Plan Now for the Successful Transition of Leadership

By Martin C. McCarthy, CPA, CCIFP, McCarthy & Company – September 24, 2020
Plan Now for the Successful Transition of Leadership

Although most firms have a formal business plan, few have a transition plan — which is equally important. While a business plan focuses on the current direc­tion of the firm, a transition plan focuses on the future of the business. It dictates how ownership of the firm will transition to the next generation of leadership when partners decide to retire or must leave due to unexpected circumstances.


Transition planning is a process that requires proactive and open-minded leadership with the ability to see beyond what might be expected. Consider how the transition will impact the following:

  • Family relationships and finances
  • The firm’s culture
  • Employee retention and engagement
  • Client relationships and engagements
  • Client acquisition and loyalty
  • Brand equity
  • Thought leadership
  • The entity’s structure
  • Future earnings and the value of the business

Transitioning leadership is a business decision. Partners should discuss with each other and key employees their expectations, vision for the firm and the intent of the transition plan. Partners should have the opportunity to voice their opinions and decide if they buy into the plan. If needed, arrangements will have to be made to buy out partners who decide that the transition plan is not in their best interests and it is better to leave the firm.

Identifying the Next Leader

A strategic plan should clearly identify the capabilities, roles and talent needed to lead the firm. It is important to match potential candidates’ temperament and skill set to do the job. Money and resources will be invested in grooming the successor. Make sure you have the right person for the job.

Family-owned firms may want to transi­tion leadership to the next generation. Unfortunately, a family member(s) might not be interested, or if they are, they might not have the right skills to take over the firm. If a relative is not qualified for the position, they should not be considered.

Another person inside of the firm might prove to be a better option. Or, if the right talent is not in-house, hire someone or look for a merger partner.

Preparing for the Transition

Strategic firms identify talented and capable leaders five to 10 years before they are needed to serve. It could take this long to prepare the right person for the job. A formal development program is recommended to ensure that the successor is ready when the time comes. This could include the following:

  • Formal leadership training
  • On-the-job training
  • Specific, measurable, attainable, realistic and time sensitive (SMART) career advancement goals
  • Mentoring
  • Shadowing
  • Executive coaching
  • Talent assessments
  • Relationship transition planning

It is also advisable to have the new lead­er in place at least one year before a partner leaves the firm to ensure that the transition goes smoothly. This is especially important when transferring client relationships.

Transitioning Relationships

Most clients are with a firm because of the relationship they have with the engagement partner. It is important that the person taking over the account relationship is someone who the client knows, likes and trusts. Otherwise, the firm could be at risk of losing the client.

Introduce the person at least five years before the transition. Have them shadow the retiring partner. Include them in all meetings and correspondence, and ask their opinion when making important decisions. Gradually give the person more and more responsibility for the relationship. Again, have the person in place for a year before leaving to ensure everything goes well.

Financial Implications

Determine the fair market value of the firm five years before the transition. A proper business valuation should be done. Partners need to know exactly how much the firm is worth before implementing a transition plan. 

Consider how the transition plan will fund partner retirements and provide financial security for their families. Partners should discuss the transition plan with their lawyer, insurance agent and financial advisor to ensure that the plan is viable and can be executed according to their wishes. It is also a good idea to address retirement and estate planning before the transition.

Martin C. McCarthy

Martin C. McCarthy

Martin C. McCarthy, CPA, CCIFP, is the managing partner of McCarthy & Company, a leader in construction accounting. He can reached at

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This article appeared in the September/October 2020 issue of New Jersey CPA magazine. Read the full issue.