5 Steps for Healthy Practice Transitions

By Rick Dennen.

Leadership transitions in accounting practices happen for many reasons, including retirements, resignations, deaths, buyouts, or simply having a new partner leading the practice, yet owners often put off planning for these types of changes. The time for transition will come, though, and when it does, you’ll want to hand over the reins smoothly. We underwent a recent leadership change (along with several others over the years), and I have a few tips to help with your transition planning.

1. Set the stage early

I started our business in 2003, and we’ve sold it three times since then. Our management team is familiar with our model of doing business, so those sales didn’t come as a major surprise. We shared the details of the sales before each deal was done, and our history of being transparent with our staff meant they weren’t taken off guard.

If you’re running a successful CPA practice, you probably experience frequent changes, from partners entering and leaving the practice, to investing in new technology or expanding into new practice areas. Promoting change as part of your company culture – a necessary element for growth – builds an expectation among your staff. It helps them see change as good for the firm and ultimately good for their jobs. When the time comes for a big transformation like transitioning to new leadership, it’s less likely to feel like it comes from left field.

2. Prepare your staff for transition to new leadership

Leadership change can be a frightening prospect for staff, especially accountants, who may have concerns about job security or working conditions under new ownership. Talking about transition well before it’s likely to occur can help alleviate those fears. Your staff members know you’ll leave the practice at some point. Maybe you can’t share the details of your plan with all the staff but giving them some idea of what your transition strategy is can reduce jitters and build loyalty.

Maintaining the loyalty of your team helps reduce the risk of key staff departing during ownership changes. If the transition involves an earnout provision, maintaining that continuity can make a big difference in how many years the earnout requires.

3. Think about management dynamics during transition

Last year we named a new president at Oak Street Funding, while I moved into a larger leadership role with our parent company, First Financial Bank. For a while, I was doing two jobs: running OSF day to day while taking on new companies and divisions of the bank. As time passed, I’ve slowly stepped back from routine operations to allow the new leader the opportunity to learn while I’m still there.

Accounting practice sales involving a two-stage succession plan or other phased-in purchase arrangements share some of the dynamics we experienced. If the principal moves on before the replacement is set, there can be a management vacuum. It’s useful to anticipate where gaps in management might occur and include a plan to cover them in the purchase agreement.

4. Clarify lines of reporting and areas of responsibility

If you and your successor will be working in the practice at the same time, it’s important to make sure lines of reporting and areas of responsibility are well-defined and communicated. Some staff may want to go around your successor when they know you’re still on board – perhaps out of habit or perhaps because they’re more accustomed to your management style. Staff must be trained to transfer their reporting (and sometimes loyalties) to the new leadership. If your successor will be assuming your roles over time, it’s especially important that staff know when various responsibilities change hands.

5. Let the new leader lead

Transitioning out of a practice you’ve built can be difficult, but it’s important to let go of the wheel and let your successor develop their own management style. Mistakes will happen, but that’s how we all learn. Decisions might be made, and you won’t agree, yet that’s part of stepping back to let the new leader lead. The transition period is an ideal time to be a mentor, serving mainly as a backstop against major problems and as a source of institutional knowledge, but staying out of day-to-day operations.

Planning for your practice’s next chapter doesn’t have to be intimidating. Laying the groundwork early and keeping the firm’s future top of mind can go a long way toward making transitions successful.

Rick Dennen is the founder and CEO of Indianapolis-based Oak Street Funding, a First Financial Bank company with customized loan products and services for specialty lines of business including CPAs, registered investment advisors and insurance agents nationwide.