By: John P. Napolitano, CFP®, CPA, PFS, MST

We devote a substantial amount of time in these pages talking about how to improve the overall quality of the work that you do for your clients. Specifically, my task is to guide your wealth management endeavors whether you are already in the wealth management business or just guiding clients as they select and work with competent professionals to get their financial house in order.  Today, we are going to change it up a bit.  Today, we are focused on the financial plans for your firm and its partners.

We all know the story about the cobbler’s children having no shoes. It appears that the cobblers are not alone.  Many professionals take care of their clients first and then they may or may not get around to their own situation. I’m not talking about investments.  Many CPAs (Certified Public Accountants), just like our clients, think that building and diversifying a portfolio is the most important part of your financial plan. Saving and investing is clearly a critical step towards gaining financial independence from work, but it is not the first step. Let me walk through all of the considerations for you as an owner of a professional business.

Let’s start with the area that drives the financial house of most practicing CPAs, the practice. Many CPA firms have the same business planning issues as their clients. And just like the cobbler’s children, I see many gaps in the business plans for CPA firms.

Starting with smaller firms, let’s eliminate your death as the automatic death of your practice. Every tax season or so, I hear a story of the sole practitioner who dies in the saddle or became so ill that they could not finish the work for which they’ve been engaged. To me, this is negligence. To remove that possibility from the negligence category, an ethical practitioner should consider one of two options. You can tell your clients that you are a sole practitioner with no apparent successor. That message, unfortunately, would probably cause them to keep shopping. If your current clients suddenly realized that they’d be up a creek without a paddle if you didn’t make it through tax season? Would they come back?

The second option is to find a firm or another solo practice for you to execute a contingent succession agreement. This agreement would provide that the new firm would take over in the event that you pass away or are ill and unable to perform the day to day functions of operating a CPA practice. If you die in the saddle it may be simpler than if you get sick or permanently disabled. Upon your passing, your agreement should state the value of your practice and the payment terms for the acquisition. In the event of your temporary illness, you would need to agree on your successor’s share of your gross revenues while you recover. If you don’t recover, then the permanent buyout should occur. The latter is not easy to negotiate, but remember this.  Without that person or firm standing ready to assist, you may lose a lot of clients if you cannot deliver. Therefore don’t get hung up on the revenue sharing piece. The main objective would be to keep your practice alive for when you recover. 

This is the perfect segway to risk management.  Beyond your professional liability exposure, you need to treat yourself both like a key employee and an owner.  As a key employee, you should have a non-cancellable occupation disability policy.  I generally prefer individual policies rather than a group policy as the terms and longevity provisions may be advantageous. As a business owner you probably need life insurance.  Aside from the ethical issue of leaving your clients in the lurches if you pass in the saddle, if you’ve got a life policy representing the value of your practice then your family won’t need to scramble for money if they get the practices money’s worth from your policy.

A word about the value of your practice is in order here.  In general, the value of a CPA practice isn’t what is used to be.  Values are dropping, and there aren’t exactly a line of buyers eager to take you out.  One piece of advice is to consider some niche service that may make your practice more valuable.  This niche, however, must be something near and dear to you.  Creating a niche just to increase the value of your practice will only work if you are passionate and capable to exceed client expectations with the delivery of that niche service.

Wealth management, of course, is one such niche practice that will definitely add value to your clients and your firm if delivered properly.  Fledgling along on your own with paltry revenues and spotty penetration within your client base will not dramatically add value. But having an offering that is broadly adopted by your clients or one that segregates the top 10 – 20 % of your client base will add value.  If you choose to partner with another professional or an outside firm to deliver wealth management services, make sure that your contractual agreements are clear as to how the value is created, calculated and then paid out under all possible scenarios. 

The last issue you may consider as a business owner are the estate consequences of your untimely death.  Needless to say, the value of your practice will be includable in your gross estate. In some states such as my home state of MA, the exemption is much lower than the federal exemption, and there may be death taxes associated with your passing because of the value of your firm. Even if your passing doesn’t cause a death tax issue, it is still likely to be a probate asset causing time delays and expense to settle your estate.  Consider doing what we ask our clients to do, own your firm in a revocable trust with you as the trustee and the beneficiary.  Even if you are an S Corp or an LLC, consider making your trust be the owner of those shares or interests to simplify the settlement of your estate. 

Now I’d like to move to your personal financial situation as a partner or sole owner of an accounting practice. The same basic financial questions that we’d have for a client, we have for you.  Prepare a personal balance sheet.  On it, show all of the pertinent necessary information.  The asset description, the FMV(Full Market Value) of the asset, your basis in that asset, how you own that asset and any debt that may be associated with that asset.  Because you are a CPA, I’d also ask that you book a deferred tax obligation on any built in gains for some of your taxable assets or the after tax value of your retirement accounts.

Next, we want to see your cash flow.  That includes all money in, expenses out and regular planned savings or retirement contributions.  The net number is important, so be as accurate as you’d be if doing this for a client.  Unlike a client, however, with your professional background you should reconcile your cash flow each and every year to see that the end result is the same as you expected.  Once you get clarity and accuracy on the cash flow, turn that cash flow statement into a forecast or what your life will look like in X, Y and Z years with a wide range of assumptions.  You’ll need assumptions on earnings, spending, inflation and a wish list or bucket list. 

I know that you are a financial professional, but your spouse may not be.  After you’ve created some basic financial statements with a glimpse into what your financial life may look like in the future it is imperative to get your spouse up to speed and on board.  Most financial professionals tend to be the personal finance person in their household, and the non-financial professional frequently takes a back seat.  But just because they are in the back seat doesn’t mean that they aren’t interested in the journey or the destination. Enlightenment is a powerful moment to the non-financial spouse.  Plus, that non-financial spouse is always wondering what they’d be doing if the financial leader of the household passed away.  Starting with the cash flow isn’t the beginning and the end of your financial education for your non-financial spouse, it is merely the starting point to get them engaged in the entire planning process. Once the planning is done, your spouse can return to the passive seat except for an annual review or update.

As we’ve discussed many times in these pages, you then need to assess and optimize the following areas of your financial life: Risk management, investment planning, retirement planning, estate planning and special situations such as special needs children, family governance of trusts or elderly parents.

If there is one thing that CPAs are consistently accused of by their spouses it would be working too much.  After a complete financial assessment, you can now decide if you are working because you love to work all the time or because you need to continue to work for financial reasons. If your work if purely for the love of it, focus on life planning issues that are important to you or a spouse before it is too late.  If your work is to be continued for financial reasons, then do get a financial planner for yourself and start doing what you need to do to earn more, save more or improve the value of your practice.


This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.