The Biggest Reason Accounting Firm Mergers or Sales Fail
Grading a successor for your accounting firm is much like grading a diamond! It’s all about those fabulous four C’s.
Now we are not talking about Cut, Carats, Colour and Clarity; instead, we are interested in Chemistry, Capacity, Culture & Continuity!
But, before we launch into these, it’s important to remember that when considering a successor, we need to consider not just replacing a person, or persons, but the role that that person/s perform on every level. Therefore, before jumping to assessment, you need to do a review and understand exactly what it is that you are replacing. Importantly, these could be technical, managerial and interpersonal skills.
Chemistry
As a simple rule of thumb, if you would not voluntarily enjoy a round of golf spending some social time with someone, then don’t sell your firm to them! Remember, most of your clients stay with you because they like and trust you. So, if you don’t like or trust the person you are evaluating, then why should your staff or clients? Even a well-managed sale or merger can be stressful, so it helps when you are dealing with people you like and who like you.
Capacity
So, if you plan to slow down or eventually retire completely, does your planned successor have the capacity to take on the work and role gap? If they don’t have the capacity, do they have a credible plan to acquire it? When considering this, it is important to evaluate the management capacity of the people you are dealing with and their track record. Depending on the size of your firm it is often worth considering the size of any prospective purchaser. Ideally, they should be somewhat bigger than you are and be able to demonstrate competence with buying or merging firms.
Culture
Yep, this is a big one… This is how you see and define yourself, and hopefully who you are. It’s that intangible quality that separates working at one firm opposed to another, based on beliefs, values, social norms and the material traits of the firm. In practice, these will be displayed in:
Work ethic – Are you both 9-5 firms or are you pulling 60-hour weeks?
Organisation –Are your firms systemised and focused on procedure, or informal? Are you commercially disciplined in billing WIP and collecting debtors, or casual?
People – Are you personally sensitive to the needs of staff and invested in their success and wellbeing?
Quality Standards – Are they are match in both form and substance? Is the balance between quality and commerciality right between the parties? In addition, what about the tolerance for risk?
Business Style – Are you all for one and one for all, or a catch and kill silo-based firms? Are you equally commercial or egalitarian? Do you share clients and cross sell services? Do you do any marketing at all?
Continuity
In this context we will define continuity as the absence of change critical to the prior and ongoing success of the firm.
Change can be tough, but it’s not all bad, so in evaluating someone who you are considering in the context of buying your accounting firm it’s not a question of will there be any change – there most certainly will – but whether those changes represent a threat to the continuity of factors critical to success.
Behind the scenes changes, like new and improved software, are often beneficial and not a disruption to continuity. However, going from having clients serviced regularly by partners to servicing them annually with juniors is a very different proposition!
So, before you start talking terms or money, concentrate on fit and the four C’s…. you won’t end up with a cloudy mess.
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