August Aquila AQUILA Global Advisors, LLC

 Please answer only one of the following ◦ Have started plan ◦ Will start in next 2 years ◦ Will start in next 5 years ◦ Will start in next 10 years ◦ Plan drafted ◦ No need

 Multi-Owner Firms ◦ Have started plan 35% ◦ Will start in next 2 years 32% ◦ Will start in next 5 years 10% ◦ Will start in next 10 years 3% ◦ Plan drafted 9% ◦ No need 10%  Sole Practitioners ◦ Have started plan 17% ◦ Will start in next 2 years 43% ◦ Will start in next 5 years 23% ◦ Will start in next 10 years 3% ◦ Plan drafted 3% ◦ No need 10% Source AICPA 2008 Succession Planning Survey

 Multi-Owner Firms ◦ Current 20% ◦ Next 1 to 2 years 13% ◦ Next 3 to 5 years 30% ◦ Next 6 to 10 years 17% ◦ More than 10 years away 3% ◦ No challenges16%  Sole Practitioners ◦ Current 14% ◦ Next 1 to 2 years 18% ◦ Next 3 to 5 years 33% ◦ Next 6 to 10 years 27% ◦ More than 10 years away 5% ◦ No challenges3%

PARTNERS LIFE IS GOOD, I MADE IT TO THE TOP MANAGERS CAN’T WAIT TO BECOME AN OWNER STAFF GALORE UP AND OUT WHO CARES

STAFF WHAT DO THEY LOOK LIKE? MANAGERS TELL ME AGAIN WHY I SHOULD BE AN OWNER PARTNERS NOW, WHAT DO WE DO?

 Future partner shortage  Competitive battles  Regulatory changes/Standards overload  Higher client and staff expectation  Lack of desire to engage in business development activities by many partners  Unfunded retirement plans

 Retirement seems a long way off, too early to start  We don’t like to think about it  We don’t even want to retire  The thought of anyone else running the firm is painful  You’re too busy to plan for succession  No one can do it better  The firm would be nothing without me

“This firm would be nothing without me.”

 I’m the key rainmaker  Don’t talk to me about succession  Next in command is not a threat  Younger partners not ready  Internal political issues  I don’t want to transition clients  Senior partners won’t retire  What will I do with my life?  What will my spouse do with me?

 Who will take over when you are ready to retire?  How has the firm changed since the last transition?  What skills will new leaders need to succeed?  Do you have a process to follow?

 Do you have a succession plan?  Is some or all of your retirement plan funded?  Do you expect to be bought out?  Do you know who will buy you out?  Do you have a fixed date?

 What do you want to do with the practice?  What is the firm doing to plan for management succession?  Who will make the choice for you?  What are you doing to ensure that current management will be replaced by a person able to meeting future challenges in a rapidly changing environment?

 Do nothing  Split up  Sell  Merge  Internal transition  Bring people in  Practice continuation (sole practitioners)

 What could be best for your firm? Select 2 from above) - Option One - Option Two

“It makes no difference what size practice you have, the primary goal for future management is continuation of a growing profitable professional practice following the retirement or demise of present management.”

 72% don’t have funded retirement plans  Senior management stays in place too long  Firm founder is also key rainmaker  Founder/MP wears many hats  Successors come from within

 Safeguard practice  Plan for your own retirement  Install a successor  Let go of the practice

 Ultimate management challenge  Addresses your mortality  Touches wide range of emotions  Why can’t we just ignore the topic?

 Liquidity  Provide new owners opportunities  Enhance value of your firm  Release energy of successors

1. Separate personal identify from practice 2. Develop 3 prong plan 3. Get independent valuation 4. Cultivate a team 5. Develop other interests 6. Create your succession plan

7. Have a partnership agreement 8. Choose a successor 9. Develop plans for successor

 Develop strategic plan for the firm  Develop your own retirement  Develop an estate plan to protect your assets

 Multipliers – Revenue or Book Size ◦ More than $1 on the $17% ◦ $1 on the $1 42% ◦ 95 cents on the $12% ◦ 90 cents on the $13% ◦ 85 cents on the $12% ◦ 80 cents on the $17% ◦ 75 cents on the $1 14% ◦ 70 cents on the $13% ◦ 65 cents or less on the $1 13%

 Multipliers – Salary ◦ Less than one year’s salary6% ◦ One year’s salary8% ◦ One year’s salary x 1.53% ◦ One year’s salary x % ◦ One year’s salary x % ◦ One year’s salary x % ◦ One year’s salary x 3.5 3% ◦ More than one year’s salary x 3.5 5% Source: AICPA 2008 Succession Survey

 Accrual basis capital account (ABC) ◦ Paid over 5 years ◦ Often with interest  Goodwill (computed on cash basis) ◦ Larger firms use a multiple of compensation ◦ Smaller firms use a calculation base on fees ◦ Usually paid out over 10 years ◦ No interest ◦ Annual cap on payments  Usually 5-10% of revenue

 For multi partner firms ◦ Learn to delegate  For sole practitioners ◦ Trusted advisors ◦ Spouse ◦ Outside consultant

 What are your outside interests? ◦ Civic, charitable work ◦ Other business interest ◦ Travel ◦ Education ◦ Etc.

It’s All About Options

 Mandatory retirement age from partnership  Client transition tied to benefits  Total dollars to be paid in any one year  Partner termination with or without cause  Vesting period  Partner disability

 What is your process? ◦ Anoint the next leader ◦ Hold an election ◦ Make it a competitive process

 Identify specific competencies  Provide informal coaching by assigned partner  Give on-the-job training opportunities  Offer formal training in interpersonal skills  Make available formal training in delegation and supervision  Send future leader to external leadership training program

 Hold a brainstorming meeting  Failure to plan...

 When you reach mid 50s  Gives you a 10+ year window  Know when to leave ◦ Sell at the top of your game  Tie succession/retirement plan to your personal wealth accumulation

1. Will I be financially secure after retirement? 2. Have I identified a successor? 3. Have I announced a firm date for my retirement? 4. Do I believe that there is meaning to my life outside of the practice? 5. Do I have new challenges to look forward to after retirement? 6. Am I committed to an effective succession plan? 7. Can I delegate authority to others?

 7 yeses - you didn’t need this webinar  6 yeses - you are almost there  5 yeses - you are more than half way there  4 yeses - start getting serious  3.yeses - get an outside advisor  2 yeses - at least you are thinking  1 yes - you are either under 40 or plan to work forever

 What did I forget to say? AQUILA Global Advisors, LLC

 Practice Continuation Agreements: A Practice Survival Guide, Second Edition by John A. Eads, AICPA  Compensation as a Strategic Asset by August Aquila and Coral Rice, AICPA  AICPA/PCPS Human Capital Resource Center www/aicpa.org/pcps

 For a free consultation please contact: August J. Aquila