Careers expert Matthew Turner advises a practice partner who was considering stepping back but finds their firm’s succession plans in tatters
I am one of three partners in a practice and was considering stepping back. But the associate we were most hoping to bring in has left to set up his own practice without much warning. I feel like we have lost a great opportunity for succession.
The first lesson from this situation is that you were not perhaps explicit with this associate that there was a chance for progressing to a directorship, so he probably did not even consider staying in the firm.
Succession in small practices is a complex and difficult thing to manage, and the stakes can get increasingly higher the longer the practice has been established. The value of assets the original directors have built up – for example from owning the premises – can make it impossible for someone else to buy in.
Some get round this by making the financial burden less onerous, for example, allowing the new director to spread their acquisition of their stake over a period of years.
Another way to avoid the reoccurrence of what has happened to is to restructure the terms of your association in a way that allows directors to change and the company to continue long term.
The value of assets the original directors have built up can make it impossible for someone else to buy in
As we all know, a service industry such as architecture is essentially worth little more than the value of the people it is made up of.
To allow directors to come and go more easily, some may choose to structure their company in the following way: all shares in the existing ‘goodwill’ of the firm are valued at zero at the moment a new director joins, ensuring that new entrants are not prohibited from entering into the partnership. This might require original directors to realise their stake prior to this point (some do this by selling the premises they own, then renting it back).
This approach to ‘good will’ can also work well for leavers, making it easier for a director to leave at a future date. At this point, essentially the same thing happens: another valuation is made, all directors receive their share of the value of the assets at the time of departure, with the years of profit and income to that date as reward, for each to manage as they chose (including reinvesting back in the company).
At this point, a new director can then buy in, the companies value is reset to zero, and then the process starts again.
AJ coach Matthew Turner is an architect and careers consultant who runs the Building on Architecture consultancy. To contact him with your questions, tweet @TheAJcoach or email him in confidence at email@example.com