When most firm leaders consider succession planning, they often expect cultivating a successor who has put in years of work and is fully acquainted with the team, clients, and firm practice as a whole. However, if your company lacks a well-groomed heir or a promising candidate to carry out an internal succession plan, you’ll be relieved to know that it is not your only option. This article will bring you to the new succession trend for CPA firms, as well as the forces driving the desire to merge and acquire.
Mergers and acquisitions are a prominent succession strategy used by most firms today for the future of their accounting profession. This is due to the increasing number of retiring Baby Boomers. This strategy has also accelerated as practitioners seek better methods to respond to industry changes, help their clients and staff, and manage a more robust and better succession plan.
Understanding Mergers and Acquisitions: The Drive to Merge and Acquire
Mergers and acquisitions play a significant role in today’s succession planning. It has become a prevalent trend among CPA firms for various reasons. Here are some of the most common trends:
1. Stronger bench strength
One of the most pressing challenges for firms seeking to thrive in the market is talent acquisition. Firms battling such issues will undoubtedly find the mergers and acquisition strategy to be an excellent plan for their firm’s future because they can quickly access a fully vetted and experienced workforce. Firms will use this strategy as a perfect opportunity to upgrade talent across the organization, gaining access to a stronger skilled workforce and higher intellectual firepower.
2. Technology Advancement
As sophisticated technologies evolve and more businesses shift their information to cloud-based systems, CPA firms are becoming adept at capitalizing on the technological advancements of other firms through mergers and acquisitions. This strategy enables these CPA firms to gain access to other firms’ advanced resources, which helps them adapt to new market situations and client needs, putting their firm still in a competitive advantage.
3. Diversification of Portfolio
Mergers and acquisitions help firms diversify by expanding their range of services, products, and long-term prospects. By joining forces, the new firm’s portfolio will expand even further and get access to a greater market share.
4. Competitive Edge in the market
Mergers and acquisitions increase the financial position of the involved parties. When two firms in the same market niche deliver equal services, their consolidated market position improves, and their returns increase. This benefit translates to a larger market share, fewer competitors, and greater client clout. To summarize, larger firms are harder to compete with.
5. Continuity of Practice
Some small businesses are privately owned (E.g. family businesses). Usually, when the owner retires, the firm faces a considerable risk, leading to a business downhill. This will also put employees out of jobs and significantly affect clients’ trust. The main reason for this failure was that the owner was too preoccupied with operating the firm to create a clear succession plan for the successor and the business as a whole.
A merger or acquisition is one strategy for ensuring business continuity, reducing operational disruptions, and providing job security for employees.
The drivers of mergers and acquisitions clearly provide a competitive advantage to accounting practices. However, for a mergers and acquisition strategy to succeed, the participating firms must have comparable cultures to affect a perfect combination of unity and individuality and sustain the market share.
There are also factors to consider making mergers and acquisition transactions succeed. While mergers and acquisitions can be highly beneficial, working out the intricacies can be challenging. Risk management is imperative in the pursuit of the benefits of mergers and acquisitions. It is critical in this kind of business transaction to guarantee that no risks are jeopardizing the success of the mergers and acquisition process. Risk management assists in ensuring that the transaction is completed without ambiguity and that both parties get the total value of the transaction with no dire outcomes. Mergers and acquisitions succession is a significant investment; therefore, you must guarantee that investing in this succession strategy is a worthwhile, financially secure, and ultimately lucrative decision.
“Safety is everybody’s business. Risk management is a more realistic term than safety.” HWA Alliance of CPA Firms understands what risks can do to a business; thus, risk management is prioritized to ensure that all potential threat is assessed before making any significant choices and procedures. Allow us to help you anticipate and avoid risks. We have a complete risk management approach in place that will safeguard your company’s assets, finances, decision-making, and operations. We have significant experience in various business industries and the tools and methodologies to improve your risk management functions.
You are the key to your safety and your success! Allow HWA Alliance to assist you!