A PCA is Far More Than an Acronym

In its most recent succession survey report , the AICPA put forth a statistic showing that out of hundreds of sole practitioners and smaller firms, just 6 percent of those polled had a Practice Continuation Agreement in place.

As perhaps one of the least understood and by the same token, misunderstood, aspects of running an accounting  firm, many times I’m asked by clients "Who needs a PCA?"

Here’s who:

Every firm that does not have an internal solution to protect the practice in the event the owner or owners die or become incapacitated. However, too often a PCA is perceived as a substitute for a succession plan and nothing could be further from the truth. A formal succession plan is a separate issue entirely.

Some of you may not be as familiar with a PCA.  If not, basically it’s an agreement between two firms stating that, in the event that the owner of one firm becomes disabled or dies, the other firm or practitioner will take over the practice either permanently or temporarily. It’s predominately geared toward sole practitioners but that’s not always the case as it can apply to multi-partners firms as well. It’s just not as prevalent among larger firms as they have more capacity to deal with an emergency than a sole practitioner who may have one or two staff at the most.

Recently we were asked to consult with a two-partner firm in the New England market. In the middle of tax season one of the partners suffered a fatal heart attack and as a result, the remaining partner had to work 90-100 hours per week to get the returns completed or file extensions. As you may have guessed there was no PCA agreement in place.

Another question that inevitably surfaces is why not just take out an insurance policy? A sound strategy except that an insurance policy, while offering protection to your family, will do nothing to protect your clients.

As you might imagine, the effects of death or disability can increase exponentially during tax season and the question is how long could the owner or owners afford to be out before their absence begins to take a toll on the practice?

Probably not very long.

Then there is the problem of selecting a PCA partner – and in many cases the criteria are similar to the ones you would use for a potential merger partner – culture, chemistry, billing rates, location and of course capacity – because if a PCA partner doesn’t have the capacity to assume your work, then they’re probably not an ideal firm to choose.

There are other considerations and factors to help determine an ideal PCA partner but that would take up more time and space than I’m allotted in my twice-weekly missive. But when you distill it down to the most common denominator, think of a PCA as protection for a large financial retirement asset – namely your practice!