Succession planning: The convergence of client succession plans with the firm’s succession plan

Succession planning: The convergence of client succession plans with the firm’s succession plan

By David Cole BBus, Business Fitness, Focused Management

The traditional focus for succession planning is either as a service to clients or internal planning for the firm, yet the convergence is often overlooked as a critical element in both. The outcomes from both processes should also include the continuity of the client and firm relationship that transcends the personal relationship and bonds formed between the current generation of client owners and the firm’s principals.


With client succession planning, is the firm building relationships with the successors? Would you retain the business as a client following a significant change in management or ownership or if the business was sold outright?


With internal succession planning, are your successors building relationships with the clients? Are you educating and assisting your successors to nurture their networks as future clients of the firm?


The convergence strategy: are your successors building relationships with the client’s successors so that when they take over the business the relationship will remain with the firm, or will the business be lost as the successors look to their own networks for an ongoing accounting and advisory relationship?


A sustainable business is one that extends beyond the working life of the current management and ownership.  To achieve this, both parties in the client/accountant relationship need to have succession and continuity plans.  Those plans need a level of synchronisation to ensure the relationships last beyond the current generation of owners.


Has succession planning headed to the strategic backburner or have we fixed the plan and moved on to other priorities?


Comparing the GBU survey responses from 2012 to 2014 suggests that, for some, the plans are being implemented.  The average age of equity partners in respondent firms dropped from 49 to 46 years and the oldest partner average age fell from 56.5 to 51 years.


Recent experiences with new client acquisition for Business Fitness has seen an increase in the number of micro firms as clients. We might conclude that the potential successors are still seeing the prospect of ‘going it alone’ to be more desirable than ‘slogging it out’ to get the opportunity to buy into the firm at a later date.


The barriers to entry for new firms are quite low and continue to fall.  Therefore, client relationships and professional networks remain either a fundamental constraint or critical influencer in the decision to go it alone.


Our Gen Y and Gen X are connecting to wider networks much faster than our ageing partners ever did. With cloud services increasing in popularity and choice, and with connection costs of increasingly popular cloud services and outsourcing balancing out capital expenditures and resource acquisition, it is only client relationships that limit the capacity of new firms to grow rapidly.


Supporting your Gen Y and Gen X’s to develop family and social networks for their future business potential could be seen to be establishing the groundwork for them to ‘go it alone’. But there is a far greater benefit to be gained, for both parties, if you can show them the advantages of the future prospect of ownership through succession; just don’t make them wait for you to retire before they are formally engaged in management and equity ownership.


The options to buy or grow the fee base through business development and acquisition on a client by client basis should naturally increase as the baby boomers start to implement their retirement plans.  This group were due to come into retirement from 2011 and even though the GFC may have delayed many plans, it will only have a temporary or deferred effect on the market.


Ageing accountants will create an increasing supply, and downward pressure on pricing, for fee parcels. But as the accountants are ageing, so too are their clients. It might be presumptive to automatically assume that an accountant who needs to sell to retire is unlikely to have a substantially sustainable client base. But including an analysis of the age demographic of the fees in the due diligence process should alert the buyer to the risks.


I have always maintained a preference to build rather than buy fees based on capacity planning and the transitional workload of inducting new clients in bulk. For the more mature firms and those with capacity constraints, it is still a better and more sustainable strategy to grow the value of existing clients, and to acquire new clients one at time, where you have greater control and the option to say no.  Even if there are some bargain fee parcels that become available, price compared to the long-term value it will add to your firm needs to be carefully assessed.


Internally you should be aware, statistically not anecdotally, of the general and average ages of your clients. If they are as old, or older, than the principals the sustainability of the business and its value could be at serious risk. This risk can be mitigated by close relationships with your clients, especially by developing their succession plans. Client succession plans need to be linked to your own plan for succession. Older partners in firms need to ensure they are introducing senior managers and potential successors to both the clients and their successors.


Whilst you risk losing your talent pool if they start out on their own, you should be active in helping them develop business relationships with their networks and contacts. It is this group and their contacts that will be the best source of next generation clients for your firm. They will be the ones starting new businesses or acquiring the businesses that the baby boomers are selling now.


The GFC may have set back the plans of some but inevitably retirement looms ever closer for the baby boomers. Each ownership change in a business is an opportunity to acquire the business for your firm and equally a point where the risk of loss is highest.


Our 2012 survey revealed retirement plans for respondent firms were evenly spaced over the response option periods and more than half the respondents had partner retirements in the next 5 years. For 2014 the same question suggests a few plans may have been put on hold.


Only 4.7% of firms have a partner planning to retire in the next year, and the figures remain around a similar level for partners intending to retire in the next five years. The majority (59.5%) have no partners intending to retire within the next 5 years. Compared to the 2012 results, these reveal a significant reduction in retirement plans.


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From this year’s survey retirement plans have been deferred slightly and there has been a marginal drop in the average and oldest equity partner age.  Plans to acquire fees have dropped and fewer firms have plans to either buy or sell fees. Yet more firms have reported that they do not have documented succession plans.


So what are the options?


The first priority is to understand the client base and where they fit in the ageing population timeline. Most accounting systems can segment clients by age. If you can only review this data based on individuals, it will still provide a clear indication of the issues you face.

Calculate the median age, or better still, graph the results so you get a better feel for the age distribution. Plot your partner ages on the same graph. Identify the group of clients more than five years younger (Group A) and five or more years older than partners (Group C).

1. This group should outlast the partner’s association with the firm subject to maintaining good relationships and providing value for money.

2. This group (partner age +/- less than five years) needs to be nurtured and relationships facilitated with successors within your firm. Adopt a multiple relationship arrangement that is consistent with the client understanding where advice is coming from and where the processing and day-to-day work is being completed. Good clients will understand the difference and direct their enquiries appropriately. The relationship is more likely to stay with the partner in this arrangement.

3. This group are likely to retire before partners. Understanding, or better still, facilitating, their succession planning is a must. Get other team members involved not only in this process but in the management of the client relationship. Focus on building relationships with the identified successors at multiple points within your firm. The closer the partner is to retirement, the more likely it is the firm will lose the client. What would your firm look like without this group today? How attractive is that for your successors?

As the population ages and a greater number of baby boomers move into retirement, the value of your succession planning will become more apparent.


Whilst you may risk losing your talent pool to new firm startups, they still represent your best options for an orderly exit from the firm. Start early, help them build their networks and source new business for the firm. Focus on the stability and structural benefits of your firm and the value in the client base.


Work with the clients on their own succession issues and planning. Engage your next generation owners in the client succession process to establish multiple contact points between your preferred clients and the firm. Focus on the relationship between the client business and the firm rather than the business owner and the partner.


Firm sustainability requires continuity of clients, continuity from within the firm and a convergence of succession planning strategies. Implementation and continuous development of the succession plans is a long-term ongoing management responsibility.



David Cole has been an integral member of the team since Business Fitness was founded in 2001, providing both strategic and business development services. David currently manages Western Australian client services for Business Fitness as well as consulting directly to both professional service firms and family businesses on strategic planning, management development and operational efficiency. David can be contacted via


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