Plan for Successful Succesion
By Colleen Smith
At 5 p.m. on April 30, 2011, Ray Petkovsek,
CPA plans to load up his fishing gear for good. He’s been
following a succession plan for eight years that calls for
him to live until he’s 100 (he says he has good genes).
While his plan may amuse some people, Petkovsek of Petkovsek
& Moran LLP in Madison knows that succession planning does
not come easily or quickly.
Ten years from retirement is not too early
to begin planning," Petkovsek said. "Actually, 15 years is
not a ridiculous thought."
Nationally, upward of 50 percent of partners
are more than 50 years old and a significant number of firms
are run by baby boomers. These leaders will seek retirement
in the next five to 10 years, according to a Journal of
Accountancy report in August 2004.
Just five years from age 60, Petkovsek
reflects on his firm’s transitions from operating out of a
bedroom to growing into a three-partner, three-staff
business in a new building he designed and owns.
Succession planning began years ago when
Petkovsek added staff, formed a partnership in 2000, and
acquired a small firm in 2005. He plans to continue as
managing partner for a year or two so that a new MP will
have at least three years with Petkovsek before he retires.
He calculates that he’ll need to reduce his work load by 120
hours a year over the next five years. By the time he’s
ready to retire, he’ll be working 1,500 hours annually and
will be much less involved in daily management.
Greg Anderson, CPA
has been on both sides of succession planning. When Anderson
was 10 years into his tenure at the 75-year-old Manitowoc
CPA firm now named Ihlenfeld, Skatrud & Anderson, he asked
the two partners who were in their late 50s whether they had
thought about succession planning.
"That conversation could have gone either
way," he said. "They may have been miffed that I raised the
topic, or they could have been pleased that I was thinking
ahead." Fortunately, they appreciated the discussion. They
began positioning Anderson as a key leader who led the
firm’s growth and ultimately became president and bought the
firm with another partner. "I’m forever thankful for their
support," Anderson said.
Today, after growing the firm to four
offices, Anderson prepares for his retirement in five years,
when he’ll be 56. "Fortunately, everyone in the firm drinks
from the same cup," he said. "Despite the 80-hour workweeks,
we love what we do. We love helping people. We are friends
with our clients."
Eleven years was devoted to succession
planning at the 54-year-old Sattell, Johnson, Appel & Co. in
Milwaukee and Menomonee Falls before a plan was finalized in
2003. The successors, shareholders ranging in age from 47
years to 60 years, recently started succession planning
anew, said
Barry
Sattell, CPA, PFS,
president. "It is never too early to prepare," he said.
"People in their 20s and 30s are our next generation of
leaders."
"We’re identifying people within and outside
our firm who we want to have at our table and who can run a
business," Sattell said. "People who are technically strong,
rainmakers, have good acumen for business—we need all of
those qualities."
Having been through succession planning once
before, Sattell said a fluid plan is critical: "Things do
change. Even when we reduce our plan to writing we have to
have an open mind that certain variables will require us to
make necessary changes."
The firm has grown from 16 employees in
1992, when the last phase of succession planning began, to
46 employees today. "I have bags under my eyes to prove it,"
Sattell joked.
He said planning requires an understanding
of the emotional and personal aspects of transition. "You’ve
got to know the people you’re dealing with, their
personalities, likes and dislikes, in order to develop any
plan that will work," according to Sattell.
"Once the situation is analyzed, we have to
do our CPA thing," he said. "We find the best ways to gift
stock, give minority interest, use our skills, to come up
with the most advantageous way to make success as least
taxing as possible."
Preparing internally
Grooming younger staff is a continuous
process but a key to success, said Petkovsek. "It used to be
that clients always needed me to provide the answers," he
said. "I’ve learned how to make them comfortable with other
staff. It’s an important part of the process."
Petkovsek describes himself as a type-A
former farm boy with a hard work ethic who is meticulous. "I
could be a control freak but I’ve learned to manage that,"
he said. "Years ago I learned that I am never that important
to any client that someone else couldn’t take care of that
client."
When staff ask him a question, Petkovsek
typically asks the question back. "Between the two of us we
arrive at the solution," he said. "Younger staff have to
step on a nail once in a while and feel the pain, then move
forward."
Petkovsek said his firm realizes that in
today’s environment no one CPA can do it all. He has worked
with each individual to discover their strengths and build
on them. While one partner is especially good at tax, estate
and business planning, another is more technologically savvy
and specializes in QuickBooks, software and network issues.
Succession planning do’s and don’ts
CPA sources offer this advice for succession planning:
Do’s
• Design your plan early. Ten to 15 years in advance is
not too early.
• Use AICPA resources such as PCPS, including the white
paper on "Preparing for Transition."
• Write out goals. Set a date.
• Plan for death, disability or evolving life objectives
of partners.
• Groom younger staff; identify potential partners and
shareholders.
• Consider internal financing for the buyout that is paid
over a number of years.
• Write a "living" plan so you make changes when
necessary.
• Keep it simple.
• Conduct due diligence.
• Define an age when shareholders must start giving back
their shares.
Don'ts
• Don’t let yourself be more important than the firm.
Buyout arrangements should not burden the firm or harm its
survivability.
• Don’t wait until the final year or two. "You’ll be road
kill, history," said Sattell.
• Don’t micro-manage.
• Don’t walk away from your practice. There’s value there.
You and your
clients will benefit from its continued longevity.
Transitioning clients
Anderson agreed that clients need to know
that more than one person can manage their work well.
Clients should also be told years in advance about any
planned retirements.
"If all of a sudden a client gets an
announcement, they may run to the Golden Gate Bridge
screaming, ‘Oh my God, the guy who has served me for 25
years is leaving.’ "
Every client’s books at Petkovsek & Moran
are touched by at least three people, said Petkovsek: "So
eventually when I’m not here it will be OK. It used to be
that nine out of 10 phone calls were for me. Now, it’s one
out of 20."
Ihlenfeld, Skatrud & Anderson follows a
similar buddy system where two people serve every account.
"It used to be that clients were proprietary: this is my
stapler, this is my client," Anderson said. "I learned the
hard way that I can’t be all things to all people to do my
client justice."
"We keep clients in mind with all of our
transitions," said Anderson. "If clients get an inkling or
rumbling of transition plans or lack thereof, those who are
on the fence may choose to go somewhere else."
Petkovsek said he jokes with clients about
his retirement five years from now so it won’t be a surprise
when it happens.
Making arrangements
Self-financed buyouts were options chosen by
all three CPAs. A down payment and a monthly payout over
five years was the deal struck between Anderson and another
partner to buy out his firm two years ago. Today, one of his
firm’s four offices is being bought out by a partner over a
seven-year period. In two years, other partners will
increasingly buy Anderson’s shares so that when Anderson
retires he will have no ownership remaining.
"I promised the previous partners that when
it was my time to move on, we’d make sure that we passed the
baton internally with the same flexibility they gave us," he
said. "The big picture is that you want to keep the firm
going with as little disruption as possible."
Sattell acknowledged that some of the old
formulas for financing buyouts don’t work today. Putting
value on a book of business plus receivables plus work in
progress does not often result in a total that is
financially viable for younger professionals. "We have to
self fund," he said. "We do it with deferred compensation,
life insurance and other financial products."
Petkovsek said the sale of his remaining
shares may extend out 10 to 15 years. "You can’t kill the
firm’s cash flow," he said. "The plan has to consider the
firm’s survivability factor. Otherwise clients won’t be
served and the firm won’t do well."
Besides, he’s not counting on the buyout to
be his main source of income when he retires. Buyouts are an
additional source of income that can be stretched out over
many years, he said.
Personal planning
Most of the retirees Petkovsek knows are
loving life, he said. And that’s precisely what the CPAs
mentioned plan to do. Most expect to work part-time as
consultants or on special projects. Petkovsek will do more
musky fishing, volunteer work and traveling.
Anderson recalled a physician client who had
planned to retire before 60 and realized he had to wait
because his 401(k), Roth IRA and other investments couldn’t
be accessed early without penalty. Much of succession
planning is practicing what CPAs preach, said Anderson.
"We’re all so concerned about our customers and clients and
their businesses. Sometimes we don’t take our own medicine."
An experience Petkovsek had 25 years ago
left an impression. A jovial semi-retired partner who sat in
the back office took younger staff under his wing, offered
good advice and gradually came into the office less
frequently.
"One day he was gone and no one really
noticed," he said. "That’s how I’d like it to go.
"
Colleen Smith is principal of Emerald
Isle Public Relations in New Berlin. She can be reached at
colleen@emeraldislepr.com or (262) 780-0841 ext. 150.
return
to previous page
