eighteen stumbling blocks to merging in smaller firms

fortunately, they all can be overcome … if everyone is willing.

by marc rosenberg
the rosenberg practice management library

though not universally true, larger firms will find many aspects of smaller firms to be below their own standards.

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the questions that the acquiring firm needs to ask are:

• how severe are these weaknesses?

• can the smaller firm be re-engineered? can they change?
• are they willing to change?
• do we have the patience to make the turnaround?
• do we have the expertise to make the turnaround?

larger firms should expect to find the following situations present at smaller firm merger candidates. the common thread to all 18 items is that they are all “fixable.”

1. little or no accurate timekeeping. this is much more the case with firms under $1 million than over. small firms have the mentality that they will do whatever it takes to bring in revenue. as a result, they are unconcerned about the time it takes to service clients, thereby producing time records that are subpar. they also tend not to record billable time if they know the work can’t be billed.
2. partners working in the business, not on the business. partners do a lot more staff-level work at small firms than at larger firms. they pride themselves at being “working partners” or “hands-on” partners.
3. weak client-acceptance procedures. the saying about small firm client acceptance procedures goes something like this, tinged with a bit of sarcasm perhaps: smaller firms will accept any prospective client with a pulse. generally speaking, smaller firms find it quite difficult to bring in clients, so they can’t conceive of rejecting or terminating any client.
4. small firms have “small firm clients.” high number of low-value 1040s. more individual clients; fewer businesses. fewer large businesses. more write-up work; fewer audits. less consulting.
5. weaker staff. staff at small firms tend to be dominated by paraprofessionals and “older” staff lacking both the desire and the talent to become partners. no firms find staff recruiting easy. small firms find it nearly impossible.
6. lower work standards. not necessarily low, just lower than larger firms. almost every small firm merged into a larger firm goes through a process of bringing their work up to the standards of the larger firm.
7. lower profitability. generally speaking the smaller the firm, the lower the profitability. this presents the acquiring firm with a great opportunity to increase the smaller firm’s profitability.
8. lower skill level of partners. it’s likely that some partners at a $2 million firm would not meet the criteria to be a partner at a $5 million firm. partners at a $5 million firm might not meet the partner criteria of a $15 million firm. and so on. larger firms invariably find themselves thinking long and hard about whether to make all the partners of the acquired firm partners at their firm.
9. management style at small firms is more likely to be “loosey-goosey.” partners at small firms say apocryphally: “i never saw a policy or procedure that i couldn’t violate.” these partners are used to being kings of their realms and don’t take kindly to someone “telling” them what to do, even if it’s a policy that they themselves agreed to. will these partners fit in with your firm?
10. bad habits taught to clients by small firm partners. as we said earlier, partners at small firms are desperate to bring in business and keep the clients they have. they fiercely avoid any semblance of conflict with clients. this often translates to lax billing and collections. larger firms should expect to see many clients of smaller firms paying their bills very late because this practice was allowed for many years.
11. small firm partners work so hard that they struggle to devote the necessary time to the merger. larger firms should expect and plan on delays at most steps along the way.
12. small firm partners never want to retire. their practice is their life. they don’t want to give it up. larger firms should make sure that expectations for when the small firm partners retire are crystal clear.
13. small firm partners are control freaks. this is especially true of sole practitioners.
14. small firm partners don’t do much proactive practice development. don’t plan on them contributing much to developing new clients.
15. small firms often have sacred cows. these are longtime personnel who have a privileged, virtually tenured position with the owners due to their longevity and loyalty to the firm. but time often erodes their skills and a merger partner may not find these people worth retaining.
16. low level of computer proficiency. a generalization, but unfortunately, it’s true in many cases. larger firms should be prepared for a shockingly low level of computer knowhow at smaller firms.
17. non-compete agreements with the staff. it’s very rare for firms under $3 million to have signed non-compete agreements with their staff. be prepared for this and in your due diligence, try to determine if any staff plan to leave and take clients with them. if you hire the seller’s staff, make sure you get them to sign non-compete agreements and remunerate them for this.
18. no accountability. partner accountability can be elusive at larger firms, so it’s no surprise that accountability is virtually non-existent at smaller firms.

posted on february 3, 2026