Below are five key steps to the creation of a PCA and the supporting practice procedure and operating documents that will reasonably allow your PCA partner the best opportunity to step in for you, if need be, and provide a degree of continuity keeping the trust and confidence of your clients.
Step 1: Establish a Practice Profile
Create a clear and concise set of practice procedures and operating documents. Remember, your PCA partner is not clairvoyant and he or she will need more than their intuition to figure out how your practice operates.
Author a detailed profile of the practice, including types of services offered, names and responsibilities of key employees, location of accounting records or files, your firm’s bank account information, and location of all lease agreements and contracts currently active and appropriate PIN numbers and passwords.
Create a client list that will include key contacts, contact information such as telephone number, email address and street address, etc. This information may be available through your software programs but we strongly suggest it be available in hard copy in the event your programs cannot be accessed for any reason whatsoever. Also list the specific services required and important deadlines, not just the obvious deadlines, but deadlines that are specific to the client’s business or personal needs. It is also a good idea to note any other special service requirements or other important information specific to that client.
Disclosure of procedures for WIP, enabling the determination of work not yet completed. How do you typically bill a client? Is it on a monthly basis, when work is completed, percentage of completion? Remember firms operate differently and you must help your PCA partner understand how your firm operates.
Prepare a technology guide for your PCA partner that enables them to access and use your firm’s computers and/or software systems. DO NOT FORGET to include passwords. (This is why we suggest the hard copy files also be made available).
Detail the location of workpapers and client records. Do not forget to disclose the location of files stored off-site, whether it be in the Cloud or a secure file storage facility.
Provide a detailed description of your firm’s filing system. Who, what, where and how are the key words to focus on when authoring this description.
What are your firm’s office procedures for handling client information including receipt and return thereof? Prepare a description of the procedures.
What are your firm’s billing schedules and collection policies? One of the main purposes of a PCA is to provide continuity for the clients. Obviously receiving invoices and the expected amounts therein will instantly get a client “out of their comfort zone”, if it is different than expected.
Part of your PCA operating procedures must identify and disclose how you currently handle all accounts payable.
Your Practice Profile should be updated at least annually and shared with your PCA partner.
Step 2: Choose the form of practice continuation agreement or arrangement
There are three major forms of a PCA and one major source of assistance. Below we have identified those for you. Please keep in mind there are other forms available but we have chosen the three major types and forms.
- One-to-One: A One-to-One agreement is simply that, one firm cross-agrees with another to be PCA partners. They assume the responsibilities associated with the agreement to provide one another back-up and support in the event of a circumstance requiring the PCA be triggered. It is often enacted between sole practitioners or small firms. If your PCA is with another sole practitioner or small firm please understand and be aware of the capacity and service limitations, on both sides, when executing a one-to-one agreement. This form must be analyzed in great detail as you must identify like culture, service model, billing rates, geographic proximity, service models, similar service capacity and other considerations. You must also take a long hard look at the age of each sole practitioner as you do not want to compound your risk or inability to have a sound back-up. If you are both in your 60s it is probably not a good idea to execute a plan together as your clients will meet your PCA partner and wonder if they are jumping from the frying pan into the fire. A critical part of your review is your PCA partner’s capacity to replace you in a time the PCA is enacted. It is very rare two firms can have a reciprocal PCA agreement due to that factor. Typically the successor firm in a PCA agreement is larger or just starting out enhancing the likelihood they have the capacity to replace you.
- Group Reciprocating: This is an agreement between three or more separate practitioners or firms. It inherently provides more safety and is likely a better opportunity to maintain continuity by the simple fact there is usually a higher probability that your practice procedures can be matched within the group. This “consortium”, if you will, is likely to have more capacity, match your current services and enable clients a better opportunity to find someone they are comfortable with. Both this and the above are not the most frequent path we suggest. Typically the practitioner seeking a PCA agreement has a deal with one larger firm and it is not reciprocal.
- Two-Stage Deal: This form is often used as a succession planning tool and can be very effective for all involved – the firm needing back-up, the firm providing back-up and the clients. This form is not triggered by a catastrophic event and therein lies its benefit. It is a legal combination of autonomy and control while presenting a united front to and for the clients. This form often provides a better valuation and support for the practitioners. This strategy is likely more attractive if you plan to reduce your time commitment to your practice in six years or less. Click here for more information about the Two-Stage Deal.
- State Society: Your state society or professional association may have additional resources or information helpful on this topic. Please check their library or give them a call.
Step 3: Identify and Approach Suitable Firms/Partners
Below is a checklist of items to consider, analyze and once you believe you have your PCA partner identified:
Professional and Practice Continuity – Does the potential PCA partner firm have:
- similar fee structures?
- practice philosophies?
- geographic proximity?
- communication policies?
- quality controls?
- practice specialties – can they support your specialties or specializations?
- staff competencies?
- firm efficiencies?
PCA Longevity – Does the potential PCA partner have:
- owners or partners nearing retirement? If so, they may not be available to provide the back-up and support you seek.
- high turnover of the staff? If so, can you be confident they will have the competency or capacity to provide back-up?
- their own succession issues or concerns? You do not want to go through this again, so make sure they are not seeking the same back-up you are.
- The skill-set to handle niches similar to those you have in your firm?
- The excess capacity and skill-set to assume your role and workload?
Chemistry – Does the PCA partner have:
- similar firm culture and personality?
- like-minded practice procedures?
- similar client service practices and procedures?
Excess capacity – Does the PCA partner have:
- resources necessary to replace you in either the short term or the long term? In this day, very few firms have excess capacity, but if your potential PCA partner leverages their current capacity to the point of being overextended there is a probability there will be no time available whatsoever to focus on your practice or your clients. Be careful.
Step 4: Implement the agreement or arrangement
This is not a “do it yourself” situation, please have experienced counsel or an M&A accounting consultant assist in the process and draft the agreement. When completed it is very important to:
- Discuss and disclose to and with all parties (spouse, staff, successor/partner, legal counsel, peer reviewer, clients, etc.)
- Communicate in writing the responsibilities of all involved. Keep this communication updated and constant.
Step 5: Check in with the firm at least annually to make sure it is still willing and able to carry out its obligations and to update your PIN codes and other information.
We suggest a review be performed a minimum of every 12 months. In advance of this review, prepare a series of questions that will help you identify any internal changes to the firm of your PCA partner that might give you cause for pause to continue the arrangement. Your PCA partner may still be ready and willing to act as your PCA partner but they may no longer be a good match. This happens often as firms adopt different niche services, make commitments to expand outside their current geographic location, the partners age, the staff changes over, or they no longer provide a service that is important to you.
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