The Fifth Step in Succession Planning-Develop and Execute a Transition Plan

In previous blogs, I discussed the need to assess the level of need you have for replacing retiring partners, how to assess your firm’s potential for partner level talent, developing that talent into viable successors, and making sure you have the right financial arrangement for buying out and admitting new partners. The final step is to develop and execute an effective transition of a retiring partner’s role.

Remember, the value you establish for a retiring partner’s interest is probably totally dependent on transitioning their role so the firm can maintain its profitability. It is rare to see a valuation that assumes the firm will contract after a partner leaves. So how do you assure the assumption you made regarding the future profits of the firm are actually justified by actual results?

An effective transition plan will follow these steps: 1) allow enough time for the retiring partner’s duties to transition, 2) identify specifically who will be the successor for every responsibility, often most importantly each client relationship, 3) develop a formal written plan for both the retiring partner and the successor for execution of the transition, 4) create incentives to make sure the plan is executed. The incentives should at least motivate the retiring partner to execute the transition or face some consequences in their buyout.

A rule of thumb is that an owner agreement should contain a requirement for a two year notice of an intention to retire. Failure on the part of a retiring partner to provide adequate notice should result in a specific adjustment in their buyout terms or make those terms contingent. Many firms feel that adequate notice is enough to fix the buyout price. If you believe given enough time your firm believes can properly transition duties, you should use that approach.

In some cases, the partner group may not have confidence a retiring partner will do their part to make the transition due to a reluctance to give up control. In those cases it may be appropriate to also require adherence to the transition plan to be eligible for a fixed benefit at the date of retirement. In the most extreme cases of potential risk, the firm might make the retirement payments contingent on client/volume retention regardless of notice. However, we have seen many cases where a contingent retirement benefit fails to adequately motivate the parties to develop and execute an effective transition plan because the firm feels it doesn’t have any risk.

All of a partner’s critical duties need to be addressed in the plan. However, in most cases transitioning client relationships are a priority. In a two year transition plan, the first year should be used to 1) inform the client of the fact that a transition of their partner’s role is imminent, 2) an introduction to the successor and 3) gradually move primary responsibility to the successor. By the end of the second year, the retiring partner’s exit from the firm should be a non-event for the clients. However, this second year also affords the firm the chance to pick up the pieces and restart the process in the event the transition is not taking hold with a specific client.

About the Author

Terrence Putney, CPA ( is CEO of Transition Advisors, LLC,, which exclusively consults on succession and growth strategies for accounting practices nationally and ownership transition. He can be reached at or 866-279-8550.

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