Organic growth of a practice is one path to success – but inking the dotted line can sometimes seem a lot faster.

Merging with or acquiring other firms, practices or offices for many professionals, but even as lines blur between selling and merging in many professionals’ minds, thinking about such a deal is one thing and successfully pulling it off another. Catonsville, Md.-based CPA Al Giovetti once considered – and rejected – merging with another firm. “I’ve heard stories,” he said, “where such mergers went very badly in a number of different ways.”

‘Assured I’d be in charge’

Delmar Gillette, an RTRP with Economic Planning Services Inc., in Newport News, Va., is in the process of merging. “The buyers are not tax preparers but I was assured that I’d be in charge for the next three to four years,” he said. “Because they ‘own’ the tax practice, they believe they can make tax management decisions. Not a good decision on my part to be sure that control of the decision-making did not change.” 

Decision-making power can be tough to reclaim in business once you surrender it. “Prior to merging a practice or any business, ask yourself, ‘What am I attempting to achieve?’ ” said Marie Young, an Enrolled Agent at Arden, N.C.-based Tax Talk Inc. “Are you willing to relinquish some of the decision-making, either for better or worse?”

Young sold her business two years ago – and immediately came back as a subcontractor. “I’ve found it difficult to allow someone else to make the decisions when I’ve been responsible for the staff, clients and decisions. I believe a merger would have the same consequences.”

Case study: A ‘way to slow down’

Enrolled Agent Sandra Martin, a former preparer in East Rochester, N.Y., and now a tax instructor at Empire State College of the State University of New York, had a 25-year-old tax-prep practice and three employees. She eventually decided it was time to sell.

“We had a year-around practice, so not only did we do all forms of taxation, we also did payrolls, bookkeeping, accounting, and I and one of my employees had our securities license so we also did financial planning,” she said. “I was working way too many hours. My husband had taken an early buyout from Eastman Kodak and was only working part-time, so I started looking for a way to slow down.”

Active then and now at the local, state and national levels of the National Association of Enrolled Agents, Martin also faced imminent and time-consuming presidency of NAEA. “I spread word at our local chapter meeting that I was considering selling or merging my practice,” she recalled. “I was approached by some CPA firms but they said that they would double my fees and that I would have to sign a five-year, full-time work contract. In talking with a CPA friend of mine, he warned me that if they doubled my fees they would probably lose most of my clients and I would end up with nothing because most of the contracts were based on client retention.”

“Then a fellow Enrolled Agent contacted me. After several meetings, I decided that it would be a good fit for me and my clients. He took my entire staff and he was large enough that he had a CPA who did all the corporations and partnerships and another EA did all the estates, trusts and nonprofits. A receptionist took care of the bookkeeping and an office manager input all the returns and processed all the payrolls. All I would have to do is take care of my clients’ personal returns and help transition my clients into the practice,” said Martin, adding that the resulting workload felt “like I was on vacation.”

She struck a deal to work full time during tax season and two to three days a week the rest of the year, with a five-year commitment. Martin stayed 10 years. “The reason is, I was never really working for the gentleman who purchased my practice; I was working with him,” Martin said. “He never told me when I had to work and never really told me what to do. I had run a successful practice and knew when I needed to work and when I could take off.”

Considerations beforehand

Martin’s advice to preparers thinking of merging or selling a practice:

  • Think ahead at least three to five years prior to when you want to retire.
  • Perform due diligence on the purchasers’ practice to, among more-bottom line considerations, ensure a good fit.
  • Look at the types of services the prospective firm provides, as well as billing rates, location, professional credentials, size and financial and retention records.
  • Make sure you know what’s expected of you as an employee or partner. (“Everyone I talked to wanted me to work for a given number of years to make the transition,” Martin added. “This is almost the norm in selling an accounting or tax practice.”)
  • Be very structured on your price and how and when it will be paid.
  • Make sure the firm you’re merging with shares your principles and work ethic and will treat your clients the way they are used to being treated – it needs to be as good a fit for your clients as for you.
  • If possible, take your staff with you. It helps in the transition of your clients if they see familiar faces.