Using Tax Season as a Measure for Possible Firm Transition

Tax season often defines the strength and success of a CPA firm. It also tests and exposes challenges and gaps in services, clients, personnel, processes, and other aspects of managing the practice. 

Some firm owners hope the next tax season will be their last as an independent firm; others will use the coming tax season to gauge their potential to acquire another firm. Quite a few have already made the leap to merge, and next tax season will be a part of their first transition year.  

If your firm is ready to gear up for a transition, in whatever stage, it is important to plan out the coming tax season well ahead of the busiest time. This column offers a few practical pointers for your planning. 

Last Year as an Independent Firm 

Firm owners looking to merge with, or be acquired by, another firm should use tax season to get ready. Gauge which clients of yours will support a transition and which ones will resist. This will take an honest assessment of your clients and their satisfaction levels. 

Learn which client profiles are most appealing (and unappealing) to other firms making deals. Are there niches, services, or industries that attract acquirers? Ask experts, competitors, and people who have been through a transition before, and read up on trends in industry publications. Then adjust your client profile as necessary to make your firm more appealing.  

Have a firm grasp of which metrics will be most important to optimizing deal terms. In negotiations, the acquirer will ask for firm information, so know the data or how to access it most efficiently. A few common metrics might include true profit on engagements, most frequent type of engagement, prototypical fees, most profitable engagement groups from different client service areas, and core fee ranges. 

Be proactive and uncover any skeletons in the firm’s closet and address them. In other words, know your weaknesses, the magnitude of them, and what can be done to mitigate those weaknesses. 

Lastly, understand prevailing deal terms and forecast results. A little research will arm you with enough information to realistically discuss valuation. This could pay great dividends. 

An Acquiring Firm

If you are working toward acquiring another firm after tax season, it is time to get ready now. Begin by delegating work to others to free up partner time.  

Empower staff to run client meetings and propose new ideas. Leadership will need time to focus on the acquisition and to be more attractive to firms looking to merge. 

This may sound harsh, but start working now to determine which clients to eliminate. Get rid of undesirable clients who are time-consuming or problematic in other ways. Bringing on a newly acquired firm entails more work, so it is better to be ready by opening up some time. 

Test or build out your infrastructure – such as leadership and technology – to be ready for the growth challenges. Is a marketing manager needed to help articulate firm values to others? Will a human resources expert enhance recruitment, retention, and satisfaction?  

Bulk up on technology and internal expertise. Know that new people must be trained to use technology and approaches with which they may not be comfortable. Internal staff will have to train others, quickly. 

Understand the current firm’s turnaround time and how it can be improved. Tax season, or prior to tax season, is a great time to observe turnaround time and how to reduce it. 

Introduce or update incentive compensation programs so people will be inclined to manage more effectively. Doing this for tax season is a great incentive. 

Survey the managers and more seasoned people on what needs to change with the addition of a new firm. Track it during tax season. What do they think will have the biggest impact on the future firm? Staff members will know where the gaps are even better than partners.  

The “Rookie” Transition Year

Some practices have already aligned with another firm and are planning to start integration. Much will be happening in this “rookie” transition year.  

Map out how many clients the combined practice shares and determine which ones may need to be transitioned to other firm members for expertise or workload reasons. This map may be dependent on the number of years in your transition plan and whether or not roles are changing in the combined firm. The more lead time you have to educate the successor and to be consistent with your messaging, the better. 

Formulate the internal roles for the combined team and create a template to actualize them. Create a time frame and a way to monitor progress. Schedule client and staff meetings to provide a unified approach to the transition. 

Design feedback and follow-up processes to optimize client and staff retention. You may need different processes for 1040 clients and business clients. Rely on human resources experts. 

Set the Stage for Success

Succession and transition are not simple for buyers or sellers. Using the impact of tax season to properly prepare and set the stage will make things smoother in the short and long run. Make the time now to get ready for a transition. The dividends will be long-lasting and well worth it.       

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Ira S. Rosenbloom, CPA (inactive), is chief operating executive at Optimum Strategies in Spring House, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at ira@optimumstrategies.com.