Growing your accountancy firm: Is acquisition the right strategy?

Henry Campbell-Jones

Acquiring another business (in this case, another firm), is a common growth strategy among companies in many industries. However, it's crucial to understand what you're looking to achieve, the problem you're trying to solve, and your eventual goal.

Perhaps you have too much work coming in and need more staff? While you’ve been extremely successful, you might be looking for a firm which is not as busy as it should be with the capacity to take on all of your extra work.

You could always hire more staff yourself, of course, but acquiring a ready-made team will give you scale and an ability to spread the extra work across a number of people with a wider cross-section of skills more quickly.

On the other hand, perhaps you have built up a strong team who you need to keep busy? With the ongoing skills shortage this is also a good position to be in, but now you’re looking for a firm that has more work than it can handle.

Again, you could simply focus on sales and marketing for a while, perhaps leveraging some of the spare time your team has, but acquiring a ready-made client base will bring in almost guaranteed work far more quickly, and provide the scale you need to develop your team further.

They’re basic examples, but you get the point – and the end goal for firms going down this route is often to build a more substantial accounting practice that's attractive to larger firms in the market for a possible sale in the future.

The pros and cons of acquisition

Acquiring another firm can be a quick way to grow your business, but it's not without its challenges. Here are some of the key pros and cons to consider.

Pros:

• Immediate growth: Acquiring another firm can provide immediate growth in terms of client base, revenue, and market share. This can be particularly beneficial if you're looking to expand into new markets or sectors.
• Greater expertise: An acquisition can bring new skills, expertise, and services to your firm, enhancing your services and making you more competitive (and attractive to buyers).

Cons:

• Integration challenges: While it will be beneficial to add more expertise to your firm, integrating new employees, systems, and processes, as well as cultures, can be a time-consuming and tricky task to navigate. Expect some disruption.
• Client retention: There’s always a small risk that some of the clients you’re bringing over from the purchased firm might leave. So, client retention has to be high on the priority list to mitigate that.
• Financial risk: Acquisitions don’t come cheap and will often involve taking on debt. There's also the risk that the acquisition may not deliver the expected returns, which would lead to further financial stress.

It’s important to understand what risk appetite you have as a firm and whether or not you’re prepared to take the risks with the benefits when deciding if you want to acquire another firm or not.

If the cons put you off acquisition, there is perhaps another option: mergers.

Consider merging as an alternative

While acquiring another firm can certainly lead to growth, it's not the only strategy available. Merging with another firm can also be a highly effective way to expand your business and increase your capabilities.

Merging involves combining two firms into a single entity, often with the goal of achieving greater scale, diversifying services, or accessing new markets. Unlike acquisition, which typically involves one firm buying another, merging is more of a partnership between equals.

The benefits and challenges of merging are very similar to those of acquisition, but without the hefty financial burden often associated with purchasing another firm.

For example, merging firms can also share resources and pool capabilities that might lead to greater efficiency and potentially offer a wider range of services. Merging can also significantly increase your market share and presence and can help mitigate risks by adding an immediate boost to revenue.

However, managing cultural differences and integration can be complex and disruptive in the short term, as it is with acquiring another firm, and the potential issues around client retention also remain.

In the end, whether you choose to grow through acquisition or merging will depend on your specific circumstances and goals. Both strategies have their pros and cons, and it's important to carefully consider your options before making a decision.

Remember, the ultimate goal isn't just to grow for the sake of growth, but to build a more successful and sustainable practice that becomes more valuable to potential buyers further down the road.

Take a long view

Growing your accountancy firm through acquisition is a viable strategy, but you must understand that it's not without its challenges. It's important to carefully consider your reasons for pursuing this path – not just growth for the sake of growth – and to explore alternative strategies such as merging if they make more sense.

To do this, focus on your firm's mission, values and long-term vision, and decide on the option that best fits.

Henry Campbell-Jones is Managing Director, Hornblower Business Brokers: +44 (0) 20 8090 9380 or ask@hornblower-businesses.co.uk