M&A – A smart business model for smart accounting firms
By Ira Rosenbloom.
Accounting firms consistently demonstrate that they are reliable and robust businesses. The potential inherent in the accounting practice is so great that not only have other companies attempted to roll companies in recent years, but private equity groups are now investing heavily in the industry.
The activity of chartered accountancy is of great interest to potential investors because the company is a path of growth and control. As such, the more companies see themselves as companies and behave as such, the more value they will receive and the more potential attention they will receive.
Most CPA firms want to improve their model like Corporate America, looking for ways to improve processes, boost efficiency, attract more clients, and build talent. A common path American companies are taking to grow is to make mergers and acquisitions a standard part of their business plans, as the combinations of practices are ripe with opportunities to help generate business advantage.
There’s a reason why, according to a KPMG study, “2021 has been a bumper year for M&A,” even surpassing pre-pandemic M&A levels. Businesses around the world are looking for ways to stay strong and keep running.
While mergers and acquisitions have long been a means of succession for accounting firms, a combination of firms can be a bold and entrepreneurial business venture in the hands of smart CPA firms looking to achieve business-like benefits other sectors. Consider these five benefits accounting firms can derive from mergers and acquisitions:
Mergers and acquisitions make a company more competitive. Companies are always looking for ways to outperform, prevent or undermine their competitors. A large combined company often has more services and talent to offer larger customers and therefore becomes more attractive. Additionally, accounting firms often consolidate through mergers and acquisitions to specifically “lock in” a geographic area or move into others. This can be used as a strategy to eliminate competition Mergers and acquisitions lead to growth in services Some companies merge to improve the services offered to customers. Introducing a firm’s most profitable services to new clients has a quick and profitable impact. If firms have different but complementary skills, the entire client base can benefit. The best types of mergers focus on improving service offerings for customers M&As create talent A large company can justify adding new experts to the team with their salary requirements. And more qualified talent equates to additional service, higher billing, and increased confidence in the business. This creates more opportunities for emerging partners as it is difficult to justify a partnership path if the profitability of the business is low. Any good company is always on the lookout for good talent Mergers and acquisitions attract big customers and fees Some customers seek special attention – and a bit of prestige – from companies that are now big players in the field. A newly merged company offers a certain prestige to large clients who are looking for more attention and more ideas to improve their businesses. In the same vein, the trend of industry-wide mergers and acquisitions creates an opportunity for mid-sized companies seeking larger customers. Clients dissatisfied with their current, already integrated mega-firms seek highly tactile services These clients are sometimes dissatisfied with the growth strategy of the mega-firm and start looking for a suitable accounting firm to provide the services and attention they wish. Mergers and acquisitions drive efficiency. Team members perform better and perform services faster when these services are integrated. Processes are streamlined. Technology is shared and better used. There is widespread enthusiasm for value-added invoicing. Here’s an example: If a firm is auditing an industry, adding 10 more audit clients to that industry improves the team. They are more efficient in auditing. Team members become true experts, which can equate to increased profits.
Of course, mergers and acquisitions cannot be done informally. Companies looking to merge must have a plan, a process, and a series of protocols and controls that they would put in place for any other business opportunity.
However, mergers and acquisitions can be extremely beneficial to companies looking to increase profitability and create longevity and sustainability for their practice, team members and clients.
Ira Rosenbloom is Chief Operating Officer of Optimum Strategies.
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