succession Planning - Part One

Key questions to ask yourself before planning your succession and exit strategy from your practice

  • Be sure of the reasons you want to sell your practice. Are you being driven by emotional factors due to current stress, workload, long hours, staff issues, difficult trading period etc.?
  • Options available to you- external sale/merger or internal plan to bring on existing team member to buy you our over a period of time or recruit new potential partner?
  • Realistic timeframe and have you the time needed to devote to the process?
  • Set a realistic ‘price’ and know the amount you need to retire/exit in conjunction with personal financial and future plans.
  • Examine your existing business as if you were a buyer. Identify the weaknesses and draw up a plan on how to eliminate these.

Practical checklist to find solutions to the above

  • Many practitioners are finding it tough at present with pressure on fees and service levels and finding and retaining the right staff. If your decision to look for an exit plan is driven by these factors then there are things you can do to manage your practice better. Ask yourself; ‘If I was working less hours and making more profit would I still want to sell?’ If the answer is ‘yes’ then you know you are making the decision for the right reasons. A very obvious point here but one worth testing.
  • Look at an objective realistic value for your business- take a step back and be cold and critical. Then do the sums- what will give you the best return? A sale/merger with a third party or an ‘internal’ retirement succession plan over a defined period of time? The obvious challenge will be finding the right successor/potential partner should you chose the latter option. Again, there are ways to approach this.
  • Selling/merging/going the internal succession route takes time, your time. Be realistic about what exactly you need to do to ‘groom’ and prepare the business for either scenario. You have to do your housekeeping first for any of the options. Make a clear ‘to do action list’ and book out blocks of time in your weekly diary to deal with each issue. The starting point is managing ‘lock up’ and sorting out your work in progress and debtors. Then look hard at your client base to identify ‘clients at risk’ who may leave the practice in the next 3 years. Iron out poor service issues. Critically appraise your gross margin and manage areas of under recovery. Look at your partner time being spent on clients and assess how dependent the business is on you as this is an issue for any ‘retiring’ partner and not attractive to a buyer. The pre-sale planning process takes time and will vary enormously depending on the firm you have. It is essential to plan properly and get your business ready just as you would do if you were selling your home. You are going to enter into this process and transaction only once so spend the time in preparing to get it right.
  • Prepare a personal balance sheet. What is your ‘magic number’ that will leave you where you want to be post succession? What annual income stream do you need long term? Take into account tax liabilities and timing of cash flow required. This exercise often helps identify which succession option will work best for you and give you the income you need. There will be a trade-off between working ongoing, perhaps in a reduced capacity for a short period of time, and walking away from the practice completely or remaining involved for a longer period if there is an ‘internal’ succession route to follow.
  • A good old fashioned ‘SWAT’ analysis is a sensible idea. Commit your findings to paper and be objective. This is what any buyer or incoming successor will do. Draw up an action plan on how to manage the weaknesses and threats and use the opportunities to your advantage in making the practice more attractive. No one will expect you to have the perfect practice but will be impressed that you know your business and have robust financial management information to hand. Know your clients and what services you offer and where the windows of opportunity are. Have data of fees by client and for what services for the last 3 years. Identify ‘exceptional’ fee income that isn’t recurring. Appraise your 80/20 rule i.e. 80% of your turnover is likely to be generated from 20% of clients. Is this a risk?


The objective of this first article is to help you make the right decision for you and prepare. Part Two will exam in greater detail the practicalities and ‘how to’ complete that pre-sale grooming and preparation exercise. My personal experience has shown that preparation to exit or sell, when done properly, increases the ultimate ‘sale figure’ by at least 100%.


March 2015 Copyright- Finola McManus Practice Perfect

Helping accountancy firms to become more successful


Home | About | Latest News/Blog | Services | Case Studies | Contact Information | Privacy Policy | Terms and Conditions | Site Map

Copyright Practice Perfect 2015. All rights reserved. This website was designed and built by