The Succession Delusion: Why Partner Retirement Plan is Destroying Accounting Firm Value

The Partner Brief | Edition 3

Across the UK and US, many accounting firms take comfort in the idea that succession is “sorted”: partners work to 55–65, high‑performing Senior Managers step up, and a well‑worn buyout formula delivers a smooth exit.

The demographic and economic reality tells a different story.

In 2020, more than half of licensed CPAs in the United States were over the age of 55.¹ In the same period, a significant share of turnover across accounting firms came from people leaving the profession entirely, with retirement accounting for a further meaningful slice.² At the same time, the traditional attractions of equity partnership are eroding for the very people your exit depends on.

The result is a quiet but profound succession delusion: your intended successors are leaving before you retire. And when they do, they take your exit strategy and a material portion of your firm’s value, with them.

The Partnership Pipeline Problem

Recent industry data reveals a concerning pattern. In 2020, 20% of all accounting firm turnover was due to workers leaving the profession entirely, with retirement accounting for an additional 15%.² This is not just general churn; it is concentrated around the levels firms rely on for future equity, the Manager and Senior Manager layer.

IRIS Software Group research indicates that firms are struggling to bring on equity partners, a situation catalysed since the pandemic. The equity partner route is losing its allure, with high‑quality professionals unable to reach equity partnerships due to finances, not ability.³ Those entering the workforce face student debt, high living expenses, and property acquisition challenges, fundamentally altering the economic calculus of partnership.

The mathematics of partnership have shifted dramatically. Where partners once made equity by their mid‑30s, the average age of first‑time equity partners now sits between 38–42 years.⁴ For your Senior Managers doing the calculation, the partnership timeline has extended from 5–7 years to 8–10 years, whilst the equity buy‑in requirement ranges from £100,000 to £300,000 depending on firm size and structure.⁵

At the same time, alternative career paths in industry, corporate finance, and technology‑enabled finance roles offer competitive compensation, more predictable hours, and no capital at risk.⁹ Against that backdrop, “wait another decade and borrow six figures for a partnership stake” is, for many, no longer a compelling proposition.

The Valuation Gap: Internal vs External Sales

When succession planning fails and firms are forced into external sales, the financial consequences are substantial.

Industry valuation data demonstrates that accounting firms typically sell for multiples ranging from 0.75x to 1.5x gross recurring revenue, with most transactions clustering around 1.0x.⁶ However, the critical distinction lies in internal versus external transactions.

Internal succession valuations typically run approximately 80% of the value firms can expect in outright external sales.⁷ For a £2 million revenue practice, this differential represents a £320,000 reduction in exit value, that is the direct cost of failed succession planning.

The valuation gap reflects legitimate business risks and economics:

• External buyers integrate practices into existing infrastructure, generating economies of scale and enhanced profitability.
• Internal successors, particularly in smaller firms, assume the full operational burden without these advantages and must finance buy‑ins from after‑tax income.

The Journal of Accountancy notes that small firms generally command higher multiples than large firms, and external sales usually produce higher prices than internal ownership transfers.⁸ The more succession is left late or left to chance, the more likely partners are to face a binary choice between:

• a discounted internal deal that younger partners can realistically afford, or
• an external sale/merger at a higher price but with less control over culture, people and client relationships.

Why Your Senior Managers Are Leaving

From a partner perspective, it can be tempting to frame this as a “commitment” issue in the next generation. The data and professional guidance suggest something different: Senior Managers are making rational economic decisions.

Research from the Journal of Accountancy highlights that prospective partners must evaluate several financial realities.⁹

1. The Capital Requirement: In the United States, equity buy‑in costs vary substantially but typically require significant capital investment. In one documented case study, a $3.8 million revenue firm required new partners to contribute $100,000 for tangible equity plus an additional investment for intangible value.¹⁰ For younger professionals facing student debt and high housing costs, that capital is not theoretical, it is a real and sometimes prohibitive hurdle.

2. The Compensation Trade‑off: In the United Kingdom, many Senior Managers earn £60,000–£85,000 with manageable hours and clearer work–life boundaries. By contrast, first‑year equity partners, after buy‑in costs, any loan servicing, and reduced distributions during the transition period may see limited immediate financial improvement despite substantially increased responsibility, risk and time commitment.⁹

3. The Industry Alternative: In the United Kingdom, corporate finance and senior finance roles at the Senior Manager equivalent level now often offer £80,000–£100,000 with better work–life balance, no capital requirement, and no 10‑year partnership commitment. The opportunity cost of staying in practice has increased materially.⁹

Viewed through this lens, a Senior Manager’s decision to choose industry over equity is not a failure of loyalty; it is a rational response to a changed risk–reward equation.

Client Relationship Transition: The Hidden Timeline

Even when firms successfully identify internal successors, the client transition timeline is frequently underestimated.

Professional services research indicates that client relationship transitions typically require 3–5 years, not the 12–18 months most partnership agreements stipulate.¹¹ Fox Williams’ legal research on succession planning emphasises that open and honest conversations about succession must occur years in advance, not at the point of impending retirement.¹²

Client relationships in professional services are highly personalised, making rapid transitions particularly challenging for mid‑tier and regional practices where individual partners often serve as the primary point of contact for key clients.

When succession planning is deferred until 2–3 years before retirement, firms face an impossible timeline: identify successors, secure their commitment to partnership, commence client introductions, transition relationships, and ensure continuity whilst the retiring partner maintains full productivity.

The compressed timeline invariably results in either:

• rushed transitions that compromise client retention, or
• extended partner retirement periods (with “consultant” or “of counsel” roles) that erode firm profitability and delay genuine leadership handover.¹¹ ¹² ¹³

The Corporate Structure Alternative

Recognising these challenges, some UK firms are reconsidering the traditional partnership model entirely.

IRIS Software Group research indicates that adopting corporate structures with salaried Director‑level positions may be more beneficial for accelerating growth and tackling talent shortages.³

Corporate structures offer:

• clear roles, responsibilities, and progression pathways without substantial capital barriers;
• the ability to reward and retain senior professionals without immediate equity transfer; and
• governance models that can separate ownership decisions from day‑to‑day management.

For firms struggling with succession, the corporate model enables senior professionals to be rewarded and retained without the financial and structural complexity of immediate ownership transitions.

However, abandoning the partnership model represents a fundamental strategic shift that may not align with all firms’ values, client expectations, or regulatory frameworks. For many practices, the more immediate question is whether their current succession approach can be modernised and made credible before external sale becomes the only viable option.

Strategic Actions for Partners Planning Retirement

The succession crisis is not inevitable, but addressing it requires partners to act 7–10 years before planned retirement, not 2–3. A range of professional guidance and case studies points towards several pragmatic responses.¹⁰ ¹¹ ¹² ¹³ ¹⁴

1. Transparent Partnership Economics

Document and communicate the complete partnership proposition: capital requirements, compensation structure during transition years, expected client origination responsibilities, and realistic timelines to full equity.⁹ ¹⁰

The absence of transparent information creates uncertainty that drives Senior Managers toward corporate alternatives. Conversely, clarity around uncomfortable numbers allows potential successors to plan and assess whether partnership is right for them.

2. Creative Equity Structures

Explore alternatives to traditional full buy‑in models: staged equity acquisition over 5–7 years, profit‑sharing arrangements before equity purchase, earn‑out structures tied to performance, or low‑equity partnerships that reduce capital barriers whilst maintaining ownership alignment.¹⁰

The Journal of Accountancy documents the Average Annual Valuation (AAV) method as one approach that bridges the gap between affordability for new partners and fair compensation for exiting owners.¹⁰ Firms that maintain rigid “this is how we’ve always done it” approaches to partnership admission will struggle to compete for talent against those offering flexible pathways.

3. Commence Client Transitions Immediately

Identify your intended successors now and not when they reach Senior Manager or Director level, but when they demonstrate partnership potential at Manager level. Begin systematic client exposure years before formal partnership admission.

The Tax Adviser emphasises that retiring partners should transition responsibilities through structured joint meetings and gradual handovers, not last‑minute introductions.¹³ ECOVIS International’s guidance on professional service firm succession similarly stresses multi‑year transition requirements.¹¹

4. Non‑Equity Partnership Pathways

For professionals unable or unwilling to make substantial capital investments, structured non‑equity partnership roles provide an alternative retention mechanism. These positions carry partner titles and client responsibilities with compensation between Senior Manager and equity partner levels, typically consisting of base salary plus performance bonuses.¹⁴

Non‑equity partnerships serve dual purposes:

• they retain talent that would otherwise leave, and
• they provide a “try before you buy” period for both the firm and the individual to assess partnership suitability before legal and financial entanglement.¹⁴

5. Realistic Exit Valuation Expectations

Partners approaching retirement must understand that internal succession, whilst preferable for firm continuity and cultural preservation, will not deliver the same financial return as external sale.

The 20% valuation differential between internal and external deals referenced in specialist succession and valuation commentary is not a negotiating trick, it reflects fundamental economics around financing capacity and synergies.⁶ ⁷ ⁸

The choice is effectively binary:

• accept internal succession at a discount to preserve firm independence and provide opportunities for your successors, or
• pursue external sale/merger at higher valuations but relinquish control over firm culture, client relationships, and staff futures.

Baker Thornton’s Take

Baker Thornton works with accounting practices in the UK,, USA and Canada annually on senior‑level recruitment, and the succession crisis is the most consistent strategic challenge we observe across firm sizes, across geographies, across service lines.

Partners consistently underestimate two critical variables:

1. The true time required to transition client relationships effectively. In practice, the firms that navigate succession well are those that start exposing future leaders to key clients years in advance. By the time a partner formally retires, clients already trust the new lead as a natural extension of the firm and not as a last‑minute substitute.
2. The economic calculation their Senior Managers are making. Your prospective successors are not choosing between partnership and doing nothing; they are choosing between partnership and credible, more straightforward alternatives in industry and corporate finance. The more opaque and back‑loaded your partnership economics is, the less likely they are to buy in.

The firms successfully navigating succession are treating it as a 10‑year strategic initiative, not a 2‑year transaction. They are:

• having uncomfortable conversations about partnership economics today, not when their intended successor gives notice;
• creating flexible pathways to ownership that acknowledge the changed financial realities facing the next generation; and
• investing deliberately in multi‑year client handover plans, rather than assuming relationships can be transferred in 12–18 months.

Most importantly, they recognise that firm value is not just an accounting calculation, it is embedded in the people willing to buy it and the clients willing to stay with them.

When a Senior Manager leaves for industry at £85,000 rather than pursue partnership requiring £250,000 capital and a decade commitment, that is not, on its own, a retention failure. It is a rational economic decision your succession plan must account for.

The partners who retire successfully will be those who adapt their succession strategies to this new reality, rather than concluding that the next generation “just isn’t committed enough”.

The Question Facing Practice Leaders

Your retirement timeline is fixed. Your intended successors’ career decisions are not.

The strategic question is whether you begin addressing succession planning today with the 7–10 year timeline it genuinely requires, or whether you continue operating under the delusion that “promoting the Senior Managers” constitutes a succession plan.

The latter approach ends predictably: forced practice sales at substantial valuation discounts, fractured client relationships, disrupted teams, and legacy destruction for partners who spent 25–30 years building something they cannot successfully exit.

The alternative requires uncomfortable conversations, creative thinking about partnership structures, and acceptance that succession planning is not something you do to your firm, but something you do for your firm, your clients, and the professionals you have developed who deserve a genuine pathway to ownership.

Time is the asset you cannot create. The succession planning you defer today is the firm value you destroy tomorrow.