6 Signs that Spell Merger: What CPA Firms Should Know and Why
How do you know when it’s time to think about a transition for your CPA firm? Should your decision be market-driven? A desire to retire? Getting an offer you can’t refuse?
The most successful transactions typically happen when partners are proactive—they recognize the signs that signal it’s time to make a change, and then prepare and plan appropriately. Whether that change is buying, selling, or merging, M&A may be inspired by one or more of these six factors.
- Major clients are increasingly dissatisfied. CPA firms depend on their A-list clients for stability and referrals. When that top tier is unhappy, the proverbial walls begin to shake as they push back on fees, complain about service, stop sending you business, and threaten to leave. If you don’t have the resources to maintain strong relationships with your marquee clients, the problem may be too big to fix internally or alone. Acquirers and sellers may have the resources that the other party needs.
- Employment issues are rising. Record numbers of firm partners are predicted to retire within five years, and among mid-level employees, less now express interest in becoming a managing partner or joining the leadership team. Developing firm leaders is critical to establishing an enduring legacy for CPA firms, but when employees are leaving and new talent chooses to go elsewhere, M&A may be the only way to ensure a firm’s quality and longevity.
- Referrals and other new business sources are not what they used to be. How does your new business closing record compare to previous years? Are you getting the types of clients you really want? Has the “buzz” about your firm’s value quieted down in your marketplace? Do you have enough business to support promoting talented individuals within in your firm? A “no” to any one of these questions may signal the need for an M&A strategy.
- Growing anxiety about the work load. When you and your team are struggling to keep up with assignments and deadlines, everybody suffers—employees, clients, even your family and friends. No CPA firm wants every day to feel like the height of busy season; these days, work/life balance is increasingly important to employees at every age, and particularly among the younger workforce. If your firm cannot manage the work efficiently, consider how adding external resources could ease the load—and your peace of mind.
- Electronics deficiency. Keeping up with the hardware, software, and personnel requirements of today’s technology is an expensive, but necessary, proposition. Firms that do not have the resources to upgrade and maintain their accounting and operational technologies will increasingly struggle to remain competitive. Combining with another firm will offer viable technology solutions that don’t come easily alone.
- Roadblocks to providing added value. Value-added services and pricing go a long way toward intensifying client loyalty and reducing the emphasis on the number of hours worked—but generating the value-add does not come easy. The roadblocks for training, development, marketing, and producing are compounded by continuing to service and run a practice. Combining with a firm that is further along will make the roadblocks less daunting.
Each of these signs might be a red flag for your firm’s future. Taken together, they spell M.E.R.G.E.R—at least figuratively, if not literally. A merger may be one way to improve your team’s efficiency and morale, but a sale or acquisition may offer other rewards. An objective outside advisor and/or counsel can help you explore the options and consider how to best solve these problems and position your firm for long-term success.
The earlier you learn to recognize the signs, the more time you’ll have to make an informed decision and take the steps you need to prepare for whichever path you pursue.
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].
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