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Succession planning is the number one strategic issue facing CPA firms today. Members of the fabled baby boomer generation have now entered their retirement years. Partners have made a nice living at their firms for 20 to 30 years, or even more. They find themselves in their middle 50s or 60s with substantial value in their firms built from their life’s blood, with no exit strategy. They wish they could promote some of their staff to partner, but few, if any, have the right stuff. Or if they have it, they don’t want to be partners. Or the partners wish they could hire the near mythical young manager in a big firm looking for a great opportunity to become a partner right away in a smaller firm. These people are scarce commodities.
In my practice, this issue affects firms of all sizes, from sole practitioners to a 12-partner firm.
Two Choices
1. Keep the firm as is, work as long as you want, and let the firm die a slow and natural death. Smaller firms might be able to sell for cash — if there’s anything left to sell.
2. Merge up with a larger firm.
Merging Up: The Scary Alternative
An upward merger is very scary, even if you do it correctly. It’s a huge decision and, for most, one of life’s biggest milestones. The most commen reasons partners give for their apprehension are:
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Loss of control. They’ll become employee/partners.
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They won’t be able to come and go when they please.
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They will be given onerous billable hour targets.
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They will have to market, and they’ve never done it.
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Clients will leave because the new firm will jack up the rates.
There’s no question that when a merger serves as an exit strategy, the owners will have to give up something to get something. But every year, dozens of firms make this decision and find that the benefits far exceed the costs.
The best way to ensure the success of an upward merger is to do your homework:
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Conduct due diligence on the larger firm.
Resist “falling in love at first sight” — deciding to merge after one meeting. Properly executed mergers involve multiple meetings, including both group and one-on-one meetings. Don’t assume there will be a good fit just because the other firm is larger or has a good reputation. Instead, check them out. Review their financials. Review their workpapers. Brainstorm the questions you want to ask, and think about potential “deal breakers.”
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Identify what you expect from the merger and get comfort from the larger firm that it can deliver.
It’s amazing to me how many firms can’t give me a formal response to basic questions like: “Why are you merging with this firm? What do you expect?”
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Specify each partner’s role in the combined firm.
There’s one question I get asked over and over again: Do mergers really work? The answer: Yes, they do, and they can work quite well. But only if they’re done
correctly.
The Rosenberg Associates is a management and marketing consulting firm serving CPA firms and law firms, as well as other companies and organizations. Marc Rosenberg can be reached at marc@rosenbergassoc.com.
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