thirteen ways to woo potential firm buyers

man writing in notebookplus how sellers should assess them.

by marc rosenberg
cpa firm mergers: your complete guide
[now updated and expanded]

once sellers have created a list of firms they will consider as a merger partner, the first step is often to talk by phone or video call with the buyer and ask basic questions to determine if a get-to-know-you meeting makes sense.

more: 13 reasons to merge up | merger? the 100 data points you need first | one times fees isn’t the only way | thinking merger? first ask why. | why do you want to merge? be honest. | four reasons to fear a merger
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the forms below are good cheat sheets.


 contact name
 firm name


basic data

 annual fees
 number of partners/ professional staff/ total fte
 ages of partners
 practice breakdown

  •  a&a
  •  tax
  •  consulting
 specialties or niches
 partner billing rates


screening questions

 1. does the buyer want to merge in smaller firms?  why? what does the buyer hope to get out of it?
 2. what are buyer’s parameters for a desirable seller? does the seller qualify?
 3. sellers’ partners are all generalists. is this ok?
 4. seller does not have a specialty. is this ok?
 5. sellers’ partners want to work until age _____. is this ok?
 6. the seller struggles with attracting and retaining good, young staff. it needs better access to labor. can the buyer supply it?
 7. how many mergers has the buyer done in the last five years? how did they work out?
 8. average partner billable hours for the buyer
 9. tolerance of buyer for seller’s partners working heavy billable hours
 10. software used for tax prep, accounting, other
 11. (for buyers who are not located in the seller’s city) why is the buyer interested in a firm outside of their current geographic market?
 12. is the buyer willing to pay at least the market rate for the seller?
 13. would the buyer be willing to meet in person informally for a get-to-know-you meeting?


how sellers should assess buyers

the seller should make an objective, realistic assessment as to whether or not merging upward is a good business decision. every seller evaluating the feasibility of merging should consider these questions in as much depth as possible:

  1. a larger firm has openly expressed interest in merging the seller in. does the seller find the deal attractive? why, specifically?
  2. the seller feels it is a good firm that has been limited by its size from becoming a great firm. will tapping into the resources of the larger firm enable the seller to better realize its potential? how will this actually play out?
  3. will the retirement of one or more key partners at the buyer over the next few years threaten the buyer’s continued success?
  4. will the retirement obligation to one dominating partner be so large that the buyer cannot afford the payments?
  5. are the ages of the buyer’s partners clustered together such that they won’t be able to afford to pay retirement benefits to all the partners at the same time?
  6. are the buyer’s younger partners capable of running the firm after the older partners retire?
  7. are the partners of the buyer willing and able to write retirement checks to the seller’s partners?
  8. does the buyer have staff with partner potential? has the buyer demonstrated skills at developing staff and helping them grow?
  9. to the extent the seller struggles with firm management, growth, finding staff, retaining staff, developing partner-potentials and/or profitability, does the buyer truly have the management expertise to fix these problems?
  10. the seller’s partner group is not cohesive, and there is no accountability. is the buyer willing and able to whip these partners into shape?
  11. one or more key partners at the seller have an urgent need to leave, for health or other reasons. is an exit strategy in place?

how to make your firm attractive to buyers

  1. have a niche or a specialty. some buyers are interested in niches they currently have, while others prefer specialties they don’t yet have. generalist firms are less attractive, but because most small and medium-size firms are generalists, it’s not usually not a huge detriment.
  2. a major reason buyers look to merge with sellers is to buy talent, at both the partner and staff levels. if your firm has a number of bright, young, experienced staff, you will be much more attractive than firms whose partners do everything, are close to retirement and have never done well developing people.
  3. have nonsolicitation agreements in place, with both partners and staff members.
  4. the better your performance in key areas such as profitability, billing rate, productivity and realization, the more attractive you will be. two kinds of buyers look to merge in smaller firms:
    • firms that prefer to merge in sellers with few glaring problems. this is the more common preference.
    • firms that are confident they can take an underperforming seller and transform them into a better performer with the buyer’s superior management, marketing and systems capabilities. this is the less common scenario. many buyers are not interested in underperforming firms because they have plenty of opportunities to merge in good performers.
  1. minimize your office lease obligation. the vast majority of buyers (a) are not willing to absorb the seller’s office lease and (b) want the seller to move into their office, making the seller’s office lease superfluous.
  2. if all or most of the seller’s partners want to retire shortly after the merger, the buyer will be concerned about client retention. to counter this, it’s best to have younger partners who will help retain clients. at the same time, older partners who want to continue working well past 65 are a turnoff to many buyers.
  3. have plenty of business clients; they are much better candidates for cross-selling. buyers don’t like bringing in lots of low-margin work such as payroll taxes, small or standalone 1040s, and low-level write-up work.
  4. it’s better to have fewer clients with larger billings than many clients with low billings. at the same time, larger firms can be scared away by a seller that’s overdependent on a small number of huge clients.
  5. be clean:
    • current in billing out wip and receivables
    • free of huge wip write-offs and/or bad debts
    • current internal documents and records in decent shape and well-organized (financials, time and billing, etc.)
    • reasonably current in the use of technology
    • free of malpractice problems and glaring deficiencies in work quality
  1. be free of “weird” personal practices by the partners, such as regularly starting work at 11:00 a.m., refusing to prepare timesheets and spending 15 weeks a year working from a second home halfway across the country. i have seen all of these situations, and they are turnoffs to buyers.
  2. resolve issues of dirty laundry and sacred cows.
    • if your firm is carrying underperforming partners, many buyers won’t want to bring them in as partners. they may not want to hire those partners in any capacity.
    • if your partners operate as lone rangers (never delegate, work alone, don’t tell anyone where they are going or when they are coming, no one else knows their clients, etc.), you probably won’t fit well with larger firms.
  1. have realistic attitudes about your roles in the new firm.
    • you may not have much, if any, say in management.
    • partners responsible for a certain function at their old firm shouldn’t expect to have similar duties at the buyer.
  1. be willing to be accountable for your behavior and performance.

what’s negotiable and what’s not

the degree to which merger terms are negotiable is often determined by the relative size of the two firms. generally, the larger the gap in firm size between buyer and seller, the fewer items are open to negotiation, as illustrated below:

 type of merger  sample firm sizes  what is negotiable
 larger firm  smaller firm
 merger of equals or close to equal  $5 million  $5 million  everything
 $6 million  $3 million  most items*
 buyer is bigger but not huge  $5 million-$10 million  $2 million-$3 million  some things, but not major issues such as management, quality control and software
 merger of seller with much larger firm  $20 million+  $2 million-$5 million  very little


* one of the major nonnegotiables will be how the combined firm will be managed. the larger firm will want to dominate the new firm’s management.


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