CPAs Share Continuation Strategies
Editor’s note: Also read “Who Would Run Your Firm?” Feb. 2011, page 40.
In August 1988, 48-year-old CPA Jim Feigel was in an accident that left him in a coma for 23 days.
“If anything ever happens to me, the first thing you should do is sell the practice,” he recalled telling his wife, Janice, well before the accident. “At that time it was our biggest asset.” His wife, who was unsure of whether he would live or die, quickly made arrangements for a larger firm in the Tulsa, Okla., area to take over his practice. Seventeen months later, after a long hospital stay and rehabilitation, Feigel began the process of re-establishing his former firm.
“While what happened to Feigel may seem unlikely circumstances to some,” said Heidi Brundage, a technical manager in the Private Companies Practice Section at the AICPA, “the point is that it did happen and the situation would have been better for his family had there been a formal PCA in place.”
“Nobody wants to talk about death and disability,” said Allen Nahrwold, CPA, a sole practitioner in Phoenix who has a formal practice continuation agreement with six other sole practitioners in his area. “However, if you view it as an exit strategy and ask yourself: how do I want my practice to be five to 10 years from now, and what’s my strategy going to be when I part ways with the firm? It doesn’t have to be a negative thing but instead: what can I do to make positive things happen?”
Cynthia LeBreton and Gigi Matthews of New Orleans are sole practitioners with no employees. They have an informal agreement. They meet every year after busy season to go over office procedures, billing records, passwords and other pertinent information. “If something happens to me, Gigi can come in and help my clients on a temporary basis. In a worst-case scenario, she would [act as an agent for my business and] help my husband negotiate what to do with my practice and vice versa,” LeBreton said.
LeBreton had an instant connection when she first met Matthews because their husbands had known each other from childhood. That sort of instant rapport and trust isn’t easy to come by, however.
Nahrwold’s group has been working at it for 20 years. The group meets regularly to discuss their businesses and situations that might have a significant impact on another member’s practice, and to strategize for the next five years. If a member has a need, the group can assess which practice is best suited to help.
“We know each other’s firms very well and have developed a level of trust with each firm’s employees so if I have to go over to a firm and step in, I already know most of the people there and they know me,” Nahrwold said.
Ultimately, the practitioner’s choice for a practice continuation plan may be heavily influenced by the nature of the practice and the practitioners’ risk tolerance.
“Trust, compatibility, size and culture are the hardest and biggest obstacles,” said Craig Morris, CPA of Long Island. “I have struggled in forming a formal practice continuation agreement because it’s hard to find the right firm.” As a result, Morris has an informal arrangement with a larger firm in his area, but he is a strong advocate for practice continuation agreements, and works for education and networking on this topic at the local level.
Brundage believes that even an informal agreement is a step in the right direction for small firms and sole practitioners. “I encourage firms to have a formal agreement, yes, but for sole and small practitioners who aren’t even thinking about full-blown succession plans, it is very important to have something in place, even if it is informal,” she said. Results from the 2010 PCPS/TSCPA National MAP Survey seem to support the claim that few small firms are planning ahead in this sense. Of the 2,937 firms surveyed, only 6% have a practice continuation agreement with another firm in place, and 25% have a succession plan.
“The next person may not be as fortunate as I was,” Feigel said. “Today I have another pretty solid practice, and I don’t think my wife would have any trouble selling it again. The only problem is that I put the responsibility on her the first time, and that is not something you ever want to put on your spouse.”
—Loanna Overcash (lovercash@aicpa.org) is a JofA senior editor.
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