Passing the Baton

As law firms and many other professional service firms including CPAs emerge from the turbulent economic environment of the past few years, they find themselves with an ownership group that continues to age and mounting concerns on how the enterprise will find the continuity to survive and prosper into the future. Succession planning in many law firms has given way to what is now referred to as exit planning, whereby practitioners are concerned more with how they can make an acceptable exit from the productive practice of law, as opposed to building and executing a blueprint for an efficient succession of ownership and leadership.

While some practitioners have essentially decided to effectively continue working until they make a reasonable exit and then “turn out the lights,” others I work with are actively looking at ways to build a viable brand within those they have embraced as tomorrow's leaders as a means to enhance the continuity of the practice. There are many financial implications of moving in this direction, and this article explores the lessons learned from an initiative we have undertaken to enhance our professional service firm's ability to build a logical and acceptable pathway, both for those we refer to as the First in Line (“FIL”) individuals and those we view as the New Generation (“New Gens”).

Background

A bit of background is in order. I am almost 58 years old and have been practicing as a Certified Public Accountant for more than 30 years. I have one other equity partner in the practice who is 54. The two of us are the founders and FILs of our firm. We recently promoted a 44-year-old CPA who has been with the firm for more than 14 years to be what we call an income partner, similar to the two-tier model many law firms have utilized, in which an income partner has the status of a partner to the outside world and in many internal aspects, but does not bear the rights, privileges and burdens of an equity partner, including entitlements to equity upon departure or retirement. It is these entitlements that are at issue in the context of this article: In order for an equity partner to realize value for his or her equity upon an exit event, the partner must find ways to create value for those who will follow behind and the next generation of practice leaders.

Our firm has 12 professionals focusing on traditional CPA services, including tax planning and compliance and financial reporting. We have also built a vibrant litigation support practice emphasizing business valuation, economic damages and financial forensics, where I am regularly engaged to testify as an expert witness. The FILs also do a fair amount of management consulting for professional service firms, leveraging off of our collective experience, including my service as a legal administrator for a 50-attorney firm prior to establishing our practice. Though our firm is a CPA service firm rather than a law firm, there are many parallels in our business structure to most law firms. For purposes of what I will outline below, I would compare the traditional side of our practice to a procedural-oriented law practice, such as an estate planning practice, versus the expert witness and consulting side of our house being more like a litigation practice in a law firm. Another way to distinguish between the two sides of our practice is that the former tends to be more focused on clientele that can be “institutionalized” with a flow of recurring work opportunities, generally speaking, as compared to the litigation and consulting work which is very dependent on the professional goodwill and reputation we have individually established over many years of dedicated service, positioning and marketing savvy.

A few years ago I personally began to evaluate alternatives for how I might eventually retire or at least begin to “phase down” over a period of time once I reached roughly 60 years of age. It became obvious that the traditional side of my practice would be much easier to transition, either internally to my current partners or to others internally who had not yet been identified, or by way of a sale of those clients externally to another established practitioner or firm. At the same time, it was painfully obvious that the more lucrative and frankly, more rewarding, expert witness and consulting work would be very difficult to transition in terms of continuity of work opportunities for others and an economic return to me for positioning such recurring work. I was told by some that it was next to impossible to achieve any significant traction with respect to transitioning clients that were primarily motivated to hire me and my firm because of my individual reputation and professional goodwill.

I have devoted the last two years to a number of tactics that are showing immense promise toward achieving my overall goals of winding down a bit in the next few years, while continuing to realize a robust and growing flow of work opportunities from both sides of my practice. A large part of the equation has been focused on what I call professional branding tactics. After all, it is the brand that people associate with in terms of the reliability and results they have had using me and my firm to serve their needs. The key element of our success is in the branding we have done with both the firm as an institution and with the New Gens within it.

Our income partner is my primary Next Gen and someone who has all the technical skills and capabilities to sit in my chair and provide the same results to our clients in most every corner I have had success in over the past three decades. The primary gap is in her building her own brand by being more visible within the niches we serve and in her experience as a testifying expert. In fact, due to a conscious and continuing effort between her and me, most of my best clients know they can count on her to get them rolling on whatever their needs are when I am out or unavailable. We have invested significant time in meeting with key clients and referral sources together, when only one of us could easily handle the specific need at hand.

Just like most private practice law firms, if someone is not continually selling the work and bringing it in, the rest of the fine talent and capabilities of the enterprise become moot. Rainmaking is king in our profession, no different than in law firms. Maintaining relationships is also very important, especially in today's ever-challenging and competitive environment where no one should take their long-standing client relationships for granted. Our focus now is on the rainmaking side, as the client maintenance aspects appear to be hitting on all cylinders.

A Retreat

Last January, four other CPA firms from around the country, with a makeup similar to ours, (an obvious FIL and Next Gen from each of the firms including ours), came together for a one-day, facilitated retreat to pull together our respective game plans to build a practice transition framework that has been embraced by each team of two attending. We did some serious advance preparation and soul searching, and it has paid dividends already for each of the participating firms. In the final analysis, it was agreed by all participants that the core element that will make each team's commitment successful was a pathway to allow the Next Gen in each firm to build his or her own brand, with full support from the respective FIL. This will allow the best opportunity to make rain by Next Gens bringing in recurring work opportunities of their own. This must occur for the firm to prosper and grow into the future after the FIL begins to taper off on rainmaking endeavors.

An important point that everyone attending this summit had reinforced is that many of the client and referral relationships we have relied upon during our careers are associated with an aging population. That reason alone is sufficient to inspire the younger talent in any professional service firm to seek out key client decision makers in their younger age strata. The Next Gens in our clients are gaining a bigger voice in whom they choose to work with and in many instances desire to associate with capable professionals that are closer to their own age. Many of the clients I have relied upon for work over my career are also making their exits, some planned and some not.

Specific tactics that we are employing include seeking appropriate opportunities to author articles and make presentations as a means to build stature as a thought leader, create visibility and refine speaking skills. One particular tactic is to have the Next Gen actively contact clients whenever I would have needed to contact them for a valid reason, indicating that they are filling in for me and wanted to address the issue to provide prompt, responsive service. It is always noted that I am available for follow up as necessary. This small step alone offers a subtle yet powerful way to position the client to know and trust the Next Gen as someone who is trusted by me sufficiently and in whom I have confidence to handle client matters.

Several of the Next Gens from our January summit will attend a nationally recognized expert witness skills workshop to further enhance their growing ability to act as testifying experts. We are always on the lookout for suitable situations for Next Gens to take on smaller or less complex litigation issues on their pathway to building their own unique brand as an expert witness. Again, I am finding that many of the younger litigators I have been working with the past few years are more comfortable working directly with my Next Gen, primarily due to her growing confidence and abilities, but also due to the process we have employed to build confidence and trust within those relationships. In my instance, the Next Gen offers a less expensive alternative than my involvement, and that can resonate in select instances in this marketplace as a means to sell capabilities of your Next Gen as an alternative provider.

Within our own firm it is a work in progress, but we are now firmly convinced we have a workable plan to which both of us have committed and are willing to invest some of our own skin into to make happen. It is a process that will continue to evolve as we go forward, and it has a long timeline to play itself out. But with a dedicated effort by both parties, it appears to be a solid win-win arrangement both economically and from a professional fulfillment standpoint.

Advice for Law Firms

For law firms with an aging ownership, I would encourage you to do what is necessary to get your elephants up on the table and deal with the realities of your particular situation. If you have promising associates who demonstrate a desire to carry on with the practice when you are no longer bringing the work in the door at the same pace, consider the use of a qualified facilitator to bring up the difficult conversations. That can be the key constraint to moving the process along to the needed next steps or in determining what other alternatives are appropriate for your particular exit strategy. Ask yourself honestly, “What is my exit plan?” and then take action while you have ample time to do so.

Ron Seigneur, ASA, CPA/ABV/CFF is managing partner of Seigneur Gustafson LLP located in Lakewood, CO. Seigneur, a member of this newsletter's Board of Editors, regularly works with law firm management on a wide range of practice improvement issues. He can be reached at [email protected] or 303-980-1111.

As law firms and many other professional service firms including CPAs emerge from the turbulent economic environment of the past few years, they find themselves with an ownership group that continues to age and mounting concerns on how the enterprise will find the continuity to survive and prosper into the future. Succession planning in many law firms has given way to what is now referred to as exit planning, whereby practitioners are concerned more with how they can make an acceptable exit from the productive practice of law, as opposed to building and executing a blueprint for an efficient succession of ownership and leadership.

While some practitioners have essentially decided to effectively continue working until they make a reasonable exit and then “turn out the lights,” others I work with are actively looking at ways to build a viable brand within those they have embraced as tomorrow's leaders as a means to enhance the continuity of the practice. There are many financial implications of moving in this direction, and this article explores the lessons learned from an initiative we have undertaken to enhance our professional service firm's ability to build a logical and acceptable pathway, both for those we refer to as the First in Line (“FIL”) individuals and those we view as the New Generation (“New Gens”).

Background

A bit of background is in order. I am almost 58 years old and have been practicing as a Certified Public Accountant for more than 30 years. I have one other equity partner in the practice who is 54. The two of us are the founders and FILs of our firm. We recently promoted a 44-year-old CPA who has been with the firm for more than 14 years to be what we call an income partner, similar to the two-tier model many law firms have utilized, in which an income partner has the status of a partner to the outside world and in many internal aspects, but does not bear the rights, privileges and burdens of an equity partner, including entitlements to equity upon departure or retirement. It is these entitlements that are at issue in the context of this article: In order for an equity partner to realize value for his or her equity upon an exit event, the partner must find ways to create value for those who will follow behind and the next generation of practice leaders.

Our firm has 12 professionals focusing on traditional CPA services, including tax planning and compliance and financial reporting. We have also built a vibrant litigation support practice emphasizing business valuation, economic damages and financial forensics, where I am regularly engaged to testify as an expert witness. The FILs also do a fair amount of management consulting for professional service firms, leveraging off of our collective experience, including my service as a legal administrator for a 50-attorney firm prior to establishing our practice. Though our firm is a CPA service firm rather than a law firm, there are many parallels in our business structure to most law firms. For purposes of what I will outline below, I would compare the traditional side of our practice to a procedural-oriented law practice, such as an estate planning practice, versus the expert witness and consulting side of our house being more like a litigation practice in a law firm. Another way to distinguish between the two sides of our practice is that the former tends to be more focused on clientele that can be “institutionalized” with a flow of recurring work opportunities, generally speaking, as compared to the litigation and consulting work which is very dependent on the professional goodwill and reputation we have individually established over many years of dedicated service, positioning and marketing savvy.

A few years ago I personally began to evaluate alternatives for how I might eventually retire or at least begin to “phase down” over a period of time once I reached roughly 60 years of age. It became obvious that the traditional side of my practice would be much easier to transition, either internally to my current partners or to others internally who had not yet been identified, or by way of a sale of those clients externally to another established practitioner or firm. At the same time, it was painfully obvious that the more lucrative and frankly, more rewarding, expert witness and consulting work would be very difficult to transition in terms of continuity of work opportunities for others and an economic return to me for positioning such recurring work. I was told by some that it was next to impossible to achieve any significant traction with respect to transitioning clients that were primarily motivated to hire me and my firm because of my individual reputation and professional goodwill.

I have devoted the last two years to a number of tactics that are showing immense promise toward achieving my overall goals of winding down a bit in the next few years, while continuing to realize a robust and growing flow of work opportunities from both sides of my practice. A large part of the equation has been focused on what I call professional branding tactics. After all, it is the brand that people associate with in terms of the reliability and results they have had using me and my firm to serve their needs. The key element of our success is in the branding we have done with both the firm as an institution and with the New Gens within it.

Our income partner is my primary Next Gen and someone who has all the technical skills and capabilities to sit in my chair and provide the same results to our clients in most every corner I have had success in over the past three decades. The primary gap is in her building her own brand by being more visible within the niches we serve and in her experience as a testifying expert. In fact, due to a conscious and continuing effort between her and me, most of my best clients know they can count on her to get them rolling on whatever their needs are when I am out or unavailable. We have invested significant time in meeting with key clients and referral sources together, when only one of us could easily handle the specific need at hand.

Just like most private practice law firms, if someone is not continually selling the work and bringing it in, the rest of the fine talent and capabilities of the enterprise become moot. Rainmaking is king in our profession, no different than in law firms. Maintaining relationships is also very important, especially in today's ever-challenging and competitive environment where no one should take their long-standing client relationships for granted. Our focus now is on the rainmaking side, as the client maintenance aspects appear to be hitting on all cylinders.

A Retreat

Last January, four other CPA firms from around the country, with a makeup similar to ours, (an obvious FIL and Next Gen from each of the firms including ours), came together for a one-day, facilitated retreat to pull together our respective game plans to build a practice transition framework that has been embraced by each team of two attending. We did some serious advance preparation and soul searching, and it has paid dividends already for each of the participating firms. In the final analysis, it was agreed by all participants that the core element that will make each team's commitment successful was a pathway to allow the Next Gen in each firm to build his or her own brand, with full support from the respective FIL. This will allow the best opportunity to make rain by Next Gens bringing in recurring work opportunities of their own. This must occur for the firm to prosper and grow into the future after the FIL begins to taper off on rainmaking endeavors.

An important point that everyone attending this summit had reinforced is that many of the client and referral relationships we have relied upon during our careers are associated with an aging population. That reason alone is sufficient to inspire the younger talent in any professional service firm to seek out key client decision makers in their younger age strata. The Next Gens in our clients are gaining a bigger voice in whom they choose to work with and in many instances desire to associate with capable professionals that are closer to their own age. Many of the clients I have relied upon for work over my career are also making their exits, some planned and some not.

Specific tactics that we are employing include seeking appropriate opportunities to author articles and make presentations as a means to build stature as a thought leader, create visibility and refine speaking skills. One particular tactic is to have the Next Gen actively contact clients whenever I would have needed to contact them for a valid reason, indicating that they are filling in for me and wanted to address the issue to provide prompt, responsive service. It is always noted that I am available for follow up as necessary. This small step alone offers a subtle yet powerful way to position the client to know and trust the Next Gen as someone who is trusted by me sufficiently and in whom I have confidence to handle client matters.

Several of the Next Gens from our January summit will attend a nationally recognized expert witness skills workshop to further enhance their growing ability to act as testifying experts. We are always on the lookout for suitable situations for Next Gens to take on smaller or less complex litigation issues on their pathway to building their own unique brand as an expert witness. Again, I am finding that many of the younger litigators I have been working with the past few years are more comfortable working directly with my Next Gen, primarily due to her growing confidence and abilities, but also due to the process we have employed to build confidence and trust within those relationships. In my instance, the Next Gen offers a less expensive alternative than my involvement, and that can resonate in select instances in this marketplace as a means to sell capabilities of your Next Gen as an alternative provider.

Within our own firm it is a work in progress, but we are now firmly convinced we have a workable plan to which both of us have committed and are willing to invest some of our own skin into to make happen. It is a process that will continue to evolve as we go forward, and it has a long timeline to play itself out. But with a dedicated effort by both parties, it appears to be a solid win-win arrangement both economically and from a professional fulfillment standpoint.

Advice for Law Firms

For law firms with an aging ownership, I would encourage you to do what is necessary to get your elephants up on the table and deal with the realities of your particular situation. If you have promising associates who demonstrate a desire to carry on with the practice when you are no longer bringing the work in the door at the same pace, consider the use of a qualified facilitator to bring up the difficult conversations. That can be the key constraint to moving the process along to the needed next steps or in determining what other alternatives are appropriate for your particular exit strategy. Ask yourself honestly, “What is my exit plan?” and then take action while you have ample time to do so.

Ron Seigneur, ASA, CPA/ABV/CFF is managing partner of Seigneur Gustafson LLP located in Lakewood, CO. Seigneur, a member of this newsletter's Board of Editors, regularly works with law firm management on a wide range of practice improvement issues. He can be reached at [email protected] or 303-980-1111.