A version of this article first appeared in the Journal of Accountancy’s CPA Insider™ by Brannon Poe, CPA
CPA firms will have more opportunity to grow through acquisition with more and more of the Baby Boomer generation approaching retirement and selling off their accounting firms.There is a lot of information in the accounting profession about succession planning for those on the sell-side of the transaction. Buy-side planning doesn’t get as much attention, but it is just as critical to making these acquisitions successful.
This article examines the most common internal obstacles that firms face when acquiring other CPA firms and offers tips and possible solutions. For firms that want to expand, finding strategic solutions to these potential roadblocks can greatly impact post-close results. Before deciding on purchasing an additional CPA firm to grow your business keep these four tips in mind.
1: Be Clear on Intentions for CPA Firm Growth
To make smart acquisitions, it’s imperative to know why you want to grow. Creating clear goals will significantly increase the likelihood that you will seek out proper acquisition targets. There are a variety of reasons for making the decision to purchase an additional accounting firm.
Reasons to acquire CPA firms:
- To acquire specific talent that can help you add or expand your current offerings in a practice area such as estate planning or investment banking.
- To provide firm staff or partners with opportunities to advance to the next levels of leadership.
- To establish a presence in a particular target market.
- To scale past certain natural difficult growth points in a firm’s growth trajectory. (This is very common for firms in the $1 million to $3 million revenue range.)
Your goals need to be clearly articulated before your accounting firm search begins. Otherwise, you risk wasting time in your search or even buying the “wrong” practice, which is far worse than buying no practice at all. Picking the wrong target can create more work for very little additional short-term profit.
2: Prepare & Plan Before the Acquisition Takes Place
Once you have clear firm acquisition goals, perform a (slightly modified) SWOTT analysis to document your firm’s strengths, weaknesses, opportunities, threats, and timing. (I added the “timing” consideration to the traditional SWOT analysis, because timing is everything. You’ll need adequate time to position your current firm for an acquisition before an actual purchase.) This analysis should help you identify the implementation steps that you need to take. These can include changes in billing/pricing, pruning ( discussed in greater detail below), and creating capacity where needed (also discussed below).
3: CPA Firm Acquisitions Do Not Solve Problems
Acquiring a new accounting firm does not solve existing problems within your firm that are created by poor management. In fact, it will probably amplify those management problems. Before expanding on any business, you want to ensure the current infrastructure is sound. A CPA firm that is struggling or is not consistently performing to standards will not be able to thrive through expansion.
4: Ensure You Have Adequate Capacity for Firm Acquisition
This is the biggest obstacle that we see accounting firms encounter. CPA firm owners often sell because they want to stop practicing. This raises the obvious question: Who is going to do the owners’ work after the sale? If you are acquiring a firm, you need to have significant capacity or your client-service will suffer. You will experience a dip in results, which can lead not only to client losses but also to critical staff losses. Head count is absolutely key!
Creating the Accounting Firm Capacity You Need:
- Prune your current practice: Let go of your under performers, including unprofitable clients, entire lines of service, underperforming staff, underperforming offices, even partners. Pruning can significantly free people up to do more, higher-value work (or, when it comes to staff, allow you to hire a replacement who is more productive—thus creating additional capacity).
- Improve your management systems: This type of efficiency probably won’t get you much more capacity, but it can offer incremental improvement and may help you attract better talent.
- Hire the talent you need:Whether they’re experienced people or entry-level professional staff to support your experienced staff, hire the talented accounting professionals you need.
- Acquire a firm with the talent you need: This is challenging, and rare, but sometimes making a small, targeted acquisition for specific talent can give you additional capacity for a bigger acquisition later on. (Sellers, take note: having excellent talent in your practice will increasingly be one of the main drivers of firm value.)Being strategic about growth and having the right team in place are keys to successful acquisitions. Given the demographic trends in the profession, creative leaders who adhere to these acquisition rules will be able to grow their firms significantly in the coming years.
If you are ready to grow your CPA firm through acquisition, Poe Group Advisors can help. Poe Group Advisors is the premier accounting practice intermediary firm in the industry. We have a passion for people and unmatched expertise, our team of experts has a deep knowledge of the accounting industry and an intense focus on maximizing value or minimizing risk. Learn more about our current CPA firm listings.