plus nine more considerations.
by marc rosenberg
cpa firm mergers: your complete guide
when checking out a downward merger candidate, do your due diligence.
more by marc rosenberg
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here are the first 16 major issues to consider:
- culture and personality fit.
- why do they want to merge? will you be able to deliver?
- why do you want to merge with this firm?
- what are their weaknesses and can you live with them?
- are they profitable enough?
- after they merge with you, what level of profitability can you reasonably expect? do you feel you can increase their profitability by increasing rates, decreasing overhead, cutting back their people, making them more efficient with your systems, etc.?
- if you are able to make them more profitable, how will you split these extra profits with their partners?
- can their people successfully undergo an “ego-ectomy”? this is especially important if you run a “tighter ship” than they do.
- what are their partners used to producing? look at billable hours, realization, when wip is billed, when receivables are collected, total work hours and activity in practice development. are these aspects of performance compatible with your culture?
- what are their staff used to producing in terms of billable hours, total hours, billing rate, realization, etc.? can they change?
- if their office will be a separate office from yours, how will it be managed and controlled?
- do they have any clients that you don’t want any part of? do they provide services you don’t want any part of?
- review their client list carefully. schedule out the 20 percent of their clients who comprise 80 percent of their fees. what types of services are provided? how frequently throughout the year? clients’ owners’ ages? how many years have they been a client and how much longer will they be clients before they sell or retire? are there any known reasons why some of the bigger clients may be leaving (sale, bankruptcy, merger, etc.)?
- is the partner compensation they are looking for compatible with your system?
- what kind of a buyout are they looking for? is it reasonable? will you pay it?
- don’t inherit their dirty laundry. examples: underperforming partners or staff, malpractice problems, a “sacred cow” admin person, obligations to departed partners, etc.
additional considerations
- what perks are they running through the business that won’t be acceptable after the merger?
- are their billing rates compatible with yours?
- are there any cross-selling opportunities? services you provide that they don’t, that can be provided to their clients and vice versa?
- is their mix of services the kind you want (audit write-up vs. small 1040s)?
- what is the extent of their tax season compression? if heavy, how compatible is this with your firm? will it throw your firm into chaos, especially if their staff doesn’t stay?
- what do you think of their staff? will they fit in? is their work up to your technical standards?
- what’s their current office lease situation? will this be a problem?
- do any of their partners engage in outside activities that could present problems? this could include investment in clients, outside businesses they own, excessive vacations, unusual office hours they keep i.e coming in late, working a lot from home, etc.
- what software are they using? how compatible is it with yours? if their software is different, will there be problems converting?