Some people wake up one day and decide that it is time to sell their home and move. This, too, can happen to CPAs: one day they decide that it is finally time to sell, merge with, or acquire another firm. It doesn’t have to, nor should it, be up to whim. There are many solid reasons to motivate one to make such a decision. Here are six common factors that can lead to a decision to merge, sell, or acquire.

• New business is weak – Maybe your closing percentage for new business is dropping. Maybe you are not closing on the new business that you really want, business that is in your wheelhouse. Or maybe there is not enough business to support promoting worthy people to partner level. Flagging business may come in many forms, but it can be a strong indicator that it is time to make a bold change.
• Financial worries – Firm profitability is flat or dropping. Accounts receivable turns are diminishing. The firm’s strategic plans and progress are being thwarted or postponed because of a lack of scale. Competition is intensifying in your market.
• Clients are getting restless – Your client satisfaction scores are dropping, along with client referrals. Your marquee clients are unhappy and they’re pushing back on fees. Perhaps the number of clients leaving the firm has grown significantly, and others tell you that unless you make some bold changes, they will leave too.
• Staffing woes – Employee turnover at your firm is accelerating, and the closing success for new talent is dropping. Retirements in leadership three years down the road can’t be absorbed with the current talent, and no one wants to be the next managing partner. This is a signal that an influx of new talent could bolster the firm’s work and longevity.
• The team is overwhelmed, including you – The current team can’t manage the work efficiently, and, more often than not, is treading water trying to keep up. Your family and friends find that you are increasingly miserable as stresses loom large.
• Referral exodus – If business referrals out of your firm are increasing at a higher rate than usual, it may be a sign that your clients need different, or more experienced, experts and expertise than you have on staff. Merging with a firm or sole practitioner that offers services complementary to your own is a strategic move that can help all players involved.

These are just a few signs that might spark the beginning of the M&A process. One of these red flags by itself may not be reason enough to push the decision to merge, sell, or acquire. Yet, together, the signs paint a picture of a business that needs to find a better way to work now and a new way to make your team happier and more productive for better client service in the long run.

Of course, once you decide to pursue M&A, there are many other steps to take before getting to the end, including getting outside advice and counsel to help you maximize success. Understanding your firm’s current state and recognizing a few of the indicators will allow you to make important decisions on the future of your firm.

Ira Rosenbloom, CPA (LR) is known as The Merger Master for his skill in helping CPA firms engineer succession strategies and complete M&A transactions. As Chief Operating Executive of Optimum Strategies, a boutique adviser to small-to-mid-sized firms, Ira creates competitive advantage for his clients by optimizing the firm’s position for an internal or external transition.  Learn more at OptimumStrategies.com or contact [email protected].

*This article was originally published in the Pennsylvania Institute of Certified Public Accountants'  CPA Now blog on Oct. 27, 2021, and is republished here with permission from the publication.

More from Ira Rosenbloom: 5 Best Practices Merger-Minded CPA Firms Must Follow During Tax Season and Beyond

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