Merger Should Be a Choice, Not a Requirement

Source: Public Practice

In this article, consultant Bill Reeb suggests that many professional services firms look to mergers to solve a problem, such as a lack of future leaders or a talent gap between partners and personnel a level or two below them.

According to Reeb, the reason merger is so often the answer is that “CPA firms are notorious for trading off long-term effectiveness for short-term efficiency.” Senior partners hesitate to invest in training and in closing competency gaps because they want to maximize their current income. So, for example, they require new partners to continue fulfilling their previous roles as managers. The result is that “people deemed talented enough to be added to the partner group are put in the position of doing two jobs poorly instead of one job very well.”

It's true that nurturing and training new partners, and allowing them to transition work to their replacements, require an investment of time and money that will reduce the firm's short-term efficiency. But these steps also make the firm more effective and profitable over the long term. There's a reason why merging often solves a firm's problems, Reeb explains: “[T]he firm you are considering merging into likely has higher average partner salaries . . . has greater success in the market, stronger training and development processes, leadership being groomed, and has been making this investment all along.” [Emphasis added.]

Making these investments now will help you build a strong, sustainable firm. Plus, Reeb warns, “expecting the merger market to be there when you need it is just poor business management. You always have the choice, but let's make sure it is a choice rather than a requirement.”

For the complete article, read “Merger (Column 4) – Where Do We Go From Here?”

From Public Practice, Texas Society of CPAs, October 2011, www.tscpa.org.