Succession Planning for Accounting Firms

Ira Rosenbloom is currently the CEO at Optimum Strategies, where he consults with small-to-medium-sized CPA firms to enhance their profitability and refine their team management practices. In this show, we'll talk about how he helps firms track and improve their practice performance, works with leadership to plan and implement succession, and guides them to make sound, strategic decisions for a more effective and sustainable practice.

It’s rare that we hear first-hand accounts and advice for negotiating succession within a firm, so this interview is priceless. Take a listen!

Podcast

Summary

  • Respect and Addressing Apprehensions
  • Facilitating and The Magnitude of Emotions
  • Checking A Remote Firm’s Pulse
    • Artificial Profit vs Real Profit
    • Efficiency

Laying Out Apprehensions

Ira explains that several challenges can come to the forefront whenever the founding leadership of a business passes the baton to others, for staff members and employees to work in concert with the vision and mission of business owners. Navigating change can be very complicated, and soft skills, often overlooked, can become an asset.

First, when approaching founding members, one cannot forget that they have a unique investment—both literally and metaphorically— in the business. With their investment comes a certain amount of pride for the achievements they have accomplished during the lifetime of the business. Ira reminds us that the goal is to “Open their eyes to the need, to pass the baton to somebody else, but by the same token, not insult them.” 

Consequently, extend respect to them. Realize that they may just be as keenly aware of the needs of the business as you, but put the anxieties, fear, and uncertainties out on the table. When beginning the transition between the founders to Ira’s current colleagues, they were honest about their apprehensions” with “and successors in one of Ira’s former firms, the ones taking over expressed apprehension and petitioned for the founders to act as their mentors.

Furthermore, Ira and his team had set up retirements for them during the negotiation process. As Ira said, “This was not a situation where we were just cutting the umbilical cord. No, we had decided that we wanted to see some economic shifts, which would ultimately give security to the founders and enhance opportunity to us.”

Facilitators and Their Role in Assuaging Emotions

Part of being respectful and honest about one’s apprehensions involves also acknowledging reaction, whether it be of flabbergast or incredulity. The skills of listening and reading between the lines will become especially valuable. If someone says they’re not worried, Ira says, “They’re holding back.” 

He further explains that it’s the ability of colleagues and partners to solve problems which garners respect. Acting as facilitator to probe the underlying thoughts behind phrases like “Don’t worry about it,” or “I don’t trust this one bit,” shows trust in your leaders’ and colleagues’ abilities to resolve internal matters.

With that said, the devil was in the details of the transaction Ira had negotiated with. It was helpful to bring in an attorney to act as facilitator and mediator during the transition. While the personal working relationships through trust and respect made it completely possible to get on the same page, that relation had the potential to get in the way and act as a distraction. Ira explains:

“We’ve been at everybody’s...weddings, bar mitzvahs, and unfortunately even funerals, so we were able to gauge that until the very end. In many situations, you do need to facilitate an early out especially to hear those anxieties.”

If a legal professional or facilitator had not been present to aid in parsing out those emotions, it is highly likely that they would not have gotten addressed comfortably. While there was trust amongst the group, there may have been someone to disregard and insult the individual. Causing injury to sentiments is completely counter to the overall goals and vision.

Checking a Remote Firm’s Performative Pulse

The starting point for negotiations should reflect the current state and situation of a firm or business. During the remainder of the COVID-19 pandemic, special care should be taken neither to over-, nor under-, estimate the net profits earned.

Artificial vs Real Profit

Pre COVID-19 overhead costs such as office or building space were significant expenses for businesses. However, now that many employees are working from home, this expense has decreased drastically. Simple math would reflect this change as businesses have a net profit increase due to a decrease in expenditures. 

Business owners may consider further undercutting competition by decreasing the cost of services. 

Ira gives the following example: “If my competitor is charging $1000 for [a product], I can charge $750 for it because I don't have the same overhead.” He calls this profit artificial profit because the product itself is worth $1000, not $750.  Keep in mind, even though the expenses are decreased, the value of the product or services still remains the same to the customer or client. They are unaware—and should probably remain unaware—of the firm’s expenses.

Now, another factor to consider as employees are working from home is their real profitability. While it may not be optimum to micromanage, it is critical to consider what the revenue per person is. 

Ira gives the following example of real profit:  “[Pretend that you] pay somebody $40,000 and, someone else is paying them $60,000, but both are doing [work worth] $200,000.” Here, the real profit comes from the employee being paid $40,000 to do the work. One major factor which could also increase the real profitability of employees per capita is to increase their efficiency.

Efficiency

In a previous interview with Arianna Campbell, we talked about ways to increase the productivity of a team by using the acronym DOWNTIME. One factor which can lower efficiency is overproduction, using more or not having enough resources to complete a task. Ira echoed this sentiment when he said, “The number of touches that have to go into moving the product is very important.”

Small firms must make efficiency the center of their work processes. Figuring out how much work is being delegated, when and to whom, is a key step to increasing profitability. It is ideal to limit the number of people who touch a product or take part in a project to those who increase the real profitability while also taking care of clients and solving their problems.
Ira revealed even more in the episode than we captured here. Take a listen to the full podcast! If you would like to reach out to Ira directly, you can do so at ira@optimumstrategies.com or via call or text at (215) 694-8084.

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