Succession Planning and Its Impact on Employee Retention

In the ever-evolving landscape of the accounting profession, the necessity for strategic succession planning cannot be overstated. It is a process bound to happen in every firm, yet its planning—or lack thereof—can significantly influence the firm's future, including its ability to retain valuable employees.

"Succession is going to happen in every accounting firm regardless of whether the current owner(s) plan for it," states Tom Dawson, founding partner of TPS Software. Since the company’s inception in 1999, he, alongside Ted Shandro, President of TPS Software, have seen countless firms go through the process of succession. Some firms navigated the transition smoothly, bolstering their market position and employee satisfaction, while others stumbled, grappling with internal uncertainties and disruptions.

“With the inevitable passage of time, succession of some type is a given. Acknowledging that succession will occur, and addressing employees' futures within the changed firm, can help to ease uncertainty and help employees understand and prepare for their future role,” Shandro elaborates. This proactive approach not only secures the firm’s legacy but also reinforces the foundation for continued growth and stability.

Ultimately, the success of a firm's succession is closely tied to its preparedness and the strategic vision of its leadership. It is not merely about choosing a successor, but ensuring the firm remains resilient and its employees engaged through the transition.

The journey of succession planning begins with the acknowledgment of its necessity. "The first step is to acknowledge that this planning needs to happen," Dawson notes. It involves a critical assessment of the current staff's capabilities and determining if they're ready to take over the reins. “If the honest answer is ‘not at this time’ then the owners need to decide if they want to invest in training their staff, whom on their staff might be a promising candidate, and whether or not they have time to accomplish the training.”

Shandro adds that implementing benchmarks and KPIs can significantly increase the firm's efficiency and, consequently, its value. “If reward-based KPI’s are introduced for employees, the efficiency of the firm increases and so the value for the retiring parties also increases.” A data-driven approach allows for an objective analysis, ensuring that decisions regarding succession are based on solid, actionable information rather than intuition alone.

Beyond the initial assessment and setting of benchmarks, effective succession planning also involves open communication with potential successors. Engaging in transparent discussions about the firm's future, expectations, and the skills required for leadership roles is crucial. This fosters a culture of trust and commitment, ensuring that potential successors feel valued and prepared for the responsibilities ahead.

Succession planning should also include a detailed timeline and a structured transition plan. This plan outlines key milestones in the succession process, including training periods, the gradual transfer of responsibilities, and any necessary adjustments to firm governance structures. By mapping out the transition in detail, firms can minimise disruptions to their operations and client services, ensuring a smooth handover.

Of course, it is essential to consider the legal and financial implications of succession. This includes updating partnership agreements, considering tax implications, and ensuring that the financial arrangements for outgoing partners are clearly defined and agreed upon.

These strategic steps for succession, grounded in thorough assessment and strategic planning, underscore the importance of a mindful approach to this inevitable transition. Ultimately, the goal is to ensure that the firm not only survives the transition but also thrives, maintaining its core values and continuing to serve its clients effectively. With careful planning and execution, succession can be an opportunity for renewal and growth. 

One of the most compelling aspects of strategic succession planning is its proven impact on employee retention, as illustrated by the experiences shared by Dawson and Shandro. Dawson recounts the story of a client from the east coast: "The owner knew he wanted to retire long before most would consider it. He started grooming his senior accountants early, delegating more firm tasks and gradually taking more time away from the office." This proactive approach was not without its challenges, as not every accountant rose to the occasion. However, the owner's early and focused efforts paid off, allowing him to phase into retirement while still earning a comfortable income, showcasing the long-term benefits of early succession planning.

Shandro shares another example from a smaller firm with eight employees. "We had them rigorously monitor where time was spent and the profitability of different types of work," he explains. This data-driven approach led the firm to cease less profitable jobs, focusing instead on those that they performed well. The result was a 30% increase in profitability over two years. Shandro’s example not only highlights the financial benefits of effective succession planning but also underscores the importance of aligning firm activities with its strengths.

These success stories not only demonstrate the tangible benefits of early and strategic succession planning but also reflect its significant influence on maintaining a firm's stability and ensuring employee satisfaction during transitional periods. 

Many firms find themselves facing similar challenges when it comes to succession planning. Tom Dawson highlights what is perhaps the most common: failing to plan for succession at all. “It’s alarming how many owners don’t even start to think about succession until they’re nearly ready to retire. Even if the firm is running profitably, it’s unlikely that it’s been properly prepared for such a transition without there having been a plan in place several years prior.” 

Dawson's observation underlines a critical oversight that can jeopardise the future stability and continuity of a firm. Recognising the need for succession planning early on is not just a precaution; it's a strategic move towards sustainable success. 

“Once the owners recognise the need to plan for succession, they then need to evaluate if they are actually tracking their firm's productivity and profitability." This underscores the necessity of having a solid grasp on the firm's current standing, utilising historical data and analytics to inform the planning process.

Another common challenge is the decision between developing in-house talent for leadership roles or bringing in successors from outside the firm. As Dawson notes, "This decision hinges on the availability of detailed historical records of the firm’s performance." 

Ted Shandro touches on another complex aspect of succession planning—the nature of the transition. "They need to decide if it is a firm split or outright sale," he states, highlighting an oft-overlooked, yet critical, detail. 

Some partners may choose to retire yet continue to serve a select few clients, highlighting the need for flexible planning that accommodates various scenarios. "Practice management tools can put a value on the retention of each of the clients as well as employee performance," Shandro notes, illustrating how technology can support critical decisions by providing objective data on client and employee contributions to the firm. 

A crucial aspect of succession planning is its profound impact on employee retention. When employees see a clear path for the firm's future and their role within it, their engagement and commitment to the firm increase significantly. "Employees need to feel secure about their future in the firm, especially during transitions," Shandro explains. "Knowing there's a plan in place gives them that security. 

Accounting practice management software plays a pivotal role in this aspect. By providing transparency and fostering communication between management and staff, platforms like TPS Software ensure that employees are not left in the dark about the firm's directions and their career opportunities. "Effective use of software like TPS not only streamlines operational aspects of succession but also actively engages employees in the process," Dawson adds. This engagement is crucial for retaining top talent who might otherwise seek stability and growth opportunities elsewhere. 

Furthermore, the implementation of technology solutions for succession planning can lead to more informed decision-making regarding talent development and leadership roles. "Seeing the firm invest in tools and processes that ensure its longevity and their career progression can be a strong motivator for employees to stay and grow with the firm," says Shandro. This is particularly true for younger employees who value transparency and opportunities for advancement. 

In essence, the strategic integration of succession planning and practice management software directly contributes to a culture of trust and transparency. This culture, in turn, enhances employee satisfaction and loyalty, significantly impacting retention rates. "Our experience with TPS Software has shown us that when employees understand their value to the firm and see a future within it, they're much more likely to stay engaged and contribute to the firm's success over the long term," concludes Dawson. 

Ultimately, succession planning is key to ensuring a firm’s stability and growth. Embracing this process early can dramatically influence a firm’s future and its ability to retain key talent. The decision to plan for succession ultimately shapes a firm's legacy," Dawson concludes, highlighting the profound impact of these efforts on the firm's enduring success. 

As the accounting sector evolves, so too will the tools and strategies that support effective succession planning. While technology like practice management solutions plays a role, the essence of succession planning lies in its execution—ensuring a seamless transition that upholds the firm's values and supports its people. 

The commitment to thoughtful succession planning today lays the foundation for the firm’s success tomorrow, making it an invaluable investment in the firm and its employees. Prioritising strategic planning now will pave the way for a resilient and thriving future in the ever-changing landscape of the accounting industry.