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Keys to Evaluating Potential to Win at CPA Firm M&A

Successful CPA firm combinations must create advantages for both firms. In weighing a possible M&A transaction, it is essential to assess the potential for any advantages to be actualized, so as to best evaluate an opportunity and structure a deal. Potential is an issue for both buyers and sellers.


Sellers need to determine the viability for improvement to their practice and daily challenges, on top of the financial consequences to come from increased services, greater resources, and better efficiencies.


Buyers must be able to assess whether the seller’s profile of staff and clients will produce rewards, in the form of new services to the seller’s clients and/or the buyer’s clients, depth of technical knowledge, continuity of client base, economies of scale, career advancement, and marketplace strength.


For both parties to determine potential and how to actualize it, we recommend that in addition to traditional financial metrics, the following 4 metrics be addressed:


  1. Referrals. Both parties should be prepared to present meaningful historical data for the past two years pertaining to type, frequency, and dollar value of referrals into and out of the firm. Analysis of this data will uncover services that can be offered that need to be outsourced, comfort with cross selling, nature of clients that are in the referral pattern, and the caliber of recognition by centers of influence.

  2. Pipeline. Converting leads into closed business is essential to perpetuating success. Each firm should present accurate metrics for closing opportunities, nature of the services, and length of time to close. The pipeline results should be used to determine strengths and weaknesses for all sides and what upside could be generated for all.

  3. Client satisfaction. Firms with well-satisfied clients will be more likely to retain their client base following a transaction. The more objective client impression information is, the better. The quality of the client service experience and loyalty of the clients speaks volumes about each of the parties.

  4. Service hours by producer. A prospective deal partner needs to be able to review where and how each producer is generating billable service hours to analyze possibilities for potential synergies and greater economies of scale. For example, compliance services that can be offshored or outsourced could increase opportunities for profitability and career satisfaction. Analysis of the hours will reveal potential to recalibrate profitability by shifting work to experts, concentrating on more profitable actions and generating greater economies of scale.


Investing time in quantifying potential and the requirements for actualizing potential will avoid many headaches down the road, and help all parties make a sound decision on doing a deal--or not.


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