Take Time for Firm Succession Planning
The transition to retirement is a process, not an event. While retirement may be a distant reality for some architects and engineers, the succession planning process for transitioning the firm needs to get on the drawing boards well in advance. It takes time and energy to craft a succession plan that maximizes business valuation and sets the stage for the firm to thrive. It takes time to find the right leader (or group of leaders) to assume control of the firm and provide ample opportunity for the requisite professional development. And it takes time to consider the impact on all of the stakeholders and the firm’s ability to attract business.
Here are a few considerations that should factor into your firm’s succession planning process:
A professional service firm’s reputation and the quality of the work it produces rely heavily on the caliber of personnel it attracts and retains. The leadership team needs to be models of the firm’s professional standards while possessing the ability to nurture those skills in others. As the firm’s “rainmakers,” they must have the business development skills, the community connections, and the gravitas to sustain a steady stream of project work. They also need the general business expertise to instate the appropriate policies and procedures for sound fiscal and operational management. Is it any wonder why it takes time to identify and train successors?
The current team should take stock of existing personnel to identify candidates who possess the requisite talent, personal characteristics, and interest to assume the mantle of control downstream. Given the weight of responsibility to be assumed, the discussion should be unerringly frank and bring to light any developmental challenges that could hinder success. The team must also consider the investment that the firm is willing to make to provide on-the-job training at the expense of billable hours. Prospective candidates need exposure to:
Prospective candidates need exposure to:
- The business development process, including active participation in community forums through which long-term relationships are forged
- All aspects of client and project management
- Supervisory experience
- Financial management, including financial reporting and analysis, tax management, working capital management, banking relationships, accounting, internal controls
- Human resources and other administrative functions
The leadership transition team also needs to consider how the existing partners will liquidate their interests in the firm. A suitable business succession plan needs to provide a fair and equitable valuation of the business as well as a means by which the new partners will finance their ownership interests.
If there are no such candidates internally or on the horizon, then the leadership team needs time to explore other options. If outsiders will be brought in, they need to time to gain an in-depth understanding of the firm’s core competencies, critical challenges, and strategic direction. They also need to understand its culture and core values to enable a smooth transition for all of the firm’s stakeholders. And, of course, extra time should be built into the process to gain the trust and support of the employees.
Successful transitions rely on support from the talented pool of employees who will (hopefully) remain with the firm after ownership transfers. Unfortunately, changes in the senior ranks often bring an element of turmoil that disrupts an otherwise harmonious working environment and causes employee turnover. Tension and misinformation are bad for workers and bad for business.
Key employees should have an opportunity to voice their issues and concerns about the transition process while there is adequate time to address them. They need to understand what’s at stake in the decision process and why management is leaning in any particular direction. And, of course, they need to understand what’s in it for them if they remain loyal to the firm and lend their support to the new leadership.
Given the complexity of navigating a successful leadership transition, a team of experienced advisors can guide the path to sound personnel, corporate, and financial decisions that will reap the greatest benefit for all parties. They can serve as a sounding board to the current partners who are considering their transition to retirement while addressing the sensitive issues surrounding employee engagement and crafting an appropriate management strategy. They can balance the outgoing partner needs with the ongoing requirements of the business. When it’s time for money to exchange hands, they can help both sides of the transaction manage their respective cash flows, tax liabilities, and overall financial well-being throughout the business succession planning process.