2012 Succession Survey for CPAs: Practice Continuation Agreements (Part 2)

In Part I of this series, we discussed the 2012 succession survey for CPA’s. We have previously blogged on Practice Continuation Agreements (PCAs). For more on these please view our blog library. A PCA is a contract between the sole practitioner and another firm (successor firm) wherein the successor firm agrees to take over the others practice in the event of unforeseen events such as death or disability. This agreement will discuss the details of the buyout, the price, terms, and triggering events as well as many other events.

When I meet with prospective sellers, one of their largest concerns is what happens if I become disabled or die during the listing period. After recently reviewing the AICPA Succession Planning Survey, I see why this is a concern. Only 6% of the sole practitioners have a PCA. There are numerous examples where the death or disability of the owner resulted in untold hardships for clients, staff, and family members. In one case last year, we ended up selling the practice for roughly 25 percent of value before death. Yes, everyone believes that it will not happen but it does. The following represents the most common attributes within a PCA for those that had one at the time of the survey:

1. The condition or conditions that trigger the PCA                            96%

2. Clear identification of the party designated to take over practice     85%

3. Speed responsible party required to respond to triggering event     69%

4. Clear formula for calculation of the sale price                                65%

5. Payment period and term                                                            58%

6. Definition of disability                                                                 58%

7. Provisions for temporary disability                                                42%

8. Client transition requirements                                                      35%

As the demographics of the CPA community continue to age, the importance of a PCA will gain prominence. Look at the most common attributes above. How can you have a PCA without specifying price or terms, without designating the individual to take over? How can you ensure your clients will receive an excellent transition and that your spouse or children will receive the proceeds for your years of hard work if you don’t have a PCA or spend time on the details of your PCA? Take the time to do this.

Those that have them will sleep better at night knowing that their clients, their staff, and their family will be protected in the case of fates long arm reaches them. Contact a professional business intermediary for more information and details about PCA’s.

In Part III, we will discuss the results of the survey for sole practitioners completed by the AICPA.

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