succession

a lot is changing fast. here’s what your partner agreement needs today.

by marc rosenberg
retirements & buyouts

let’s take a moment to simply summarize the many critical aspects of a well written partner retirement/buyout plan.

at first glance, those unfamiliar with how a proper plan should be written may find the 20-plus key provisions listed below to be daunting. but i would caution against such thinking.  in my 20 years of consulting to cpa firms in this area, i have been asked to resolve messy disputes regarding every item listed below.

more on retirement: clawback and how to handle it | can partners compete after they leave? | disability is far more complex than death | even partner agreements must face death | 6 ways to leave a cpa firm (retirement’s just 1) | how to juggle tax considerations for partner retirement benefits | two ways to retire, and one’s not pretty | how to transition clients from retiring partners | compromise is in order for some goodwill payouts | why you’ll get less from your partners in a buyout than you might by selling the whole firm | the multiple of compensation method, fully explained

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5 life insurance questions you should consider.

by marc rosenberg
retirements & buyouts

issues related to the death of a partner should be addressed in the firm’s partner agreement. consider the following:

1. does the firm wish to accelerate vesting in any manner? does the firm wish to accelerate the payment frequency, vesting or both? partners are often tempted to be generous out of sympathy for the deceased partner’s family. what stops them from acting on this generosity impulse is the cold reality of how expensive this is. as a result, most firms treat death the same as an ordinary retirement.
2. what must be done to assign the deceased partner’s clients to other firm members and to retain the clients?
3. to what extent does the firm want to purchase life insurance on the lives of some or all of the partners? if they opt to purchase the insurance:

more on retirement: 6 ways to leave a cpa firm (retirement’s just 1) | how to juggle tax considerations for partner retirement benefits | two ways to retire, and one’s not pretty | mandatory retirement? 4 reasons the firm comes first | how to transition clients from retiring partners | retirement vesting: the devil’s in the details | eat what you kill? then maybe ‘book of business’ is for you

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goodwill depends on the method of departure.

by marc rosenberg
retirements & buyouts

in the literal sense, retirement is only one of six ways that partners may separate from their firm.

more on retirement: how to juggle tax considerations for partner retirement benefits | how to transition clients from retiring partners | you want goodwill payments? give proper retirement notice | retirement vesting: the devil’s in the details | compromise is in order for some goodwill payouts | three ways to calculate goodwill payable in partner buyouts, none of them great | 5 points to consider when paying out goodwill | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

benefits to partners are handled differently depending on which of the six ways they leave:
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minimizing self-employment taxes is desirable but tricky.

by marc rosenberg
retirements & buyouts

the income tax aspect of practice management issues is an area of my consulting practice in which i have knowledge, but i wouldn’t call it “expertise.” so i sought the counsel of an expert – jeff arnol, cpa, managing partner of kessler, orlean, silver & company in chicago. the information presented here is based on my 20+ years of experience of working with cpa firms on partner retirement plans, liberally supplemented by arnol’s input.

more on partner retirements: two ways to retire, and one’s not pretty | mandatory retirement varies by firm size | mandatory retirement? 4 reasons the firm comes first | how to transition clients from retiring partners | you want goodwill payments? give proper retirement notice | retirement vesting: the devil’s in the details | compromise is in order for some goodwill payouts | three ways to calculate goodwill payable in partner buyouts, none of them great | 5 points to consider when paying out goodwill | how to set terms and limits for goodwill payouts | partners may balk at guaranteeing retirement obligations

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the graceful way to slow down and phase out.

by marc rosenberg
retirements & buyouts

there are two ways that partners slow down as they approach traditional retirement age:

announced – the “cooperative” way to slow down. the partner openly and willingly informs the partners that she wishes to slow down. this change in status is usually related to the retirement process, but some partners who are not retirement-minded may wish to work less than full time in order to pursue other life goals.

more on retirement: mandatory retirement varies by firm size | how to transition clients from retiring partners | retirement plan funding? what funding? | retirement vesting: the devil’s in the details | when retiring partners take a specialty with them | three ways to calculate goodwill payable in partner buyouts, none of them great | the multiple of compensation method, fully explained | clients leaving? time to reduce retirement benefits | partners may balk at guaranteeing retirement obligations

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unannounced – the “uncooperative” way to slow down. in these instances, the partner is either unwilling to cooperate with his partners in working out a sensible, fair phase-down period or is unaware that he needs to phase out of the firm.

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practices between “large” firms and smaller firms diverge.

by marc rosenberg
retirements & buyouts

as is the case with many aspects of practice management, mandatory retirement is addressed quite differently depending on the size of the firm. here is data from a recent rosenberg map survey:

percent of firms having mandatory retirement policies for partners:

• 83 percent for firms with annual fees greater than $20 million.
• 77 percent for firms in the $10 million-20 million range.
• 56 percent for firms in the $2 million-10 million range.
• 21 percent for firms with fees less than $2 million.

more on retirement: mandatory retirement? 4 reasons the firm comes first | how to transition clients from retiring partners | you want goodwill payments? give proper retirement notice | retirement plan funding? what funding? | vesting can cover part-timers, too | retirement vesting: the devil’s in the details | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits?

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and 6 reasons that firms struggle.

by marc rosenberg
retirements & buyouts

at cpa firms, the concept of requiring partners to retire at a certain age has been around for decades. the mandatory requirement policy has its roots in the “one-firm” concept of managing a firm: the interests of the firm should always be more important than the interests of any individual partner.

more on retirement: you want goodwill payments? give proper retirement notice | retirement plan funding? what funding? | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits? | the multiple of compensation method, fully explained | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | how to set terms and limits for goodwill payouts | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

why a mandatory retirement policy is good for the firm: read more →

no transition – no goodwill.

by marc rosenberg
retirements & buyouts

if there is one takeaway in retirement planning, it would be this: “no transition – no goodwill.” here’s what i mean.

more on retirement: retirement plan funding? what funding? | vesting can cover part-timers, too | compromise is in order for some goodwill payouts | when retiring partners take a specialty with them | if clients leave, do you reduce retirement benefits? | three ways to calculate goodwill payable in partner buyouts, none of them great | eat what you kill? then maybe ‘book of business’ is for you | the ins and outs of aav for goodwill | 5 points to consider when paying out goodwill | clients leaving? time to reduce retirement benefits | 4 ways to decide how to pay out capital | partners may balk at guaranteeing retirement obligations

the best of times and the worst of times…

with apologies to charles dickens, who famously opened his classic “a tale of two cities” with the above, here are two real experiences i had regarding transition, one of which was the best example of retiring partner transition i’ve ever seen and one the worst.

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