Firms stockpiling cash ahead of baby-boomer retirement

27th November 2014

MGI World Firms stockpiling cash ahead of baby-boomer retirement

Accounting firms in the US are keeping cash in the business rather than compensating partners as they look to invest in the future.

Following the ‘Great Recession’, the economic downturn in the late 2000s, firms continue to recover and now look to store up reserves of equity and cash in order to keep liquidity high in preparation for a number of upcoming financial hurdles.

While the 2014 MAP survey looks at firms in the US, many of the findings are applicable on a global scale.

One of the key findings points at a trend-switch in 2014 where firm owners prefer to keep cash in-house instead of compensating partners.

A potential reason for this switch is the approaching date of the baby boomer generation’s retirement. Retiring partners will need to be bought-out and many firms lack the cash flow and liquidity to do this.

Buyouts of retiring partners would leave internal succession open, which would help solve the problem of finding replacements at the senior partner level.

But many firms will find that internal succession, while an appealing solution, is not an option due to a lack of young talent or absence of funds, which leads us back to firms looking for an exit via merger or acquisition.

This led to the past three years’ dominant trend of mergers and acquisitions as a means of financing retirees. 

A year-old report from the Journal of Accountancy points out this trend produced a market of buyers, depressing firms’ valuations, making it less appealing as a strategy. 

Therefore, to make a real return on their time and money investment, leaders must make a real plan for the future.

To ensure the long-term stability of their business, a number of organisations are taking “conservative steps”, said Mark Koziel, the AICPA’s vice president of firm services and global alliances.

“They’re plowing money back into the firm or reserving it for future use rather than doling out every penny in profit to owners and partners. Succession planning, budgeting for new hires, merger strategy, and hedging against uncertainty all play a factor in this kind of decision-making”, he added.

Read more on Industry news and North America

MGI World Africa region map with Morocco, Egypt and South Africa countries highlighted

Positive economic steps amid understandable concerns: our member firms in Morocco and South Africa comment on recent developments in their respective countries

21st July 2021

The June edition of the International Accounting Bulletin (IAB) features contributions from our...

MGI World Multi-generation family with logo and text

Clients of California-based member firm RINA Accountants & Advisors benefit from strengthened Trust & Estate Services

16th July 2021

California-based MGI Worldwide member firm RINA Accountants & Advisors, is pleased to announce...

MGI World MGI Worldwide CPAAI member Barnes Wendling 75 anniversary lead image

Congratulations to Ohio-based Barnes Wendling on reaching their 75-year milestone!

7th July 2021

MGI Worldwide CPAAI congratulates member firm Barnes Wendling, based in Cleveland, Ohio, USA, on...