CPA Firm Partner Retirement / Buyout Plans
The essential tool for firms revising, updating or just now starting their buyout agreements.By Marc Rosenberg
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Billions of dollars are due to be paid to retiring Baby Boomer partners over the next ten years for their interests in CPA firms. Will your firm be able to afford those payments?
Not without a plan – a comprehensive, well-written, competitive buyout agreement.
The essential tool for firms that need to revise and update their existing plans or are writing their first-ever retirement agreement.
“CPA Firm Partner Retirement/Buyout Plans” is the first of its kind: The comprehensive guide to creating a well-written, competitive buyout agreement. Whether you’re in the process of updating an existing plan or starting out to create your first-ever buyout agreement you’ll benefit from the insights gleaned from hundreds of firms to structure viable plans that protect all three stakeholders: The firm, the retiring partners and the partners who will sign the retirement checks.
COVERING ALL THE ESSENTIAL DETAILS:
CPA Firm Partner Retirement / Buyout Plans shows that a well-written plan has 29 features that must be addressed, including:
1. Will interest be paid on benefits?
2. How will the firm’s overall goodwill be valued?
3. How will an individual’s share of the firm’s value be determined?
4. How will vesting work, including the age for full vesting?
5. Will client transition be defined and if so, how?
6. Will notice and transition be required to receive benefits?
7. Will your firm have a mandatory retirement policy? How will it work?
8. Will there be limits on annual payouts to all retired partners?
9. Will benefits be reduced if a retired partner’s clients leave?
10. Will non-annuity services be treated the same as traditional CPA services?
11. How will death and disability be handled?
12. Can a partner leave the firm and freely take clients and staff?
13. What partner actions will result in the loss of retirement benefits?
20 FACT-FILLED, PRACTICAL CHAPTERS:
- CHAPTER 1: INTRODUCTION
- How target retirement age advances as partners age
- Why firms have retirement/buyout plans
- What CPA firms are worth
- Retirement plan is not a savings plan
- Who participates: Just equity partners or others?
- Key definitions
- CHAPTER 2: HOW PARTNERS GET THEIR MONEY
- Factors enabling retirement plans to pay off
- 13 CPA firm succession planning challenges
- The math must work
- CHAPTER 3: VALUING TOTAL GOODWILL
- Internal vs. external valuation
- Two components of a CPA firm’s value
- Goodwill payments are rarely guaranteed
- CHAPTER 4: CAPITAL PAYABLE TO RETIRING PARTNERS
- 4 factors in calculating capital payment
- Cash vs. accrual basis
- Payout term
- Interest on capital payments
- CHAPTER 5: DETERMINING THE GOODWILL PAYABLE
- Overall calculation
- Six methods used to calculate goodwill
- CHAPTER 6: PAYOUT TERM AND ANNUAL LIMITS
- Limits on Annual Payout
- CHAPTER 7: REDUCTION OF BENEFITS IF CLIENTS LEAVE
- Loss of significant client
- Traditional vs. non-traditional services
- CHAPTER 8: VESTING
- Vesting variables
- Two most common vesting methods
- Vesting age differs from mandatory retirement age
- Partial vesting credit
- Effect of death or disability on vesting
- CHAPTER 9: FUNDING
- Funding Pros and Cons
- CHAPTER 10: NOTICE AND TRANSITION
- Client Transition – Best Practices
- Written client transition procedures
- No transition – no goodwill
- CHAPTER 11: MANDATORY RETIREMENT
- Why a mandatory retirement provision is good for the firm
- Why firms struggle with partner retirement
- Large firm vs small firm mandatory retirement practices
- Mandatory retirement legality
- CHAPTER 12: SLOWING DOWN AND PHASING OUT
- Announced vs. unannounced slowdown
- Health coverage for retired partners
- CHAPTER 13: TAX
- Taxation of capital and goodwill
- Self-employment tax burden on retirement payments
- CHAPTER 14: SIX DEGREES OF SEPARATION
- CHAPTER 15: NON-COMPETE; NON-SOLICITATION
- Life insurance issues
- CHAPTER 16: CLAWBACK
- CHAPTER 17: SUMMARY OF KEY PROVISIONS
- 25 Key Provisions
- How retirement plans have changed over the years
- CHAPTER 18: THE NAYSAYERS
- CHAPTER 19: PERILS OF SILENT PARTNER AGREEMENTS
- Partner buyout plan: Is it a Ponzi scheme?
- Top 10 mistakes in partner buyout plans
- CHAPTER 20: HOW MERGERS IMPACT RETIREMENT PLANS
- EXHIBIT 1: Sample Non-solicitation agreement
ABOUT THE AUTHOR
MARC ROSENBERG, CPA
CPA Trendlines commentator Marc Rosenberg is a nationally known consultant, author, and speaker on CPA firm management, strategy, and partner issues.
President of his own Chicago-based consulting firm, he is the founder of the most authoritative annual survey of mid-sized CPA firm performance statistics in the country, The Rosenberg Survey, also available here from the CPA Trendlines Store. He has consulted with more than 700 firms throughout his 20+ year consulting career.
Accounting Today magazine annually acknowledges Marc Rosenberg as one of the 100 most influential people in the CPA profession, and INSIDE Public Accounting has repeatedly recognized him as one of the ten most recommended CPA firm consultants in the country.
Click here to see him on CPA Trendlines.
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