{"id":98091,"date":"2022-07-28t12:00:19","date_gmt":"2022-07-28t16:00:19","guid":{"rendered":"\/\/www.g005e.com\/?p=98091"},"modified":"2022-12-22t00:39:50","modified_gmt":"2022-12-22t05:39:50","slug":"why-merging-in-smaller-firms-is-fabulous","status":"publish","type":"post","link":"\/\/www.g005e.com\/2022\/07\/28\/why-merging-in-smaller-firms-is-fabulous\/","title":{"rendered":"why merging in smaller firms is fabulous"},"content":{"rendered":"

\"businesspeople<\/a>eleven reasons to do it.<\/strong><\/p>\n

by marc rosenberg<\/i>
\ncpa firm mergers: your complete guide<\/i><\/a><\/p>\n

if an opportunity to merge in an attractive smaller firm was presented to you, would you be interested in pursuing it?<\/p>\n

my guess is that at least 90 percent of all cpa firms would answer this question with a resounding yes! (and a healthy percentage of the remaining 10 percent perform at such high levels that they cannot conceive of merging in a smaller firm whose performance falls well below their own high standards.)<\/p>\n

more: <\/b>selling your firm? what to expect<\/a> | thirteen ways to woo potential firm buyers<\/a> | 13 reasons to merge up<\/a> | merger? the 100 data points you need first<\/a> | one times fees isn\u2019t the only way<\/a> | thinking merger? first ask why.<\/a> | why do you want to merge? be honest.<\/a> | four reasons to fear a merger<\/a>
\n\"goprocpa.com\"exclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n

why is this? the short answer is that it\u2019s a great deal, both financially and operationally. it\u2019s an almost can\u2019t-lose proposition, as long as you do it right.
\n
\neleven reasons to merge in smaller firms<\/strong><\/p>\n

    \n
  1. it\u2019s a great growth strategy.<\/strong> for many firms, it\u2019s easier to buy clients than to generate them internally. most cpas admit that they don\u2019t like business development and aren\u2019t good at it. so any strategy that lets them skip business development is a strategy to love. indeed, i have worked with many firms over the years whose primary growth strategy is to merge in one small firm after another. and they are perfectly content with this.<\/li>\n
  2. it\u2019s a great investment.<\/strong> if you calculate the return on investment (roi) of acquiring a cpa firm, the yield is an astonishing 30 percent to 70 percent, depending on the facts. the main reason for this high roi is that the cpa industry has saddled itself with a notion that paying one times fees for a cpa firm, or even a small premium on one times fees, is reasonable. the fact is firms should be selling at 1.5 to 2 times fees because they are worth it. but 90 percent of firms are sold for 80 percent to 110 percent of annual fees. if you do the math, that\u2019s a steal.<\/li>\n
  3. it acquires talent.<\/strong> the most difficult problem facing cpa firms for quite some time has been the shortage of talent, especially young talent, at both the partner and staff levels. many firms value the personnel they obtain in a merger as much as they do the acquired clients. the larger the buyer, the more likely it is that acquisition of talent is the #1 motivator for doing mergers.<\/li>\n
  4. it can obtain a new service, niche or specialty.<\/strong> this is a huge motivator for buyers, even more so in recent years. larger firms understand the power of service diversity and specialization, so they jump at the chance to acquire this expertise. unfortunately, smaller firms rarely have well-established niches and specialties.<\/li>\n
  5. merging in a cpa firm is low risk regarding cash flow. <\/strong>virtually all deals are structured so that buyers pay the sellers, over a period of years, based on collected revenues from retained clients of the seller. therefore, there is relatively little cash-flow risk to the buyer. as some put it, buyers pay for acquisitions from the seller\u2019s own money!<\/li>\n
  6. merging in a cpa firm is low-risk regarding integrity. <\/strong>cpa firms are very high on the integrity scale. though there are certainly variations in the quality of work from firm to firm, it\u2019s extremely rare to find a firm whose work quality and ethical standards are so low as to create an uncomfortable amount of risk for the buyer.<\/li>\n
  7. it fills a geographic void. <\/strong>this is much more typical of large regional firms that have exhausted the list of merger candidates in their own backyards. acquiring a firm in a target market is a great way to gain a foothold. advancing technology makes it easier for a buyer to manage a firm outside its own geographic location.<\/li>\n
  8. mergers enable buyers (and sellers) to afford \u201cbigger firm things\u201d sooner.<\/strong> some refer to this as building a critical mass. larger firms are better able to afford a sophisticated, expensive management structure that includes marketing plans, high-level administrators, university-style training, high-profile staff recruiting and others. smaller firms struggle to afford these features. so a $7 million firm that becomes $10 million overnight with a $3 million acquisition finds itself in a position to operate like a bigger firm.<\/li>\n
  9. it\u2019s a great way to build the client base of a new partner. <\/strong>when some firms promote a manager to partner, it takes a while to build up a decent-sized client base. this process is speeded up when the buyer acquires the practice of a retirement-minded seller and assigns the clients to new partners.<\/li>\n
  10. it\u2019s a buyers\u2019 market.<\/strong> the aging of baby boomers has resulted in an avalanche of mergers fueled by the retirement of partners. we were all taught in economics class that when supply exceeds demand, it becomes a buyer\u2019s market, and that is what is happening in the cpa industry today. buyers have more to choose from. they can cherry-pick their merger partners and in some cases reduce the purchase price.<\/li>\n
  11. it makes more money. <\/strong>put all these reasons together and the result is higher profitability for the buyer. multiple studies of cpa firm metrics consistently show that bigger is better: the higher the revenue, the higher the profitability. this doesn\u2019t guarantee that higher revenues will translate to greater profits, but it usually works out that way.<\/li>\n<\/ol>\n

    what larger firms should expect<\/h3>\n

    though it\u2019s not universally true, larger firms will find many aspects of smaller firms to be below their standards. buyers need to ask:<\/p>\n