2012 Succession Survey for CPAs (Part 1)

In this three part series, we will discuss the 2012 succession survey for CPA’s. The annual succession survey completed by the AICPA has been recently distributed and there are several interesting points that warrant a discussion. The survey is made up of respondents that are single-owner practices who employ a professional staff or sole practitioners with no employees.

The first interesting point is the respondents by Net Annual Revenue (NAR).

  • 1% is made up of firms with two million dollars or more in NAR
  • 7% is made up of firms with between 1 million and 2 million
  • 20% is made up of firms with revenue of five hundred thousand to 1 million
  • 72% is made up of firms with less than five hundred thousand

The statistics of this survey indicate that most practices, 92% to be exact, are less than 1 million in revenue and 72% of them are less than five hundred thousand. The respondents largely fall into the baby boomer category. In previous survey’s, we have seen that this group mirrors the larger population. What we have seen with the baby boomer generation however, is the fact that they are holding on to their business longer than ever before.

The prolog to the survey predicts that over the next 10 years, the market will switch from a sellers’ market to a buyers’ market. While this may be true, the economic uncertainty combined with the recession we have recently come through has eroded wealth and confidence, and many practitioners are holding on longer to replace the lost wealth.

In addition, we are seeing a large number of buyers enter the market with cash. Many of these are large offshore-based buyers who are ready to gobble up any possible book they can get their hands on. Others however, are national and regional firms that want to grow through acquisition. In our opinion, it will not be a bleak future for those in this category as we see demand rising to meet this excess supply.

The business of tax, accounting, and professional practices face the same challenge of succession planning, as have their predecessors. Deadline after deadline combined with a short slow season usually geared to ramp up sales and pick up new clients is still dominating the mind share of the community. It should be no surprise that succession planning does not move to the top of this list for sole practitioners until 2 to 3 years prior to exit. For the same reason that sole practitioners struggle breaking through the 1 million mark in gross revenue, they also struggle with exit planning.

In Part II of this series, we will discuss Practice Continuation Agreements (PCA). We will explain what it means and what are the common attributes.

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