Succession planning has two main goals - ensuring the continuity of the practice from one generation to the next, and provide for a secure retirement for the owners, explains Jeremy Kitchin.
The main goal for any succession plan should be the continuation of the practice after the retirement or death of the current owner(s). Have a plan prepared and stick with it to avoid being forced to sell the practice from a position of weakness. Practice continuation varies from firm to firm, but here are some key questions to which you should have answers.
- Does the partnership or shareholder’s agreement state a specific age when owners sell or pass on their equity? Depending on the size of the firm, the most common ages are between 60 and 65 years of age
- Has a successor been identified? If not, what will the firm do in an emergency situation, or when the owner(s) wishes to retire?
- When and how will the clients be transferred to the successor?
- What type of successor development plan does the practice have? Most successors just inherit the position or client list with little or no preparation
- Will the retiring owner(s) continue to work full or part time at the firm?
- How strong is the next tier of management? Larger firms need to have succession plans for key departments and individual specialists
- If you are a sole practitioner, do you have a practice continuation agreement to protect the value of your practice in case of sudden death or disability?
So where and when should business succession planning start? Too often, many practice owners wait until the last minute when important options, including, for example, the inability to insure a principal or key employee, have closed.