the abc’s of pcas for cpas

it’s a favor. treat it like one.

by marc rosenberg
cpa firm mergers: your complete guide

a practice continuation agreement (pca) is a written contract between a sole practitioner and another firm for the latter to take over the solo’s practice, either permanently or temporarily, in the event of a sudden, unexpected event (most commonly a health issue) that prevents the solo from working.

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logically, it would make total sense for every one of the 30,000 sole practitioners in the u.s. to have a pca in place. after all, solos have no partners to take their place, and in the vast majority of cases, their staff doesn’t have the skill level or the certifications needed to run the practice in the absence of the owner.

but very few sole practitioners have a pca agreement with another firm, and very few firms have pca agreements with smaller firms.

why do we see so few pcas?

what may seem like a simple, logical, win-win arrangement between two firms is, in fact, very complicated. in some ways, a pca is more difficult to negotiate than a merger.

a life insurance policy is a boilerplate document you sign, pay the premiums for and tuck away in your file cabinet, knowing that it never has to be looked at except in the unfortunate event that it is invoked, at which time it can be effortlessly implemented.

some people see pca agreements in a similar light, but in fact pcas are a totally different animal.

here are several factors that make pca agreements so rare:

1. the effort to negotiate and agree on pca terms is at least equal to the effort and complication of buying or selling a firm. several key provisions have to be negotiated:

• • sales price
  • payment terms
  • down payment
  • purchase of other assets
  • responsibility for the smaller firm’s office lease

2. why did i say that a pca is more difficult to negotiate than a regular merger?

• • in a case where the solo is temporarily disabled, how will the smaller firm’s profit be split between buyer and seller?
  • if the solo can come back only part-time, how will that work?
  • what happens if clients don’t stay?
  • what happens if staff don’t stay?
  • if the goal is for the larger firm to seamlessly step in for the smaller firm if needed, the only rational way to do this is for the smaller firm to have an of-counsel relationship with the larger firm. the two firms don’t need to reside in the same office (though this would make sense), but the smaller firm should use the same technology systems as the larger firm and follow the same client report formatting, workpaper style, and quality control procedures and processes. the smaller firm’s personnel should regularly attend training sessions of the larger firm.
  • files, office keys, computer passwords, client names, phone numbers, email addresses and other items should be organized so that, if the pca is invoked, the larger firm knows where everything is located.

in general, solos need to understand that a buyer agreeing to a pca is doing them a favor. therefore, the solo must be very accommodating to the buyer during the process of negotiating terms.

posted on october 13, 2022