Merging accounting firms successfully: Strategies and tips
Every company sings its own kind of tune.
There’s a hum to internal processes, a beat to its workflows, and a unity to its culture. All of which can take years of intentional effort to build.
“Building a culture that is considerate, consistent, and intentional takes a lot of work,” says Jason Blumer, founder and CEO of Thriveal, a network for entrepreneurial firm owners, “[The amount of work] is wild.”
When you merge two separate firms, it’s up to you as your firm’s leader to preserve that cultural harmony by finding the strongest elements of each and piecing them together to create a new melody.
Before you start the process, you’ll need to know what challenges to expect, learn the strategies of a successful merger, and explore the technology that is best positioned to support a painless transition.
Challenges of mergers & acquisitions for accounting firms
The average merger and acquisition (M&A) deal takes anywhere from 6-12 months to complete. For larger firms with bigger deals, it can take years. Not to mention the added complexity that the accounting profession brings to the table.
It’s a long ride. But one that can be fulfilling if you’re prepared to face several key challenges along the way.
Finding and valuing the right firms
The partner you choose to merge with can make or break the deal, so it’s important to narrow your search to firms that complement your strengths and share a similar firm culture.
For Wilson Pateras, who’s led his firm through over 10 acquisitions, assessing compatibility is the most important factor. “We look for the right personality fit to begin with,” he says. “Truthfully, the metrics often come secondarily.”
Practice Marketplace by Karbon is a platform specifically tailored for accounting firm owners to connect, negotiate, and complete transactions in a secure, streamlined environment. They can list their businesses for sale, and potential buyers can browse, filter, and connect based on various criteria.
Performing M&D due diligence is a crucial foundational component of this process. It looks at every aspect of the firm to assess potential risk. It’s complex and it’s necessary.
Cultural and synergy challenges
Every firm has its own set of workplace values, visions, and practices. When they differ heavily in an acquisition, it can lead to misunderstandings and reduced morale (if they differ too much the fit probably isn’t right to begin with).
When valuing a firm, your compatibility assessment might look at cultural alignment, market overlap, and existing management practices. This will help you identify potential culture clashes before they happen.
For example, if one firm has a strict, hierarchical structure and the other a more relaxed, flat management style, you can expect there to be some initial employee confusion about ways decisions are made—and then, come up with a plan to address it.
It’s all about weighing up if the deal is worth the potential culture clashes may bring.
Client retention
It’s common for clients to feel uncertain about their accountant going through a merger. How will it impact them? Will there be a service disruption? Will they need to update their accounting tools? Will their point-of-contact change? Will pricing increase?
To prevent client churn, leaders should prepare to have transparent conversations with both client bases, reassuring them about the continuity of service quality.
But to actually deliver on these promises, acquiring firms need to focus on organizing and activating client data. Accounting software with client hubs or portals can help keep client histories in one, accessible place.
Logistical challenges
The logistical challenges that come with merging accounting firms require thoughtful coordination and planning, including:
System integration. Using different accounting software and systems (QuickBooks vs. Xero, for example) may involve a complex process of data migration. It’s so complex that a firm’s tech stack is one of the most important factors when considering M&A.
Standardized processes. Standard operating procedures need to be aligned, and teams may need to be retrained where necessary. Standardized workflow templates can help to update, develop, implement, and automate processes.
Communication infrastructure. Communication between both firms needs to be seamless. Investing in a practice management tool with collaboration at its core will help prevent important information from slipping through the cracks.
Cash flow and client service interruptions. Will there be any roadblocks to the services provided to current clients? How will new clients to both merged firms be impacted? How will this all impact your firm’s cash flow? This is all critical information to understand.
Once you understand the challenges ahead, you can start to plan your next move.
Karbon's collaborative email and task management features are a game-changer, allowing our team to stay synchronized and maintain transparency on every project.
Strategies for merging accounting firms successfully
Set specific goals
First, lay out exactly what you hope to accomplish with this new merger. Is it to expand your services? Boost efficiency? Double market share?
Create clear short-term and long-term goals and make them central to your M&A plan.
Conduct due diligence
Next, you need to determine whether or not the merger or acquisition is a financially beneficial move by performing some due diligence. For a graceful merger, that means a holistic review of a target company's profitability, operational efficiency, and market position.
Plan for leadership transition
Mergers will often create overlap in executive roles and, inevitably, some leaders will shift or leave the company entirely. Succession planning is essential.
Start by creating detailed position descriptions for each role. Hone in on the leaders, from either firm, who best fit these newly defined expectations. Then, develop a comprehensive transition plan, outlining the milestones, timeline, and communication strategies to keep the organization informed and aligned.
Communicate with clients
Early and open communication is one of the most effective ways to reduce client churn during a merger. Keep clients close to all the changes, partner with them, and invite them to be inquisitive.
This is much easier to do when client data is collated with client management tools and when communication is simplified and connected.
Communicate with employees
Acuity CEO and Founder, Kenji Kuramoto, stresses the importance of internal communication during a merger.
“There's nothing worse as a leader [than] when you interact with someone on your team, and you hear about a negative experience that they've had, and you go, ‘Oh, my gosh, this has happened because it was just poorly communicated,’” he says.
He learned from experience, and recommends a four-point communication method for a successful merger:
Let employees see the financials, so they can feel secure, rather than unsure of the company’s performance and stability.
Send weekly video updates from leadership, helping to ensure alignment with a personal touch to work.
Organize annual in-person staff conferences, to connect with employees and further align on upcoming projects.
Facilitate difficult conversations, so they’re handled in productive ways.
Merge the details
There are a lot of moving pieces in an accounting firm merger; everything should be united. This includes:
Reviewing and integrating all clients records, contracts, and agreements
Consolidating bank accounts and reconciling transactions
Integrating payroll systems and employee programs
Addressing intellectual property, including trademarks
And merging all IT systems, software platforms, and databases
Create an exit strategy
With an accounting firm merger, you’re expecting the best. But it doesn’t hurt to prepare for the worst.
In case the merger doesn’t go as planned, you should have an exit strategy. Start by defining the conditions under which the merger may be reevaluated or reversed, and establish guidelines for how to disentangle the merged entities if it ever came to it. Legal counsel is recommended before making any binding agreements.
A well-thought-out exit strategy gives you a safety net during the transition, and peace of mind that you’re protected if something does go wrong down the line.
Technology setup
The tech you use to power your firm can be the biggest difference between a successful and an unsuccessful merger.
An accounting firm tech stack that brings your document management, communication and collaboration, and workflows together in one centralized location can help streamline the transition. For Basis 365 Accounting, a unified tech stack has resulted in a 35% productivity increase.
With Karbon, customer communication, team communication, and workflow are all in one place. We don't waste time jumping from tool to tool.
A post-merger firm built on practice intelligence
According to Accounting Today, tech stack consolidation is one of the biggest drivers of upstream M&A.
By choosing a solid accounting practice management tool as your firm’s foundation before any mergers or acquisitions, you can strategically plan ahead with a unified tech stack.
You can leverage workflow automation, data analytics and reporting, and deep integrations.
Gauvreau and Envolta’s merger is a great example of this.
During their deal, the two firms prioritized tech solutions, capitalizing on their shared use of Karbon to complete a smooth and successful acquisition for all parties.
“The tech stacks lined up really well,” said Victoria Peters, CFO at Gauvreau. “There were definitely hiccups [during the acquisition], but for the most part, it just felt right. It couldn't have lined up better as far as people, tech stack, and attitude were concerned.”
Be M&A-ready. Book a demo of Karbon today.