and mergers are getting tougher. ouch!
by marc rosenberg
the rosenberg survey
firms are stepping up their efforts to be more liberal and staff-friendly with their staff policies. more unlimited pto polices including many variations of this, working remotely, staff setting their own hours, etc.
unfortunately, i am not seeing any changes in the lip service most partners give to staff mentoring. eighty percent of firms never make it to the second generation – many reasons for this but a big one is that the quality of partner mentoring sucks.
every new firm under $10 million that i meet – not just most, but every firm – starts immediately talking about their biggest problem: how hard it is to find qualified staff, retain them and develop them into leaders.
looking forward, some truly extraordinary shifts taking place in a merger market that has been frenetic for 10 years now, fueled by the perfect storm of aging boomers, short supply of staff and firms’ continuing weakness at mentoring and retaining their best and brightest. several of these trends are:
- 2018 is finally the year when the merger market has completed its shift from a sellers’ to a buyers’ market. there are so many sellers that buyers are rejecting more and more previously attractive merger candidates than ever before because they find even better ones. for more and more firms – even local firms – they aren’t as interested in adding clients and profits as they used to be (buyers are still interested in this, but not like before). now, it’s cultural and strategic fit. firms are asking: “how will this firm make us better and different? what do they bring to us that we don’t now have?”
- mergers are getting harder to bring along. everyone is busy. sellers continue to struggle with the enormity of the decision before them; they know they need to merge but they can’t pull the trigger. buyers are slower to respond because they are continually assessing new merger opportunities, even as they are in discussions with existing firms.
- wealth management is entering the picture more than ever before. buyers tell me they are more interested in sellers’ wealth management practices than the cpa work. more sellers who developed wealth management in the 2000s are reaching retirement age, making it more complicated – though not impossible by any stretch – to sell their firms.
so many trends we are seeing are offshoots of the aging boomers. it’s incredible how many partner agreements are poorly written and older than dirt. partner retirement agreements are so old that they border on being obsolete. i get a morose chuckle every time i see a buyout agreement with a 90-day notice and absolutely no requirement for client transition by retiring partners.
the age that partners actually retire and the mandatory retirement ages written into partner agreements continues to inch upward. 67-70 is the new 65 – though many are still at 65.
i see so many firms at a critical juncture. they are first-generation firms with a relatively small partner group who have been together for 20+ years. they are in their late 50s and early 60s.
they have utterly failed to develop future leaders throughout those 20 years. this is not because they are bad people or lack intelligence. it’s really hard to do succession planning. many partners simply refuse to face the obvious –their only exit strategy is an upward merger. they call me in for help with succession planning. they want to give one more shot to developing future leaders before they sell. so they ask me to convene a “come to jesus meeting” (quite an opportunity for a jewish guy!) to put together, for once and for all, a gameplay for staying independent. a very difficult task indeed.
amid all these trends, firms are thriving. revenue up. profits up. it’s great to be a cpa! (so why don’t partners tell their staff more often how good a gig they have?)