Questions to Ask When Merging or Selling Upward

by | Nov 16, 2017 | News

Questions to Ask When Merging or Selling Upward

This document is intended to help a CPA firm size their potential fit. When merging or selling, it is normal to go into a larger firm. Problems can arise if the firm has material differences or gaps based on what your practice is like today. This document identifies some questions to ask that could be deal killers, so you can identify them early in the process. Examine the drivers behind the deal. Why do they want you? Are they a fit for you?

Some Key Questions

You need to compare your numbers/data to the firm you are considering merging into or getting acquired by.

  1. How much larger is the firm you are considering?
    Is it twice your size? Is it a regional, national, or international firm? It is a tough move for a small to mid-size firm to integrate well into a very large firm. Why? Firm economics, culture, expertise, and staff’s desire to work in a more personalized firm are a few considerations.
  2. What are the billing rate differences?
    $175 per hour is not going to mesh well with $300 per hour. Hourly and fixed billing rates are considerations as well. Will your new firm allow you to fix price and if so, will current fixed fee agreements require increases?
  3. How many 1040’s does your firm do?
    A $1,000 average 1040 fee is hard to combine into a firm with a $2,000 average. Are there stated minimum 1040 fees and if so, what is the 1040 minimum for the firm you are considering? What percentage of revenue comes from 1040 clients? If it is a larger percentage, that may not align with your potential new partner.
  4. Does your client base align?
    What percentage of your revenue is made up of $1M to $10M clients? $11M to $20M, etc. If the new firm’s sweet spot is $50M on up, how many of your clients fit that space? Fee gaps point directly to the type of clients being supported and those clients will not take well to material fee increases.
  5. Why do they want your firm?
    For the location? A service or industry niche? Staff? Succession? If a much larger firm wants to tuck you into their existing location that eliminates geographic expansion. Geographic expansion can tolerate a larger fee gap.

Why These Questions Are Key

Every firm has a culture composed of items such as the type of clients served, billing rates, pricing strategies, internal skills, dress code, and how they operate the practice. These are some reasons staff and clients stay and these traits are not always portable firm to firm. The acquired/merged in firm needs to conform to the processes and billing standards of the bigger firm. If gaps are too wide or work styles vary significantly, you need to be prepared for partners, staff, and clients to leave or be shed by the larger firm.

If You Have Additional Questions

Please contact Bob Lewis at 800.995.9186. We will spend as much time as needed to talk through the CPA M&A process.

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