In recent years, discussions about succession planning have intensified in many industries including the accounting profession, particularly among small and medium-sized CPA firms in Hong Kong. Whether practitioners decide to entrust the next generation to take care of the firms, merge with other firms, or sell the firms outright, foresight, structured approach, and deep understanding of regulatory must drive this process and market realities.
This article will explore the characteristics of the Hong Kong CPA practice structure, the main challenges practitioners face in the succession planning process, and the key factors to consider in different succession approaches.
Overview of CPA practising structure in Hong Kong
The practice landscape in Hong Kong is diverse but predominantly composed of small and medium-sized CPA firms. According to market data, most CPA practices in Hong Kong are either sole proprietorships or partnerships, while a smaller number operate as corporate practices, which are becoming increasingly common.
Sole proprietorships and partnerships
Traditionally, many local CPA firms began as sole practices. This structure offers simplicity, autonomy, and a direct client relationship – but it also concentrates ownership, client relationship, and professional responsibilities in a single individual. Partnerships expand capacity, resources, knowledge base and facilitate diversification and specialization. At the same time, shared ownership and management may nonetheless call for more trust, governance and internal regulations that can complicate the management of the firm.
Corporate practices
A growing number of CPA firms have chosen to incorporate. Corporate structures provide limited liability to a certain extent, more formalized governance frameworks, and better continuity mechanisms in cases of retirement, withdrawal or new arrivals. Nevertheless, statutory requirements impose restrictions on the shareholding structure of corporate practices.
Challenges faced by Hong Kong CPAs in succession
When the founders are approaching retirement age, passing on the business successfully becomes a challenging issue. The main difficulties include:
(1) Broader opportunities complicate successor selection
Small and medium-sized CPA firms often struggle to identify suitable successors. With a wider array of career paths now open to them, the younger CPAs in the firm and even the next generation of the founder’s family often pursue opportunities in finance, consulting, or multinational firms, which means taking up ownership and management of small practice may not be their immediate priority. As a result, CPA firms may need to invest additional time and effort to identify and persuade suitable successors with the right experience and trustworthiness to step into leadership roles.
This makes the process more prolonged and considered, but may sometimes result in handing over the firms to less experienced or less trusted successors.
(2) Client concentration and relationship dependency
In many small and medium-sized CPA firms, client relationships are highly personal — built on years of trust with individual partners, and the brand and reputation of the firms are often intricately linked to the partners’ personal fame. When these partners retire, clients may hesitate to continue to do business to successors they do not know well personally.
(3) Valuation complexity
Determining the fair value of a CPA firm is difficult. Unlike firms with tangible assets, the value of a CPA firm depends on the values of its intangible asset such as its brand reputation, the expertise of its work force, attractiveness of its client portfolio, and the professional network of its owners. These factors may lead to valuation differences between buyers and sellers that may not be able to bridge.
(4) Complex compliance and regulatory requirements
Any changes to a CPA firm (such as addition of partners, restructuring, or transfer) require reporting to and approval from the regulator. The approval procedures and statutory disclosure requirements increase the uncertainty and time frame to achieve a smooth and timely succession.
(5) Cultural and psychological barriers
For many founders, a CPA firm is more than just a business; it is a symbol of their professional identity and achievement. Emotional attachment and anxieties and the fear of losing influence make them unwilling to relinquish authority and can slow down the succession process. Similarly, partners may be reluctant to engage in discussions about retirement, not to mention equity reallocation or shift in the firm’s strategy and direction.
Key considerations for different succession approaches
Common succession models for Hong Kong practising accountants include: (1) entrusting the next generation to take up and develop the CPA business; and (2) disposal or merger with other practitioners. Each model has its advantages and disadvantages, requiring comprehensive consideration of the nature of the business, the prospective successor’s background, and long-term strategy.
Entrusting the next generation to take up and develop the CPA business
Many founders of CPA firms prefer to nurture suitable family members or the firm’s high- flyer executives as successors to press on the firm’s brand and philosophy. While this approach can preserve legacy, it entails several important considerations:
- The founder should ensure the next generation or firm’s executives possess both the professional qualifications, passion, motivation and ability to advance the firm’s standards, quality and reputation.
- Coaching, mentoring and a systematic action plan need to be in place as early as practicable to ensure a seamless knowledge transfer and avoid business interruption due to unforeseen events such as a sudden deterioration in the health of the existing key person. It is essential to introduce the successors to the key clients early on to facilitate familiarity and establish trust well before the current key persons retire.
- This succession model is most suited for smaller CPA firms, which leverage on personal branding, trust and relationship.
Disposal to or merger with other practitioners
If the family or internal succession model is not feasible, many firms turn to mergers or practice sales succession model. The key considerations here involve:
- Strategic alignment and cultural compatibility – Successful mergers depend not only on financial alignment but also on sharing common values, service philosophies, and client orientation. Having similar fee structures, work methodology and quality control measures help to ensure operational integration.
- Due diligence – Both parties must conduct comprehensive due diligence, covering the client base, financial position, human resources, litigation risks, business review, and regulatory compliance history. The client portfolio of the CPA firm may form a significant basis for valuation and consideration if disposal approach is adopted. Transparency at this stage protects the interests of all parties.
- Client communication – Maintaining open and timely communication with clients is crucial. Explaining how the merger or disposal will benefit clients (e.g., expanded service scope, increased resources, better quality client services) helps to ensure business continuity and client retention.
- Regulatory approval – Regulators require timely notification of changes in firm name, ownership structure, contact details etc. Timely communication with regulators ensures a smooth transition and continued compliance.
- Post-merger/disposal integration – Many mergers or disposals fail not because of the legal or financial aspects of the transaction, but because of the failure to overcome integration challenges, such as resolving the differences in the firm culture, workflows, technologies, staff expectations, and unwillingness to make changes to accommodate each other. Developing a clear and an agreed integration plan in advance, with the leadership of both sides committed to implementing it will avoid confusion and loss of morale.
Early planning, strong communication, and continuing professional succession
Regardless of which succession approach is chosen, early planning and commitment to accept changes are key to success. It is essential that the CPA begin to develop the succession strategies at least five to eight years before exiting. It is necessary to implement the plan in stages, including successor identification, financial arrangements, management coaching, mentoring, and empowerment to prepare the successor as the future leader.
Simultaneously, maintaining transparent communication with clients, employees, and the regulator is also crucial. Succession is not more than a legal and financial transaction; it is also a gradual transmission process of values, relationship and trust. Hong Kong’s professional services market is facing challenges from generational change and technological transformation. CPA firms need to update their business models to cope with these changes. This will ensure their business is more sustainable and attractive to prospective successors whether they are family members, highflyer executives of the firm, third party CPA firms or investors. The CPA firm needs to watch out for, and position itself to take advantage of succession opportunities to ensure it can continue to thrive in the new era.
Conclusion
Succession planning is not simply an exit strategy. It is a strategy to ensure the continued development of the business. It reflects the practitioners’ commitment to clients, employees, and the accounting profession itself. CPA firms built over decades deserve a thoughtful, organized transition that ensures their values and service legacy continue into the future. In Hong Kong’s rapidly changing professional landscape, the most successful CPA firms will be those that look beyond the present – investing now to secure their tomorrow.
This article was contributed by Frank Lam, Institute Council member, and Assurance Services Director and Leader of Family Office at BDO in Hong Kong.
