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Business development for a CPA firm comes in many shapes and sizes.
Direct marketing, referrals, and publicity all have their role, but
searching for a CPA firm to buy or merge can be the best growth
method. It represents the only way to add “chunks” of clients without
incurring the expense and time associated with prospecting individual
companies.
Acquisitions are timing related. Yesterday’s rejection may be today’s
yes. For an entrepreneurial CPA, relinquishing control over the firm
can be a difficult task. Regardless of how successful the firm is, the
emotional ties are strong. So approaching the topic of “selling” is a
sensitive issue. The smart path is to begin conversations with an open
scope. Don’t focus on purchasing the practice. Position the
conversation as an opportunity to explore options.
Many CPAs want the security of selling, but not the loss of control.
They need the exit path being offered, but they question whether they
need it this year or can hold out longer. At what point are they ready
to sign an agreement to finalize a significant stage of their lives?
There are several processes to identify acquisition or merger
candidates. The goal is to find a firm with aging, “tired,” or “raw”
leadership. Someone who is looking for an exit strategy, a safety net
in the event of health concerns, or more time to enjoy life. If
seeking a merger, you want a visionary with ideas. Bringing in a
younger rainmaker can be a good path for an established firm to
consider. It can create an internal succession and breathe life into a
“tired” practice.
The strategies below are methods to introduce the “opportunity to
explore options” to a prospective firm. Depending on your
search objective (i.e., a merger or a purchase) the approach should
vary.
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Practice Continuation: A formal agreement to temporarily or
permanently assume the practice if a health concern or other issue
prevents the owner from working.
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Partial Sale: The sale of a portion
of the practice (i.e., audits, select tax work, or clients) that
does not fit the present service capabilities or future direction.
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Complete Sale: An immediate purchase
or purchase with a phased-in time transition.
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Merger: The joining of both of
practices into one entity.
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Alliance: An informal agreement to
exchange work when the opportunity arises. This could include joint
marketing efforts, staff sharing or client sharing for special
projects or needs.
The search timing is critical. In May, firms still feel the impact of
the tax season. By September or October, most firms elect to get one
more year in before committing. If you conduct this search properly,
you build a pipeline of possible acquisitions by establishing practice
continuation agreements, purchasing portions of practices, or
combining offices to begin a phased acquisition process.
Patience is critical. The firm planning to make the acquisition or
remain the lead firm in a merger needs to be patient. The sale is more
psychological than financial. If the firm being acquired is shopping
for the highest price, the variation in offers should not be
significant. The marketplace should produce equal offers allowing for
some deviation in demand firm by firm. Although price is important,
two other factors are the primary drivers:
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The potential to continue to be part of the firm. The selling
partner often wants to remain in some capacity and possibly ensure
staff still has a job. Money is important, but many sellers want to
belong to the effort for some period. The ability to offer a
phased-out transition is a powerful sales tool to deploy.
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The client fit. After thirty years of servicing clients,
sellers are concerned with creating a successful transition for
their clients. Their clients have become their friends and they want
them to be treated well. It also represents a final mark for their
careers. A successful transition enables them to put the exclamation
point on their life of hard work.
The key factors to
look for in a fit are:
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Fees. If rates are significantly different, a successful
merger or acquisition will be difficult unless the acquiring firm is
the one with the lower rate structure.
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Desired migration path. If the seller wants to stay for five
years and the buyer wants a one-year transition, this is a material
issue. You do not want the seller to become the houseguest who over
extends the stay. Fully set expectations.
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Personalities. If you do not like each other, you have a bad
fit. Changing the personality of either party will not happen. The
only way a personality clash works is if there is a sale with no
transition period, and even that is risky.
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Staff. If keeping the seller’s staff is part of the deal, you
need to establish control over who is currently in charge. Staff can
remain loyal to previous owners even though they no longer work
directly for them.
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Long-term rents or contracts. Although agreements can be
negotiated, if a prospect is locked into a financially draining
lease or contract with no value to the acquiring firm, that could be
the deal breaker.
How do you identify firms to buy or merge? Your personal
network of peers, ads in the state CPA society publication, direct
mailing local firms, or contacting agents who buy and sell firms are
the most common methods. However, agents can be an expensive
proposition. The most powerful method is to pick up the phone and call
firms. Make sure you have a solid, nonthreatening approach. Calling
usually generates interest. Closure is dependent on your sales skills
and the available pool of firms in your area.
Looking to be bought? Turn the tables. Instead of waiting for
buyers to come to you, “package” your firm and present it to
candidates. You will get many interested parties. The difficulty will
be determining which firm to select, so make sure terms, desired work,
and transition objectives are clearly addressed. You will control the sale.
Clearly identify these items before spending too much time with a
prospective seller. This will save you time, get the seller in the
right frame of mind, and either kill a poor fit quickly or enable a
possible fit to mature into closure.
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