With so many baby boomer CPA firm owners looking to retire without a proper succession plan in place, the market for CPA firms has become a buyer’s market. Too often, however, firms buy other firms for the wrong reasons. Firm culture is the most important ingredient for creating a successful firm in the long term, and it becomes extremely difficult to maintain when a firm is constantly merging with others, as no two firms have the same culture.
The following is a list of potentially bad reasons to merge or acquire another firm. This is not to say that these are necessarily terrible reasons to buy another firm, but these reasons normally represent an underlying fundamental problem within the buyer’s firm that probably needs addressing before an acquisition should be made.
“I can’t hire or retain good staff, so I need to buy them.” CPA firms have trouble hiring good staff for a reason. Whether it’s poor management, toxic culture, or insufficient pay, buying another firm’s good staff will not change the underlying problems. Eventually, those staff will also leave for another firm.
“I can’t attract new business.” It’s 2018, and the market for CPA firms is far from tapped. If a firm doesn’t have new clients coming in, then it probably has a terrible website or a bad reputation in the community. Buying a firm is not going to fix this problem. Renewed focus on marketing and changing firm culture will accomplish more than buying the firm into debt by acquiring new business.
“I need to be larger to compete.” Bigger is not always better, especially with the rapid pace of technological change. A one-person firm can have technology just as good as that of a large firm whose set-up takes a long time to change, if not better. Small firms should think about joining an accounting alliance, like the BDO Alliance, to get access to large firm recourses without the hassle.
“I want to be in a new geographic location.” Communications technology makes it possible to provide service to clients from anywhere. Opening up or acquiring a new office in another location creates management issues, not to mention additional costs. If it is really that important to have a physical location in a particular region, consider using a co-working space for an address and hiring someone remotely.
“I need to bring my firm into the 21st century.” Well, yes, but acquiring another firm to upgrade technology can often backfire. The underlying reason why the firm has not made the switch already—the firm’s culture—also needs to change, or else the firm will fall behind again and be no better off than it was before. Find the most technology-savvy people in the firm and give them the opportunity to research the topic and suggest constructive changes.
“I need to change my firm culture.” If a firm culture is bad, then it’s probably the fault of the firm leader. Acquiring another firm isn’t going to change that fact. As the saying goes, real change comes from within; if that isn’t possible, then maybe the firm should be selling instead of buying.
Good Reasons to Merge with or Acquire Another Firm
“I want to be in a new niche.” When looking to expand a firm’s range of services (e.g., to investment management, HR services, IT consulting), buying another firm that specializes in these areas and not accounting makes plenty of sense. The barriers to entry for these areas are often very large, so acquiring an established company might be the best way to go.
“I need a succession plan.” Although organic and internal growth is always preferable, small firms with a few employees may not be able to come up with a viable succession plan. Merging with a younger firm that has younger owners can be the best way to maintain a firm’s continued success after the firm leader or key partners retire.
Mergers and acquisitions are not necessarily a bad thing, but they do require a lot of thought. They are often considered the “easy” answer to internal problems, but often can magnify these problems, not mitigate them. Before buying another firm, consider other ways that the problem can be fixed. It might require a lot more work, but it might make the firm more successful in the long term.