The window is closing on a the sellers' market for good CPA firms. You don't want to be left out.
by Rick Telberg
At Large
A rosier economic climate and a general optimism among CPAs may be fueling a mergers-and-acquisitions binge among accounting firms unseen in years.
And it might be a good thing too: Because long-time observers suggest this seller's market may last only a few years.
In my continuing study of the M&A market for CPA firms, I'm finding a new positivism about the future that that is almost palpable. For instance, my contact with almost 300 CPAs in the last week alone convinces me that 85 percent of CPAs, particularly those in firms, feel good, or even excellent, about the prospects of the profession. And almost as many feel as optimistic about their firms in particular and the market for their services in business or industry.
But it takes a special breed of CPA to see the potential and seize the opportunity. Just ask Jonathan A. Karp, an attorney and CPA in Los Angeles who specializes in succession issues for CPA firms.
"I see this as an extremely active area, becoming more active over time," Karp says. "Many firms have not created an internal succession plan or don't have a second tier of partners able to assume management, operation and vision for the firm. So the partners have no alternative but to sell or merge."
"Buyers, on the other hand," Karp says, "are very actively looking for acquisition/merger targets in order to grow their practices and thus are very interested in locating firms to acquire."
Most partners are quick to acknowledge that their biggest problem is finding, hiring and retaining good staff.
"What is unacknowledged," Karp warns, "is the No. 2 'stealth' issue facing firms, which is the lack of a viable succession plan, either in terms of having qualified 'second tier' or junior partners to succeed the senior partners in firm management or the absence of a viable, financially responsible and feasible succession plan to buy out retiring partners."
Unless firms wake up and face the looming issues of succession and unfunded retirement liabilities, there will be a major change in the accounting firm environment in the next 10 years, Karp says.
"More and more of these firms will be looking to sell to other firms or merge their firms into other firms," according to Karp. Those firms who are not ahead of the game and don't start the process now may find themselves left in the cold, since the firms looking to buy practices will have already done so and may be reluctant to absorb further practices."
What must firms be doing today to survive tomorrow?
Here's my advice:
1. Get on the cutting edge of technology.
2. Build a niche. Some of the hottest niches right now are in low-end accounting software, investment management, business valuation, and estate planning.
3. Hire competent staff, train them, and treat them like you mean it.
4. Pin down your succession plan. It's not easy. It requires a hard look at what you really want out of life.
5. Give yourself time because it's a long process.
6. Get started now.
This seller's market won't last forever. By my estimates, one quarter of firms is looking to sell, a third is looking to buy and another quarter is expecting to grow organically.
What happens when all the good firms get bought up? You won't want to know.
