Why CPA Firm Mergers Fail

Source: Journal of Accountancy

Some deals fail because:

• The firms merge only to reduce overhead.
• Their focus is solely on “bigger is better.”
• There is no client retention adjustment, i.e., seller as a fixed payment not tied to retention of clients.
• The successor firm makes changes too quickly, not considering the effect on staff or clients (who liked the way the former firm operated).
  • There is an immediate 25 percent fee increase.
  • Staff is immediately prohibited from working on files at home.
• Cultures are not compatible.
• Partners don’t adapt to new ways of operating.
• The firm name is not properly determined or communicated to the market.
• The surviving firm can’t handle the work of retiring partners. • Firms don’t conform technology platforms.

Improve your probabilities for success by:

• Making sure cash flow is positive from the beginning. Both firms should contribute billed and unbilled receivables. Otherwise there will be a period of negative cash flow.

• Maintaining a work environment consistent with the past. Accommodate existing policies and operations.
• Understanding whether cultures are compatible:
  • How clients are served—does one firm go beyond the norm in taking care of clients?
  • Are dress codes the same?
  • How rigid are staff schedules and office hours?
  • How are staff members expected to address partners?
  • Is there socializing among personnel?
  • How different are the standards for autonomy and accountability among partners?

Structure:

The transaction must be good for both parties. An advantage for one over the other may precipitate failure.

For the complete article, click here and read “Mergers & Acquisitions of CPA Firms.”

From Journal of Accountancy, American Institute of Certified Public Accountants, http://www.journalofaccountancy.com/Issues/2009/Mar/.