Transitioning Clients Through Your Merger Or Acquisition

The key measure of a deal’s success is client retention. To plan for the highest level of retention possible, start by considering why you have your clients. Most are unaware of your competency level. You are their most trusted business adviser and this trust can be taken advantage of, in a professional and ethical way, and should not be feared.

How Can I Start My Succession Plan But Not Give Up Control Or Income?

Most of us in firms with less than 5 or 6 partners realize our clients are partner loyal, not brand loyal. We are also confronted with the reality that we see our clients in person less and less each year as they mail in work, are on the cloud (or will be), staff pick up the work… thus when someone says they are 5 years from slowing down, it seems like an eternity, but the hard truth is that may be only 5 in-person visits for the majority of your clients.

When Should A Small Practitioner Merge Into A Larger Firm?

Succession: Most smaller firms do not have a succession solution internally. For those firms, it is an obvious and important matter to secure your succession with an external firm.

Cross selling, growth. There are many niches out there and many smaller firms have clients that may be receptive to certain niches but lack the time, knowledge, capacity and, or licenses to deliver. Also larger firms may enable you to attract additional clients.

Back up, security. Many small practitioners fear the risks associated with short and long term disability, death, the desire to go away on a vacation and have someone watching the fort.

5 Biggest Reasons Mergers Fail

1. Ego. Normally this is manifested in unwillingness on the part of the partners in both firms to adapt to the new way of doing things required to make a merger work.

2. Culture. While the larger firm’s culture usually primarily survives, adopting features of both firms’ cultures will normally lead to a better environment after the merger.

3. Change. Instituting change slowly wherever possible will lead to less impact on clients and staff and can help maximize the retention of both types of constituents. Mergers without high levels of staff and client retention often are not successful.

4. Inadequate capacity. In mergers where some partners or critical staff members may soon be leaving due to retirement or succession, or where there is planned staff attrition, professionals need to be replaced soon after the merger is effective. If the successor firm lacks the existing excess capacity to handle the new requirements, and fails to execute on its plan to acquire new resources, in most cases the deal will eventually fail or at least struggle.

5. Communication. Management teams that fail to fully communicate to the combined team the rationale for the transition plan, what is expected, and how to obtain help when it is needed may find people not executing the plan and resentment building.

4 Critical Things Your Partnership Agreement Should Have That Most Do Not

1)      A cap on a percentage of the collections that can be paid to retiring partners for their buyout in any one year. While retired partners' buyout payments should be made, the survival of the firm is the prevailing factor. If the firm doesn’t survive, the payments go away permanently.

Small firms may use a cap as high as 20% of gross revenues, large firms as low as 3%. The cap may be a higher percentage but based on net before partner draw as well. This cap doesn’t mean the retired partners lost the money, it simply means in the unlikely event the payments exceed this threshold, the excess is deferred to the subsequent year

2)      A notification period where a partner must give, for example 2 years notice, prior to their intent to retire. This is especially true for firms that have fixed retirement compensation and or have partner loyal clients as opposed to brand loyal. This notification should trigger a transition plan that moves the relationships to the successor of each client. Penalties for lack of notice could include lower compensation or an addition of a retention period wherein if clients are lost the first two years after a partner retires; their compensation is adjusted prorata.

3)      A limit to how many partners can retire within a reasonable time period such as 1 or 2 years. The larger the firm, the more that can. For example a 5 partner firm will find it more than challenging on many levels replacing 3 partners simultaneously.

4)      A partner buyout formula that makes sense. We don’t tell our clients to buy a business and lose money for 5 years, we can’t tell our partners to either. The below link brings you to an article published in the CCH Practice Management Forum that walks you through how to value equity when selling to partners in larger firms. Many of the lessons will translate to smaller firms as well, especially the litmus test it teaches you to ensure your formula works!

http://www.transitionadvisors.com/articles/succession_planningvaluing_partner_equity_in_larger_firms_cpfm_12_09_copy1.pdf

Bridging Compensation Gaps In Mergers

Joel Sinkin, President, Transition Advisors, LLC and Chris Frederiksen, CPA joined forces to write an article on "Bridging Compensation Gaps in a Merger" for the Journal of Accountancy.


Please click below to read the article in it's entirety:


http://www.journalofaccountancy.com/Issues/2012/Jan/20114438.htm

Tax Season Marketing Webinar

Please join us for a FREE webinar on Tax Season Marketing.

Speaker: Lon Goforth, Managing Director Transition Advisors, LLC
Date: Tuesday, January 10, 2012 or Thursday, January 12, 2012
Time: 2:00 to 3:00 pm EST