Succession Planning- Part Three

In Part Two we last looked at the practicalities for planning for succession. In this final part we will assume you have now dealt with the ‘housekeeping’ issue detailed previously and are ready to go ahead with your plan whether it be for a third party sale or merger or an internal ‘buy in’ to an existing or new partner.

Overview checklist of what you now need to consider

  • What summary information to include in your ‘sales pack.’
  • What time you need to budget for whilst the succession plan goes ahead and how to keep managing the core business.
  • Communication to staff and clients about what is going on. How to manage expectations.
  • Your role in the transition period and beyond.
  • The reality of ‘taking a back seat’ and deal with no longer being in control.

Practical solutions and ideas to follow up and consider

  • Having completed your planning per Parts One and Two of this series you should now have all the information to hand and can readily collate the following;
  • Brief history of your firm and why it is successful
  • Last 3 years accounts- Profit and loss and balance sheet with any exceptional items adjusted for and annotated.
  • Summary of core GRF and ‘regularised’ additional fees earned each year from clients.
  • Details of Fixed Fee Agreements in place reflected in positive cash flow position.
  • Detailed WIP report and a summary of how WIP movement is reflected in the accounts.
  • Detailed note and calculation on how partner time is accounted for.
  • Detailed aged debtors listing.
  • Detailed list of clients by fee together with services provided and ‘windows of opportunity’ spreadsheet.
  • Summary client gradings.
  • Summary SWOT analysis with evidence to support assertions.
  • KPIs and analysis for as far back over the last 3 years as is practical.
  • Summary of staff details and individual roles and responsibilities within your organisation chart.
  • Summary marketing and business development plan highlighting potential growth opportunities.
  • Details of any capital/current or (if applicable) directors loan account. This will be part of any deal in agreeing how this will be drawn down.
  • You will have addressed your personal tax planning issues and taken account of this in your ‘valuation’ exercise for your own purposes.
  • Words of caution – the above is an overview only and is to highlight the key information you need to have ready. No client names or confidential material should ever be disclosed to any party without having a Non-Disclosure Agreement (NDA) signed and in place. Many practitioners are best advised to blank out sensitive names on information until a Heads of Terms are drawn up and agreed. Your solicitor will advise fully on this aspect. Do not fall into the trap of keeping things ‘informal’ to avoid professional fees as this can often lead to clients being lost to another practitioner if negotiations don’t progress.
  • Succession planning and negotiation at this stage takes a significant amount of partner time. Be prepared for out of hours meetings and calls whilst still having to manage the core business and service client needs. Try and plan ahead for this eventually as far as you can by getting client work completed ahead of schedule and meetings held earlier than you otherwise might have done in the annual service cycle of a client. You cannot afford to have client service levels decline at a point in time you are trying to maximise the value of your business.
  • Communication to clients and staff will really depend on the nature of the succession plan itself and at what stage it is effectively contractual. No two practices adopt the same approach with regard timing and you must take separate advice tailored to your own circumstances. It is however important to get the timing right and avoid the potential loss of staff or clients who may ‘jump ship’ if they feel uncertain about the future of the business.
  • As a practitioner you will have spent decades being in control of your own destiny and not answering to anyone else. The practice will be ‘your baby’ and you will understandably feel protective toward it and any critical comments made about how you have run the business over the years. Having followed the suggestions in Parts One and Two however, you will be in a strong and informed position. You can turn many potential negatives e.g.- about billing, cash flow, services offered etc. into positives by saying you recognise them and systems are now in place or there are opportunities still arising to grow the business further. Always have financial information and evidence to hand to support your assertions. This approach will yield increased returns for you.
  • Assuming a succession plan is to go ahead you must have in writing a clear ‘contract’ about your role ongoing. Remuneration basis, duration, working hours, billing targets, holidays, roles and responsibilities for both clients and business. Who you will report to and what the policy will be on billing procedures, financial management decisions, hiring and firing staff to name but a few. Those practitioners who have this agreed in writing are usually the one who deal successfully with their exit strategy. It takes time to accept the reality of change so best be prepared and remember you are doing this to achieve your goals!
  • Payments terms and claw backs will be dealt with separately within the sale agreement. Pay attention to this and seek independent advice.


The purpose of this overview is to provide a flavour of what you can expect when you are considering your succession. Time spent in planning is a sound investment of time. Too often practitioners launch themselves into a succession plan only for it not to proceed due to unrealistic expectations. Similarly, many practitioners rely on informal discussions and word of mouth to hold ‘confidential’ meetings with potential suitors. Invariably this type of negotiation falls through causing damage to the existing business with ‘leaked’ information and a decline in client service levels and profits. A bad experience can put a practitioner off thinking about succession again for quite some time. No one deserves to be in this position and it can easily be avoided

April 2015 Copyright - Finola McManus Practice Perfect

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