Practice Continuation Agreement: An Informal Plan is Better Than Nothing

Source: Journal of Accountancy

The following contains excerpts, reproduced with permission, from an article by Loanna Overcash.

In August 1988, 48-year-old CPA Jim Feigel was in an accident that left him in a coma for 23 days. “If anything ever happens to me, the first thing you should do is sell the practice,” he recalled telling his wife, Janice, well before the accident. “At that time it was our biggest asset.” His wife, who was unsure of whether he would live or die, quickly made arrangements for a larger firm in the Tulsa, Okla., area to take over his practice. Seventeen months later, after a long hospital stay and rehabilitation, Feigel began the process of re-establishing his former firm.

“While what happened to Feigel may seem unlikely circumstances to some,” said Heidi Brundage, a technical manager in the Private Companies Practice Section at the AICPA, “the point is that it did happen and the situation would have been better for his family had there been a formal PCA [practice continuation agreement] in place.”

“Trust, compatibility, size and culture are the hardest and biggest obstacles,” said Craig Morris, CPA of Long Island. “I have struggled in forming a formal practice continuation agreement because it's hard to find the right firm.” As a result, Morris has an informal arrangement with a larger firm in his area, but he is a strong advocate for practice continuation agreements, and works for education and networking on this topic at the local level.

Brundage believes that even an informal agreement is a step in the right direction for small firms and sole practitioners. “I encourage firms to have a formal agreement, yes, but for sole and small practitioners who aren't even thinking about full-blown succession plans, it is very important to have something in place, even if it is informal,” she said.

For the complete article, read “CPAs Share Continuation Strategies.”

From Journal of Accountancy, American Institute of Certified Public Accountants, February 2011, http://www.journalofaccountancy.com/Issues/2011/Feb.