Well, that's a big mistake.

Integrating the two firms into one will be your greatest challenge. Let's look at some key integration areas:

1. Culture. The biggest problem in integrating firms deals with culture. Culture is the product of the firm's history. If Firm A has developed all its partners internally and Firm B has had a history of mergers, you can imagine that each will have a distinct culture.

My experience has been that firms often fail to conduct an in-depth cultural assessment prior to completing a transaction.

2. Compensation and benefits. Knowing how partners in each firm are paid is critical. Here are some basic questions to explore:

* Does Firm A have a formula or entitlement approach, while Firm B shares profits equally?

* What are the differences in employee benefits between the two firms?

* What are the strengths and weaknesses of each pay plan? Is there a big difference in compensation ranges?

3. Leadership and governance. How will the firm be governed going forward and who will be the leaders of the firm? If these are not determined prior to closing the transaction, there needs to be a process in place that the new firm will follow. Lay out the organizational charts of both firms and then find out which aspects of each structure are effective, which areas need improvement and which areas should be eliminated.

My experience with over 150 mergers is that leadership is often lacking in both firms, and the outcome is that there is a larger firm with more issues, but with weak or ineffective leadership. Just make sure you know that there is someone who can lead the firm into the future and that you develop concise descriptions of how the firm will be governed.

4. Communications. Whenever a merger takes place, rumors run wild: "Firm A had to sell, all its staff are leaving, etc." There are always a lot of questions that need to be addressed. It's critical to control external and especially internal communications.

One way to reduce the rumor mill is to create a "go-to" team of experts who can provide staff with the right answers to their questions. Holding staff meetings to address concerns and preparing a weekly integration newsletter are also effective ways to communicate.

Communicating with clients can be accomplished in various ways. For the firm's top clients, personal meetings are a must. For all other clients, a letter signed from the leaders of the two merging firms should go out as soon as the contracts are signed.

Don't forget to use the firm's Web site to introduce the merger. If you are using an e-newsletter, you will also want to announce the merger in it as well.

5. Performance standards. Very seldom do the two firms have the same employee and partner performance standards. I urge my clients to develop performance standards for partners and employees up front. It may take a year or two to achieve complete integration, but at least a game plan is clearly laid out.

6. Administration. Action plans for integrating the administrative functions need to be developed after analyzing the support requirements of the two firms. You can save a lot of time by identifying up front how the two firms are currently administered. Do partners have individual assistants in Firm A, while Firm B runs a leaner practice?

The key areas that you want to explore prior to signing the documents are:

* Staffing requirements. Identify the "keepers" up front and let them know on Day One that they are important to the firm.

* Technology platform. Identify the common technology platform the new firm will be using - tax software, time and billing program, etc. You can't integrate firms if they are running on different systems.

* Accounts receivable and WIP. Determine what the firm's policy will be regarding AR and work in progress. Will you have an AR manager? What role will partners have in collecting AR?

You can see there is a lot more to a successful merger than just signing the documents. The more time you spend planning the integration, the more successful and less stressful the merger will be for all.

 

August Aquila is chief executive of Aquila Global Advisors and Chantrey Capital Advisors. Reach him at (952) 930-1295 or aaquila@aquilaadvisors.com.

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