Marketing For Accountants In Practice

Public Practice Mergers - It’s Rarely A Genuine Merger – Somebody Usually Gets ‘Eaten’. Here Are 20 Quick Tips To See If You’re Ready.

I sometimes get asked by ‘The Bottom Line’ readers: ‘Why don’t you write about career tips for sole practitioners and smaller firms, even though we’re Partners, we still have a ‘career you know?’

And it’s a good point. One of the fastest ways to achieving growth is through a merger or acquisition, and one the largest parts of my work these days, apart from recruiting talent for CA firms, is assisting growth-hungry public accounting firms to find others to acquire, so to tie-in with the release of the Bottom Line’s new table of Canada’s top 30 accounting firms, I thought I’d start a small series of articles for those at Partner level in public accounting by talking about mergers & acquisitions.

Although it is still called ‘Mergers and Acquisition’ services, if the truth be known, 90% of deals are where one firm acquires another. It may be ‘dressed-up’ as a merger, but when the dust has settled we all know that one firm has acquired the other, usually the acquiring firm’s culture prevails in the newly merged entity and the acquiring firm’s name is usually adopted by the ‘new’ practice. It’s rarely a genuine merger these days, somebody usually gets ‘eaten’.

Based on his work in this field, McIntyre-Smith offers 20 quick tips to help you determine whether or not you are ready for a merger or a sale:

1. Are your working paper files up to scratch? Many a deal has fallen through simply because of sloppy working papers, which strikes the fear of God into the hearts of potential buyers or future partners.

2. What are your receivables and work in process ratios like? Any cleaning up should be done before you start to invite inquiries.

3. Start Early. This is not a quick or easy process. If you’re thinking of exiting or merging within 12 months, the time to start looking is NOW!

4. Keep up to date. Although you may be planning to exit, you still need to get the latest Caseware etc updates and keep your Professional Development up to date.

5. Try not to sign any new long-term leases. You may not need your offices in nine months time, but you might be ‘on the hook’ for five years if you sign a new long-term lease.

6. Are you psychologically prepared for the event? If you’re looking to sell (or be ‘eaten’) an element of control has to be relinquished, and after, say, 25 years in control, that can be hard to do.

7. Are you compatible with your potential buyer, in personality, culture, goals and outlook? If not, be warned, a ‘quickie divorce’ can be expensive and unsettling for key staff and clients. Make sure there is a written procedure for a de-merger if need be.

8. Is the price you seek realistic? All other things being equal, the price and earn-out terms have to be right for BOTH parties, not just you.

9. Can you keep key clients? This is, after all, what the purchaser is really after. A mass exodus after the event will usually cost YOU, not the buyer.

10. Can you keep key staff? If senior team members see this move as blocking their career path to partnership, you may find within 3 to 6 months that they start to drift away, and the continuity that your clients treasure is at risk.

11. Where are you going to settle? Will your new home, if the deal involves a move, be convenient for your most important clients?

12. What else do you have that is of value to the buyer? Industry-specific (or niche market) knowledge, special services, a reputation in certain fields? These all add value to the deal, don’t undersell yourself.

13. Be totally honest with each other. Open communication is key to any partnership. Learn how to argue and negotiate effectively early in the partnership.

14. Don't expect total equality. No matter how hard you try to divide up the responsibility pie, there will always be time when the work or the efforts will seem unequal. Though it may be hard to swallow, take the long view of your business partnership and accept it.

15. Celebrate successes publicly, discuss failures privately. A simple rule often overlooked. Bad blood is easily created by an unintentional ‘humiliation' in front of the staff. Partners should support each other in public at all times, even if privately they disagree.

16. Decide how disputes will be settled. Like marriage, there will be times when disagreements crop up. Sometimes fundamental disagreements. Having a process in place to deal with these will help in most occasions.

17. Play to your strengths. We’re not all rainmakers, nor are we all workhorses. Learn to recognize and respect your partners’ different contributions to the success of the firm.

18. Don’t divide up profits based purely on billable hours or ownership percentages. Many great things come—long term— from activities that are not immediately revenue generators, like coaching, mentoring and training staff, writing articles and giving presentations. Devise a way of recognizing these long-term contributions.

19. Don’t necessarily take the first deal that comes along. Others will come - demand presently outstrips supply by about ten to one – it’s better to be patient and find a compatible partner rather than jump into a relationship that could be costly to get out of.

20. Keep an open mind. “Don’t even think of setting me up with xxx LLP” can limit your options and your preconception of what xxx LLP are like might be wrong.

There’s much more to it than this, but the above tips should set you off on the right path.

You can catch Steve McIntyre-Smith’s next presentation, entitled ‘Purchase of an Accounting Practice in the Current Environment’ on Tuesday, May 18, 2004 at the North York District Chartered Accountants Association meeting at Ramada Plaza Hotel –185 Yorkland Blvd. (Sheppard & Don Valley Parkway) – tickets available from Linda Kalda-Sikes, Braithwaite Innes, Chartered Accountants, 200 Consumers Road, Suite 305, Toronto, ON M2J 4R4. Tel 416-590-1728.