The Bridge: Fall 2017 | CPA Edition

C PA I N D U S T RY K N O W L E D G E F R O M O A K S T R E E T F U N D I N G

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a first financial bank company

CPA Edition | Fall 2017

Destination: Next Generation 5 Ways to Attract Millennials Page 4

Developing a Leadership Roadmap Page 12

FEATURES

CTRL + ALT + TECH

CPA practices that progress slowly may be left behind

6 4 Five ways to

attract Millennials Recruit this generation as customers and top talent

in 10 Gen-X the C-Suite

How this once-overlooked generation is making a move for the top

down the 14 Passing family business Learn how to work through the details of a succession plan

CPA Edition

Fall 2017

Publisher Oak Street Funding Editorial Director Meghan McNulty Contributing Editor Sharon Robbins Art Director/Designer Aidreen S. Hart Graphic Contributors Beth Winchell, Beth Rogers The Bridge is a newsletter produced by: Oak Street Funding 8888 Keystone Crossing, Suite 1700 Indianapolis, Indiana 46240 844-370-5757 Loans and lines of credit subject to approval.

Potential borrowers are responsible for their own due diligence on acquisitions. California residents: Loans made pursuant to a Department of Corporations California Finance Lenders License (#6039829). The materials in this paper are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. The use of this paper, including sending an email, voice mail or any other communication to Oak Street, does not create a relationship of any kind between you and Oak Street.

© 2017 by Oak Street Funding LLC. All rights reserved. Any duplication without prior written permission is strictly prohibited.

Share Your Thoughts If you have any questions, comments or ideas for The Bridge®, let us know. Email us at marketing.box@oakstreetfunding.com or visit us on social media.

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www.oakstreetfunding.com/cpas

LETTER FROM THE FOUNDER/CEO

Destination: NEXT GENERATION

At the end of each day, the most valuable business assets leave the office. Successful business owners believe this to be true and run their businesses accordingly. Whether you are in growth mode or starting to think about retirement, having a clearly defined plan for employee and

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leadership development makes the future uncertainties of your business that much easier to navigate.

In this edition, we will explore what we as leaders can do to motivate our colleagues – new-comers and longtime employees alike – to work collaboratively, to learn and grow as your business evolves, and to eventually be strategically positioned in your succession plan to become the leaders when the time arrives.

With multi-generational teams making up today’s workforce, inevitable conflicts occur over issues such as management and operational styles, the use of technology and overall decision-making. By strategically offering

Our resources are packed with expert advice and best practices.

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the next generation meaningful opportunities and autonomy, managers and organizations can provide alignment, and feel confident that these employees will stick around to help the company grow today and into the future.

At Oak Street Funding we are here to help you to realize today’s dreams and also to help fund tomorrow’s. Whether you are in need of capital, are growing your business, or are planning to acquire or retire, we’ll get you there.

Oak Street Funding® Vision Statement Oak Street Funding utilizes industry knowledge, well-developed technology and passion to deliver best-in-class service and capital products to insurance and finance professionals nationwide. Our customer-focused mindset and access to capital will allow us to continue to fulfill customer needs, identify growth opportunities and provide an empowering work environment for employees.

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ways to attract Millennials recruit this generation as customers and top talent Millennials, defined as individuals born between 1981 and 1997, are the new darlings of the modern economy. As spenders, Millennials represent more purchasing power than any other generation, so capturing that market share should be of top concern to any growing company. As a working force, Millennials bring the right mix of passion and engagement to the corporate environment, so employers looking to thrive in the digital age should consider this group in their recruiting efforts. But Millennials won’t respond to traditional ways of marketing that worked on the Boomer population and Generation X. As a CPA practice, how can you get Millennials to buy into your services, as well as consider accounting as a worthy profession? Here are some strategies for success:

Attracting Millennial Customers to your CPA Practice:

Below are five ways you can win over more Millennials as accounting customers:

 Go Digital: Millennials are often

described as “digital natives,” meaning that they grew up using technology that previous generations had to learn later in life. In other words, Millennials use the Internet and social media to communicate and interact with their world. This generation can seamlessly navigate between devices – texting, shopping online, blogging and using social media with ease. As a business, you need to not only be visible to these digital natives to attract their attention, but you need to be able to communicate and market to them digitally in the form of unique online

content, digital advertising and other online channels. Your accounting practice, at a minimum, must have a good website presence, capable of delivering value and providing self-service capabilities such as online quotes.

 Be Searchable: Gone are the days

of yellow page advertisements and other directory listings. Along with a solid digital branding effort, your new Millennial customer needs to be able to find your company via a web search. Most Millennials rely on Internet searches to research products and services before purchasing, and if your company doesn’t show up in search results, it is left out of the decision set. Search engine optimization (SEO) techniques to ensure your website is listed among the top accounting practices in your market will give you an edge over competitors. One way to do this is to modify your existing website content to focus on popularly searched keyword phrases, and initiate a comprehensive content marketing effort, which includes tactics such as weekly blogging and social media marketing. If you don’t have the staff to do this, consider outsourcing it.

 Look Within: Does your company

have Millennials on its team? If so, find out what makes your practice attractive to their generation, and use this information to make your practice stand out. Implement a referral program or discover other unique ways to drive awareness and interest among the Millennial crowd.

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If your practice does not have any Millennials on staff, consider the benefits of generational diversification within the workforce, and the benefits that hiring a Millennial could bring. At the very least, consider outsourcing contracts to Millennials.

 Mind your Mission: Millennials are

a very cause-driven generation. When they make a purchase, they tend to favor companies and brands who want to make a difference in the world. Is your company involved in the community in some way?

How can you highlight your community efforts to get the attention of the Millennial generation?

 Service Sells: While excellent

customer service is important to every generation, Millennials demand 24/7 information and support, because they are accustomed to the speed and efficiency of the digital era. Make sure your practice offers some type of round-the-clock service, whether it’s an instant online quote, a chat feature or a mobile app. These features may make a difference when the Millennial chooses a provider.

Attracting Millennial Talent to your CPA Practice:

One of the best ways to gain a large Millennial customer base is to hire more of them as team members. Here are some suggestions on how to recruit and retain Millennial employees:

 Offer Flexibility: More than any

other generation, Millennials value flexibility in their careers over other perks such as salary or benefits. While they are passionate about their work and personal interests, they want to live a life outside of the workplace. Offering flexible schedules, telecommuting or other perks that encourage a work-life balance will be more appealing to a Millennial job candidate. Also consider flexibility in job responsibilities to make work life more interesting to Millennial talent. This flexibility may be key to retaining Millennial candidates, with average Millennial job hopping every 18 months, according to the U.S. Bureau of Labor Statistics.

 Feed the Culture: Fun is nearly as important as flexible to the Millennial employee. Creating an enjoyable atmosphere with a unique company culture can attract good Millennial candidates to your CPA practice.

Consider posting on social media activities such as company outings, parties and get-togethers to give candidates a feel of your company culture. Highlight your employees’ stories on social media too, which will give job searchers a chance to visualize working with your team.

Use social media to communicate about open positions and to market your fun, flexible atmosphere and company culture.

When you hire a new Millennial to your staff, make sure you offer them guidance through a mentorship program established with more senior advisors in your practice, and pay for continuing education to sharpen their skills on the job.

 Give Back: Accounting is about

Millennials: The Key to Business Growth

helping people, so Millennials will likely be drawn to this type of profession as a meaningful career choice if you highlight this aspect in your recruiting. Millennials like companies who are actively involved in causes, so be sure to tout these efforts on your blog and social media pages.

Millennials might be a vastly different generation than their predecessors, but they can also bring a unique value to your customer and employee base.

By understanding them better, you can find ways to attract them as customers and team members. Doing so will set your practice apart and help bolster its growth into the next decade.

 Mentor Them: Contact college

campuses in your area and consider starting an internship program to recruit potential employees from the financial, technology, business or marketing departments. Consider speaking to students to help them understand and visualize a career in the accounting industry.

Use Technology: The Millennial generation not only uses technology to communicate in their personal world, they prefer to work for a technologically-savvy company too.

To attract new talent, ensure your company’s online presence is solid and your website is searchable. Start incorporating technology in your practice and use it to streamline efficiencies within the organization.

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CTRL + ALT + Tech CPA practices that progress slowly may be left behind

Cloud computing may appear to be a threat, but can actually promote efficiency for outside CPA practices.

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By their very nature, accountants tend to be a risk-averse group. One of the primary concepts drilled into the heads of first-year accounting students is the conservatism principle, which prepares for negative risks while essentially ignoring positive ones.

As a profession, accountants are known for recommending conservative courses of action to their clients, which helps to keep those clients out of financial trouble and insolvency.

But that propensity for risk aversion can sometimes work against the self-interest of accountants. They’re typically slow to embrace changes that may actually be beneficial.

From Univac® to Quicken Online®

The first true accounting software and computer system emerged in 1955 when General Electric installed a Univac computer in a Kentucky appliance factory. The $1.2 million, 29-ton computer was tasked with running the company’s complex payroll. Initially, it took more than 40 hours to run each payroll session, but improvements in the software soon shortened that to less than 10 hours.1 The systems that were introduced during the 1950s and 1960s were invariably proprietary programs developed for the specific computers on which they ran. Each buyer’s system was different, so there was no need for standardization.

Nearly all of these computers were set up to run in “batch” mode, typically overnight, with the operators loading the data and starting the process, then returning in the morning to collect the resulting data. Because all systems were customized, only the largest companies and government agencies could afford to computerize.2

The equalizer appeared in the late 1970s, when IBM® developed the personal computer, which was quickly followed by systems from a variety of manufacturers.

Large mainframe computers were gradually supplanted with desktop systems that boasted higher operating speeds and greater standardization. In particular, manufacturers began to adopt standard operating systems.

The arrival of standardized operating systems allowed software developers to create off-the-shelf packages for a wide variety of applications, and accounting offered a natural opportunity. In 1978, Peachtree Software® released an accounting suite for personal computers, giving companies a way to computerize their accounting departments for substantially less than purchasing a mainframe system and customized software.3 By 1983, a new company called Inuit® launched a product called Quicken®, which offered a simple user interface based on the familiar check register. Other companies launched similar products, with constant improvements in an effort to one-up the competition and expand market share.4 The latest advances have seen software transition to cloud-based applications.

While the history of accounting software development has involved much incremental improvement, Eamonn Ryan suggests that the biggest leaps happened when users shifted to newer platforms.

“Moving from paper to computer was a major change,” he writes. “Another was the shift from mainframe computers to PCs. Then the next big thing was the move from text-based user interfaces to graphic user interfaces. We are entering an era when we will no longer need to load dedicated software on our computers, but will interface through browsers and servers.

That will be a major platform change.” 5

Shifting roles

Some accountants viewed the development of software packages with emotion approaching terror. If clients can handle their own bookkeeping and basic accounting functions on their own, why would they need to hire a CPA? That’s one way to look at it, but it’s a shortsighted view. A more strategic approach is to examine the value that an accounting practice can provide to clients beyond keeping the books. By shifting the practice's role from that of bookkeeper to becoming a trusted advisor that delivers value-added services and counsel about managing the business, accountants can

actually increase their perceived value to clients and deliver services that carry more attractive fee structures.

After all, someone who buys a hammer and a saw doesn’t automatically become a skilled carpenter. Similarly, clients can purchase the tools to record and track their financial activities, but do they have the insight to interpret and analyze the numbers, or to identify problem areas?

In any case, CPA practices that wish to remain viable cannot afford to fall behind the development of new accounting technologies, cautions Ryan. “If your company is not ready to get rid of its obsolete, client-server, proprietary software package,” he says, “you may be in the same boat as those firms back in the 1980s that didn’t believe they needed computers.” 6 Steven Cohen of Softline Pastel sees two primary areas where significant evolution is underway in accounting technology: more intuitive or predictive use of data (often referred to as Business Intelligence) and the mobility afforded by cloud computing.

With those changes, accounting software serves less of a bookkeeping role, becoming instead a tool for business management. 7 Cloud computing may appear to be a threat, but can actually promote efficiency for outside CPA practices. Staff members can connect with their clients’ accounting systems, study the current situation, download reports, and prepare tax forms without having to leave the practice’s office.

Not only will this save time; it means less disruption for the client’s staff, for whom a visit from the CPA often meant an interruption to the daily workload.

It’s generational, too

The Gen Xers shook up their older counterparts by shunning meetings in favor of wider use of email. Enter the Millennials, who don’t want to make phone calls and see email as old-fashioned technology. They prefer to keep in touch with clients through a constant flurry of text messages and other messaging services.

Those different approaches can lead to communication problems within a CPA practice that employs staff members from the four groups. It can also lead to misunderstandings and resentment.

Older employers who don’t share their younger counterparts’ appreciation for this technology often respond by blocking the use of social networking and similar sites at the workplace, but Boomer and Wiley advise against doing that. “Firms should look at social networking as an opportunity, rather than a problem,” they say. Besides, business is built upon relationships and networking, so social networks can actually serve as a way to grow the firm's client base.11

Clients want technology

It’s not just your younger employees who are going to expect your practice to provide access to newer technology. As the younger generations take on a growing share of the management of companies, your clients are going to expect you to be open to their preferences.

Over the last decade, smartphones have gone from a novelty to a vital tool for business. An increasing number of companies are integrating smartphones and tablet devices into their business processes, allowing for faster communication and more informed decision-making.

If someone suggested to you that CPAs still wore green eyeshades and plaid bowties to work, you’d probably chuckle.

But clinging to the “old” way of doing things just because it’s familiar and comfortable is no less archaic. If you want your practice to remain viable and continue to grow, you’ll need to overcome objections and begin to embrace the accelerating changes of today’s – and tomorrow’s – business world.

Much has been written about the various generational groups and their impact upon the business world. While that may seem trite, it’s a key driver of technological change and how it will affect accounting practices.

As Jim Boomer and Sandra Wiley note, today’s CPA practices and client-side accounting departments “are a melting pot of these four generations.” They add, “not 1 Scott, Ben, “The Accounting Journal: 60 years of accounting only do a number of work styles collide, software,” myob.com, May 28, 2015 but an array of experiences and interests 2 ibid. in technology also converge. Younger 3 ibid. generations grew up in front of a computer 4 ibid. and the internet. They naturally expect 5 Ryan, Eamonn, “The Evolution of Accounting Software: Past, workplace technologies to mirror the Present and Future,” GAA Accounting, August 10, 2012. technologies they use in their educational 6 ibid. and personal experiences.” 9 7 ibid.

Equally important are the communications 9 Boomer, Jim, CPA, CITY, CGMA and Wiley, Sandra, “Understanding styles employed by each of the generational Today’s Workforce: Generational Differences and the Technologies They groups. The elder two groups prefer to interact Use,” firmofthefuture.com, 844- 3431428 • w w w. o aundated. k s t re e t f u ndi n g.c o m | 7 with clients in person or over the phone.

11 ibid.

:industry news

Your most influential business tool may be found in your pocket

Well-equipped mobile devices are more than just an opportunity for your assistant or colleague to reach you; they are an essential tool that can promote company growth. The omnipresent nature of smartphones and the cloud mean you can access documents drafted in your office while you’re on the subway, you can catch up on emails at 10AM or 10PM, and you can fix issues right away.

The connectivity and ability to make changes right now have transformed our lives as consumers and professionals. Nearly 50% of adults check their smart phone within 5 minutes of waking. If your clients are doing it, you should be doing it too.

Are you prepared for the Next Big Disaster?

Between the hurricanes, floods, earthquakes, wildfires, and tornados, natural disasters can have a huge negative impact people’s lives, both personally and professionally.

Build the CPA industry from the grads up

Even Warren Buffett said that natural disasters have

The decision to become a CPA is often influenced by an advisor, a friend, or a mentor who reached out to a bright candidate with potential and a knack for human service.

Uncharacteristic of other professions, CPAs identify and recruit the next generations, often unknowingly influencing the direction the entire profession will take over the next 30 years. Who do you want your colleagues to be? Get involved in recruiting at the high school or college level by attending a career fair, teaching a course, or judging a class project or presentation.

a greater economic impact than terrorism.

More than 40% of businesses never reopen after a disaster, and for those that do, only 29% will still be operating after two years. Disaster recovery plans are essential for preparedness and business recovery. Businesses can prepare for various threats to reduce the overall impact and work with providers to determine recovery protocol.

CPAs could be the unsung heroes of cybersecurity Cybersecurity attacks- including data leaks and

The future is fun, the past is educational – don’t forget about the present

breaches- are increasing in frequency and

Companies spend significant resources

detrimental impact. To combat cybersecurity issues,

building plans for the future, based on

efforts across industries must coordinate and

research and knowledge leveraged

contribute to a safer cyber world. Auditors have

from the past. Focusing on present behaviors can transform

been engaged since Statements on Auditing

a practice and keep the company poised for the future.

Standards No. 3, “The Effects of EDP on the

“Many firm leaders’ biggest challenge is to overcome

Auditor’s Study and Evaluation of Internal Control,”

procrastination and focus on the positive behaviors today

was released in December 1974. Independence,

that will sustain success and keep the firm relevant and

objectivity, and skepticism are core values for

future-ready,” says strategist L. Gary Boomer. Gathering

many CPAs. These values, along with CPAs’

internal and external feedback, avoiding traps, creating a

multidisciplinary strengths and experience in

menu of services, and improving the experience for both

independent evaluations are serious assets to

clients and employees can drastically improve the current

auditing the cybersecurity landscape.

company culture and stakeholder satisfaction.

Turning 21 isn’t significant for tax purposes, but other birthdays have worthwhile notoriety Birthdays can be important milestones for legal, financial, and tax purposes. For tax purposes, rules could depend upon the actual date of a birthday, the close of the taxable year, or the half-year birthday. Changes also need to be considered for individuals as they age, as well as the parents of dependents as their children gain independence. For example, the parents of a 16-year-old can claim a $1,000 tax credit, but the year that dependent turns 17, no credit is allowed. From birth until 85 and beyond, the number of candles may alter tax rules and each person’s approach to tax, deductions, and income.

https://www.accountingtoday.com/opinion/mobility-a-powerful-tool-for-stronger-client-relationships https://www.journalofaccountancy.com/issues/2017/sep/how-cpas-can-contribute-on-college-campuses.html http://cpatrendlines.com/2017/09/15/learning-hurricanes-harvey-irma/ http://thecaq.org/cpas-role-addressing-cybersecurity-risk https://www.accountingtoday.com/opinion/boomers-blueprint-the-firm-of-now https://www.cpajournal.com/2017/09/06/birthday-impacts-legal-financial-tax-planning/ 844- 343- 1428 • w w w. o a k s t re e t f u ndi n g.c o m | 9

GEN-X in the C-SUITE

How this Once-Overlooked Generation is Making a Move for the Top

O

ne leadership group that is poised to jump to the forefront as the Baby Boomer generation retires is Generation X. Born between 1965 and 1977, this once-ignored and underappreciated generation has slowly emerged to take over the C-suite. With multi-generational teams making up today’s workforce, inevitable conflicts occur over issues such as management and operational styles, technology use and overall decision-making. Can Generation X provide the leadership qualities to merge the generations? And what are some of the most influential qualities that Gen X leaders possess that can help take our organizations successfully into the next decade?

X Marks the Spot:

The power of Generation X lies in its good blend of traditional Boomer values and the technological savvy and entrepreneurial bent of the Millennial generation. As the economy continues to evolve and grow – globally and technologically – GenX can help companies evolve with fresh ideas and perspectives. The GenX employee has lived with less wealth than their Boomer parents, yet has developed a healthy balance of saving and spending, making them masters at doing more with less. GenX is used to working in flatter organizations with fewer middlemanagement positions, as opposed to the hierarchal structure of the Boomer generation. Thus, they are used to doing more with less, remaining agile and nimble in their quest to improve efficiencies and produce cost savings within the organization.

Despite their frugality, GenXers have enormous spending power and tremendous influence in the world economy. According to the U.S. Department of Labor, Gen X currently spends more money per household than any other generation.

Generation X workers are very educated, with more than 35% of them having college degrees. They are also great innovators and entrepreneurs. Successful GenX entrepreneurs include Elon Musk, founder of PayPal®, Tesla Motors® and SpaceX®; Michael Dell of Dell Computer®; Sara Blakely of Spanx®, and Jack Dorsey of Twitter®. Most GenX entrepreneurs were entering their careers about the time of the dot-com boom and bust of the 1990s, so they possess the innovative spirit of the new Millennials with the practical and traditional values of the Boomer generation. Many World-class brands such as Microsoft® and Yahoo® have begun placing Gen X employees in leadership positions, recognizing 10 | w ww.o akstree tf un di ng.com • 8 4 4 - 3 4 3 - 1 4 2 8

the value they bring to the boardroom. In preparing for the inevitable exit of the Boomer generation in the workforce, Generation X leaders will emerge and take over the helm successfully, while providing the mentorship opportunities for Millennials to continue to grow and emerge behind them.

Closing the Digital Divide

One of the biggest benefits and influences of Generation X is their ability to bridge the digital gap within the new, multi-generational workforce. They’re technologically savvy, like Millennial digital natives, but they can engage and reach out to communicate effectively in person as well, like their previous Boomer generation. Because of this, they are great influencers and mentors to both the older and younger generations, making them great leaders for today’s modern companies. Their management style combines relationship-driven methods with automated digital communication to balance the needs of all generation of workers, while using technology to work smarter, not harder.

Can Generation X Leaders Succeed?

The effectiveness of Generation X in the C-suite depends on their ability to manage several crucial factors, including how to: • Navigate growing cultural and generational divides • Adapt to increased globalization and competition • Utilize new technology to communicate, automate and streamline business As practices look to transition leadership to the new generation, they must embrace these changes occurring in the marketplace and in the technological world.

A Smooth Transfer of Power:

Companies looking to trust executive leadership to a Generation X employee should start by creating a long-term vision and strategy for the succession planning process. They should start by identifying any potential candidates internally, and then evaluating their skills and qualifications for leadership. Following the identification process, they can put training and development programs in place to groom future leaders for taking over the C-suite. Finally, companies should start giving Gen X leaders the opportunity to manage others, take on important projects, get involved in community efforts, and gain visibility in an executive role. Ongoing mentorship with potential GenX leaders will help boost confidence and help them feel comfortable taking over the role when the timing is right.

#OakStreetCares Giving back is very important to Oak Street Funding®. This year, our staff has participated in many local and national events and charities.

We collected 400+ teddy bears to help reduce trauma suffered by children in violent scenarios, have tutored children – helping them learn how to read, as well as provided school supplies and clothing, have sent supplies for pets affected by the hurricanes, and even have volunteered with Big Brothers Big Sisters. We are very proud to say we have been busy.

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developing a

LEADERSHIP

Roadmap

Planning to ensure a smooth transition

CPA practice owners nearing retirement age must consider their eventual retirement and the continuation of the business without them. A family-owned business may consider passing the baton to the next generation, but choosing a suitable successor can prove to be a complicated and difficult decision. Legal, tax and business implications also weigh into this decision and require careful thought and planning. However, many owners are so focused on their day-to-day operations that they do not have a succession plan or an estate plan in place. Many lack the confidence that their business will go on without them. For those owners who want to preserve what they have built, a properly executed succession plan will give them peace of mind that the business will survive.

But what is the best process for starting a business succession plan? How can an owner choose the best candidate for a successor? How must a company take family wants and needs into consideration? And how can a business properly prepare for a smooth transfer of power?

as advisors such as attorneys, appraisers, and other related specialists. These experts can help you stay informed about legal and financial obligations and offer advice on the proper way to develop your plan. Think about who should be included in the succession planning effort, such as family or board members, who could help you make important decisions related to the plan. Also select some individuals who can provide an objective viewpoint and guidance during your planning process. Other considerations include:

Building a Roadmap

• Continuing role of the current owner or manager in the new company, as board member or advisor, if desired

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• Marketplace conditions • Company’s current financial position and assets • Existence of capable successors within family or current employees • Impact of other stakeholders such as family, board members, long-standing employees, key customers and vendors • Buy-out strategy and implications if a suitable successor cannot be chosen within the current family or company

• Alternative exit strategies if new leadership fails • Estate, tax and legal implications of the succession plan

All in the Family

Family-owned companies tend to outperform non-family companies due to less bureaucracy, greater loyalty, long-standing values, and an emotional and financial commitment. In addition, employing family members in the business can help the owner nurture and mentor future generations to eventually take over the business.

However, few family-owned businesses survive past the first generation of ownership. With only 30 percent surviving the first generation and a mere 10 percent lasting through the third generation, poor planning, lack of interest and lack of proper skill set has led to the demise of the family business over time. In addition, family businesses often have a greater challenge when selecting new ownership and management because there may be multiple suitable candidates among the business owner’s family, and intra-family feuds can impact decision-making. There is also greater emphasis on preserving company value and assets for surviving heirs or future generations in a family succession plan. These factors can often lead to the demise of a family-run business. The family-owned business succession plan must carefully work through these details, leaving a clear path for future owners to follow, while considering the needs and desires of surviving family members and future generations.

Choosing a Suitable Successor Often the hardest part of the succession plan for a practice or business owner is determining the best candidate to take over the company.

This process is both an emotional and practical decision which can have future implications on your family and even your estate, and thus requires careful consideration.

When an owner retires, dies, or otherwise steps out of the role, the immediate temptation is to find a replacement whose style and approach are similar. That’s why it makes more sense to use the business’s strategic planning as a foundation for leadership development. The person

While creating a business continuity plan may appear to be a daunting task, ensuring that one is in place for your practice will give you peace of mind that all your hard work in building the business does not disappear when you leave. who will serve as the next owner should be the individual who has the best skills for the business’s strategic needs. It may be that the current owner reached success through sales skills, but now that the company has multiple strong producers, it may make more sense for the next owner to be more of an administrator or a visionary.

Here are some successful strategies for choosing the perfect replacement and carrying out your succession plan:

• Include a plan which prepares for a sudden loss of a business owner due to death or disability

•D etermine the vision and mission of the future company

• Have a back-up plan if your initial candidate or plan fails

• I nclude the owner’s future retirement and lifestyle goals in the strategy

Asset protection

• Get advice from others who have recently implemented a succession plan •A nalyze the strengths and weaknesses of potential successors • S eparate emotion (love, fairness) in favor of responsible decisionmaking, particularly in a family-owned business • I dentify adequate skill sets required in your new leadership • S tart documenting processes and systems to transfer responsibilities •D evelop a process of training and mentorship to ready your successor over the next year to ten years •D ocument the company’s current worth as well as projected revenues and earnings for the next five years • I nclude a timetable for transition of ownership •A djust your plan regularly as the company or owner’s needs change

• Include an option to sell the company to a third party, considering family and financial considerations regarding the sale • Communicate your succession plan to current team members • Consider the structural re-organization of your company after the transition

Successful business owners are given to saying their businesses’ best assets are their employees. As the industry becomes more competitive in the coming years, top-quality talent will be in high demand. By developing a leadership development program based on the business’s strategic goals, you’ll not only prepare the business for growth. Having a clearly defined succession plan and supporting it with leadership development makes the uncertainties associated with a job change less appealing. In fact, you could call it a form of insurance.

Don’t Fear the Inevitable

While creating a business continuity plan may appear to be a daunting task, ensuring that one is in place for your practice will give you peace of mind that all your hard work in building the business does not disappear when you leave. With proper planning and execution, you can feel more confident that the next generation of leadership can be well prepared to continue your hard work and preserve your legacy.

Passing down the family business Family-owned businesses tend to outperform non-family owned businesses due to less bureaucracy, greater loyalty, long-standing values, and an emotional and financial commitment. However, few family-owned businesses survive past the first generation of ownership. With only 30 percent of such businesses surviving the first generation and a mere 10 percent lasting through the third generation , poor planning, lack of interest and lack of proper skill set has led to the demise of the family business over time. In addition, family businesses often have a greater challenge when selecting new ownership and management. There is also greater weight on preserving company value and assets for surviving heirs or future generations in a family succession plan. The familyowned business succession plan must carefully work through these details, leaving a clear path for future owners to follow, while considering the needs and desires of surviving family members and future generations.

Planning Process

When passing on a family CPA practice, developing a succession plan will help ensure the survival of the business.

This succession plan should include a well-thought-out business and operational strategy that family members can follow upon the absence of the current owner. What are some considerations practice owners should keep in mind when developing a succession plan for a family business?

What tax and legal implications might impact the decision?

How can a practice owner select the best candidate to take over the practice?

Valuing the Business

While business valuation is standard with any business succession plan, practice owners must place careful consideration on this part of the process.

Owners should work with a knowledgeable and reliable financial advisor or certified valuation appraiser to determine the value of the net assets, market share, income and more.

They also must consider any of the following conditions:

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• Family member employees and salary implications • The impact on the business owner’s exit to the worth of the practice • Gift implications for the owner’s children or grandchildren • Implications of death or divorce • Life insurance costs • Compensating heirs not involved in the business • Tax and estate needs of the exiting owner and family • Optional buy-out or alternative plans if the business is sold

Choosing a Successor

Deciding which family member is best suited to take over the family business can be one of the most emotional aspects of succession planning for a family-run practice.

Having a strategy team that involves both family and non-family members will help ensure that owners keep a clear head and objective viewpoint throughout the process, and make decisions in the best interest of the business and everyone involved. Practice

owners should not simply choose the first-born son or daughter or a surviving spouse to take over the business due to birthright. In some cases, this plan can backfire if the chosen person is not well-suited to lead the practice, or has apathy about taking over the position.

In addition, those who wish to take over leadership may not be qualified to do so. Take the time to assess each potential candidate and their strengths and weaknesses. Consider family responsibilities, career goals as well as important skills and qualities for practice owners such as sound financial acumen, networking, marketing and sales.

Think outside the box for ways to incorporate joint ownership into your succession planning.

Consider potential conflicts which may occur within siblings or family members and set up the proper controls within your succession plan to alleviate that risk.

Moving on

Practice owners should invest time and energy to educate the next generation of potential candidates for their company leadership.

This can and should be done years before implementing the succession plan – ideally from three to five years before the targeted exit date. They should start developing relationships with key clients, represent the company in public, and get a solid sense of how to run the business. It’s also important to assimilate the new leadership into the business culture and allow them to develop positive relationships with the current employees, vendors and partners. When the succession takes place, the former leader should encourage the new leader(s) through ongoing communication, mentoring and advising, whether in an informal or formal fashion.

1 Knowledge@Wharton. May 31, 2016. “Are Family Businesses the Best Model for Emerging Markets?”

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