CPAs Should Protect Themselves with a Practice Continuation Agreement

Filed under: The Advisor's Blog

shake-handsEvery small business or sole practitioner needs a back-up plan in case of an emergency such as illness, disability, or death. This is especially true for CPAs, whose clients are financially dependent upon your services. All CPAs should protect themselves and their clients with a Practice  Continuation Agreement, which allows you to make an arrangement with either a trusted employee or another firm to either temporarily or permanently manage your clients while you are unavailable.

Who will step in?

Choosing between a trusted employee or another firm is the first decision you need to make. If you turn
over your practice to an existing employee, that person already knows your clients and is familiar with
the daily operations of your business. Your clients will appreciate a seamless transition, and there is less
risk of client loss if your absence is only temporary. If you choose to go this route, consider a trial
period during which your employee takes on a leadership role, so that you have the opportunity to
identify and resolve any possible conflicts which might occur during an emergency absence.

If you don’t feel your employees or partner are up to the task, it may make more sense to choose
another firm to manage your clients in an emergency. If you choose to go this route, do your homework
to be sure your respective firms are compatible in the following areas:

  • billing rates and philosophies
  • staff is adequate to handle caseload
  • areas of expertise
  • professional reputation
  • chemistry with clients

When will they step in?

Words like “emergency” and “disability” can be ambiguous. Your Practice Continuation Agreement
should contain specific definitions of these and other terms. Choose a qualified attorney to draft the
agreement and make certain the document outlines, in very specific detail, the circumstances in which
your firm will be managed by either an internal or external source. Some CPAs choose to have a trusted
employee manage the firm during a temporary absence, while another firm is designated to take over in
the case of death or permanent incapacity.

These decisions will be based upon your specific preferences and/or capabilities of your chosen backup
person or people. Choose an experienced attorney to help you draft your Practice Continuation
Agreement,so that all possible scenarios can be examined and covered by your agreement.

Ensure the success of your arrangement.

After coming to an agreement with either a trusted employee or outside firm, ensure the success of you
arrangement by preparing your successor for the additional responsibility.

  • Create a policy and procedures manual, update it yearly, and share it with each party subject to
    the agreement
  • Entrust your attorney or another agent with passwords, security protocol, and other critical
    information. This person will transfer this information to your successor
  • Review your client list twice per year, and make it easy for your successor to access the information they will need
  • Develop a plan for clients to receive notifications of the transition, in order to allay their fears
    and inform them of practical information related to the change

Your practice is your livelihood, and the largest investment of your time and skills that you will ever
make. Just as you would carry insurance on your home, car, or life, it’s equally important to insure your
business with a Practice Continuation Agreement. With careful planning and skillful guidance, your
practice can be covered in the event of any emergency, with minimal disruptions for both your clients
and your livelihood.

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