Nassau Chapter Practice Continuity Committee

Providing relief from the new Tangible Property Regulations and form 3115 filing

Carl Peterson of the AICPA just sent me this rev proc, hot off the press, providing relief from the new Tangible Property Regulations and form 3115 filing.

I’ve been the owner of a small CPA practice since 1981 and always enjoyed that form of practice. I thought about transition for someday, but never seriously for today. Then, in 2005 or so, I began reading about the demographics of our profession. Things were changing. New CPA’s were not as anxious to become firm partners as they once were, and there were shortages of new CPA’s. The profession was growing older and the days when a line would form to meet a selling practitioner were gone. Big multiples for practice sales were shrinking.

About that time I attended an AICPA Conference and a consultant to the profession named Bill Reeb was speaking on succession planning and preparing for transition. He had written a book for the AICPA and really knew his stuff. Bill talked about the aging of the profession and said “if you want good people, grow them”. I knew he was right, but in a small firm that’s easier said than done. I realized, though it wasn’t time yet, a smooth transition requires planning. I remembered that a few years earlier the NYSSCPA’s offered Succession Planning help and I thought it was time to revive those efforts. We needed a committee to help our members address and cope with transition planning. With assistance from the Nassau Chapter Board and the legal department at NYSSCPA, the committee became a reality and in June 2008, we held our first meeting. We live in a litigious world and the State Society’s legal department had concerns. So, after several discussions we developed a charter that limits our activities to education, networking and professional guidance. We do not offer products or services, including assistance with practice transition. We leave that to the commercial professionals.

In March 2007 a CPA friend of mine had bypass surgery. He’s a solo tax professional and this is the worst possible time for any kind of disability, but this was serious. Fortunately, he was able to find others to help him out a bit and things turned out all right. But that experience made me think. He had not given any consideration to a practice continuation agreement nor did he have his office organized to operate without him. Luckily for him, he had a speedy recovery. No one is indispensable, but to the clients of a sole practitioner, the CPA comes very close. Are you a solo? Consider what would happen to your practice if you were to become disabled. Would your practice continue to operate normally during your absence, or would there be total chaos?

In a small practice, and especially in a sole proprietorship, we tend to neglect our own affairs because we are busy taking care of clients and trying to generate revenue. However, it is in our clients' and families' best interest that we create a plan to allow our practices to continue in the event of our sudden disability or death. This is not easy for solos who often have no one to turn to. This may be why so many smart and organized small practices have not done anything about it. This is where our committee tries to help. Every practitioner needs a plan for the orderly transfer of their client base in the event of permanent disability or death and for temporary professional assistance during a period of illness.

In his book Solo Practice – An Owner’s Manual for Success, issued by the PCPS of the AICPA, J. Terry Dodds quotes Ron Stewart in describing the experience that made a believer out of him and propelled him to action:

“Like others I thought about those things [death and disability] occasionally but never really thought they would happen to me. My wake‑up call came when three of my staff members' families were directly impacted by the Gulf War. One of my staff members was activated and was physically gone. Another had her son go and the third had her husband go. And right there it hit me. What would happen to my staff and my family if something happened to me and I could no longer open my doors? I realized that one day the key might not open the door and that was not what I wanted to have happen.

I called some firms that were larger than mine and picked one that I thought would do the best job [in a practice continuation arrangement]. We have since entered into an agreement that if anything happens to me, they'll provide personnel to keep the practice going. The day I signed that agreement, I cannot tell you how relieved I felt. I felt as if a weight had been taken off my shoulders.”

On the topic of Practice Continuation Agreements, Terry goes on to say:

“There are a number of reasons why practice continuation agreements are particularly important for sole practitioners. In the first place, you have a responsibility to your clients. If your practice is anything like mine, you've no doubt spent quantities of time and energy trying to encourage your clients to plan for the future ‑ not to leave things to chance. Take some of your own advice. You need to be sure that if you are temporarily or permanently out of the picture, your clients needs will still be satisfied. You owe it to them to ensure that quality service continues uninterrupted.

Your employees deserve better. Think for a moment from their perspective. How would you feel if you came to work one morning and found out your employer had had a stroke? What might you be likely to do?

Your family deserves better, too. Don't leave the operation of a professional practice to a spouse who in all but a very few instances would have absolutely no idea how to run a CPA practice not to mention the fact that he or she by law would not be allowed to continue doing so for long.

Finally, from a completely mercenary viewpoint, ask yourself how long your hard-won clients would hang around unless something was done to assure them of uninterrupted service. You might be interested in Al Williams' research on this subject from his experience in helping personal representatives find buyers. Al estimates that during the week following the death of the sole practitioner, 10 percent of the clients will leave. By the end of the second week another 21 percent will leave. At the end of one month unless something is done to stop it, all but 21 percent of the firm's clients will have formed relationships with other professionals.”

So, with all of these concerns in mind, the Nassau Chapter created the Practice Continuity Committee to address not just Practice Continuation Agreements, but all of the problems and potential solutions for the smaller practice unit, happy in its organization and operations, but concerned about the prospects of a debilitating event. If you count yourself as one of those concerned, join our committee for a breakfast meeting or networking event, and mingle with others in your situation. You’ll find it to be well worthwhile.

Craig R. Morris, Chairman