Know Your Limitations

Last week I was speaking with one of our clients in the New England region who was in the market to acquire a “tuck-in” practice – an industry term for a practice that can literally be tucked in to an existing firm without taking additional space.

And as luck would have it, a seller firm fitting his wish list description had come across my desk just the week before.

It was a two-partner firm within reasonable commuting distance, generating just over $1 million in revenue with each owner looking to slow down between three and five years.

On paper it looked to be what we proverbially refer to as the “round peg in the round hole.”

So when I attempted to arrange a meeting, the owner of the buyer firm said that he could only entertain meetings after the 10-15 deadline because he was “knee deep” (his term not mine) in returns.

On a scale of 1-10 with one being the worst, this was a response that at its most generous rated a 3.

Why?

Breaking from Tradition

It probably comes as a surprise to exactly no one that accountants are not the first on line to adopt the C word – “change.”

Whether it’s new strategies or technologies, their idea of venturing out into unchartered waters is substituting a green tie in place of a brown one.

In many cases, “glacial” may be the word that best described the pace of change in the profession.

There are three ways to grow in this business. 1. One client at a time or what is known as “organic growth.” 2. Merge with another CPA firm. 3. Begin a new client service line.

But with the advent of profession-altering trends such as blockchain and robotics promising to revamp the accounting process as we have traditionally known it, there will be significant changes afoot – whether the profession is ready or not.

Like I warn attendees at many of the sessions I present – this is not your father’s accounting firm.

Not Letting Go

The other day I received a call from a client of ours who inquired about de-mergers. Apparently he brought in a sole practitioner about 18 months or so and during that time, the mergee has not lifted a proverbial finger to begin transitioning his clients.

Needless to say it’s been a frustrating year and a half for our client. He found the seller firm through another advisor – obviously one who simply matched two firms together and disappeared during the drafting of the contract.

I told him yes, we occasionally do help clients with a de-merger but we’re not particularly fans of it.

Here’s why.

Out of His Depth

Years ago, a workout partner of mine told me something that to this day still holds true.

“You will meet some of the nicest people while at a gym and some of the strangest.”

Some three decades later I have never encountered anyone at the 10 or so health clubs I’ve belonged to over that span who disputed that point.

Lou is a case in point. A mustachioed curmudgeon in his late 60s there is arguably no member in my current gym of 3,500 who is more dedicated to exercise than Lou.

Each day he comes at roughly 8:30 am and leaves nearly three hours later after taking several group fitness classes and then working out on his own.

Lou is also perhaps the world’s biggest skeptic when it comes to everything from government to Wall Street. He is convinced the system is rigged for the 1 percent (this despite his being an attorney for one of the world’s most well-known Fortune 50 companies).

And don’t even bring up the subject of accountants and financial planners. Apparently he once had a CPA who felt the most telling barometer of his skill was to get Lou the largest tax return he possibly could. You can imagine Lou’s surprise when he received a letter from the IRS several months later informing him of a pending audit.

Ditto for a financial planner who told Lou that he could no longer manage his portfolio as he was leaving the business to pursue an MBA. Only later did Lou learn that MBA was an acronym for “Mexico, Brazil and Argentina.”

So with a pedigree like that you can imagine his ill will toward the profession.

Sour “Apple”

Just when you thought it was safe to go back in the water…

Pardon the shopworn cliché, but today’s missive amplifies why cyber security and security surrounding personal information in general is one of the most in-demand client service niches in the accounting profession.

Some of you may recall several months back I reported receiving a series of sham phone calls from folks claiming to be from the IRS who warned me that I owed a large amount in unpaid taxes. If I didn’t tender X amount immediately I would be subject to “severe” (their term not mine) legal action.

Of course having covered the profession for 12 years I at least knew that the IRS never calls, rather they send you a letter. So as you can imagine I had a lot of fun when I called the number they left and proceeded to skewer the fraud on the other end of the phone.

But I did think that once tax season done, the calls claiming that I owed a large debt to the IRS would cease.

Well the IRS calls did indeed stop, only to be replaced by ones purportedly from Apple. Yes that Apple.

CPA Makeover

With all the conversation about weather-related events in other parts of the country, the Northeast has experienced what is known as an “Indian Summer” – with temperatures reaching in the mid-80s at the end of September. In fact, I established a personal record by re-starting my air conditioning the first week of October.

So taking advantage of sunshine and abnormal temperatures, I took a long walk the other day and noticed one of my neighbors speaking to a home improvement contractor. He explained that he was putting his house on the market and was just now getting to all the projects he had put off for years.

“Gotta get it ready for when the real estate brokers start bringing people in,” he explained. “Especially the kitchen and the bathrooms because that’s what really sells a house.”

I thought about it and realized that he was right. Whenever I visit someone’s home I usually notice both of those areas first.

So it would stand to reason that the same principles would apply to a CPA practice that had made the decision to merge and intends to polish it up for potential suitors.

Chemistry 101

As someone who has been out of the courting phase for nearly three decades, I can still remember the feeling of when you had high hopes for an upcoming date and then for no inexplicable reason, it didn’t seem to click.

And there seemed no valid reason for it. You shared similar interests, appreciated a wide variety of foods and even offered the same opinions on hot button issues, or on a less serious tone, movies.

I’m sure we’ve all been there at one time or another and wondered either aloud or quietly, what happened?

As I grow older and hopefully wiser, I learned what happened. Chemistry; or lack thereof.

No matter if the stars align, or the mood at the restaurant or other chosen venue is perfect for a budding romance, sometimes it just doesn’t happen.

Again chemistry.

Recently, I was a front row witness to such an event. A seller practice had been in meetings with two firms - let’s call them Firm A and Firm B – both with stellar reputations in the profession and to borrow a terribly clichéd phrase, it was win-win for the mergee no matter which practice they selected.