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10 non-traditional metrics to help you win at M&A

Note: The following article was written by Ira Rosenbloom, chief operating executive for Optimum Strategies (www.optimumstrategies.com).

BY IRA ROSENBLOOM

Mergers and acquisitions (M&A) in the accounting industry are hotter than ever, and all signs point to another active year. They also point to increasing challenges for deal-making.

Staffing difficulties, plus the “graying” of practitioners who are looking for a better exit, are shifting the traditional M&A emphasis from practice growth and economies of scale to prioritizing business excellence and competitive advantage.

To make a practice attractive to suitors seeking impactful business upside, players need to go beyond the traditional key performance indicators (KPIs) that normally guide a CPA firm in business operations, and focus on factors such as the following 10 non-traditional metrics.

1. REFERRALS

The nature, dollar value, and frequency of referrals -- both in and out -- will likely uncover synergies and potential advantages. Referrals of all natures must be tracked so they can highlight features that may become realities in a merged firm (or that will never come to fruition).

2. PIPELINE AND TURNOVER

Lead generation and closing success are going to be essential for the merged business. The history of performance with leads will tell the parties whether the entrepreneurial cultures are aligned, and in what way greater resources could affect the result for generating and closing leads. Parties should be diligent about compiling and collecting this kind of information. Clearly, the better the results are, the stronger you can differentiate your firm. However, the nature of failed results may also spell huge potential for another firm. It is equally important to understand your time to close and success rate. Closing rates better than 65% would certainly gain attention.

3.

Profit Margin By Service Line

All parties will be interested in identifying the firms’ best service lines and knowing just how good they are. Profit margin by service line will provide relevant information.

4. ENGAGEMENT BUDGET VIABILITY

Knowing the frequency of engagements being performed within an established budget—and knowing how well a firm bud- gets their engagements—speaks not only to strengths, but also to blind spots. Efficiencies and effective processes are necessary for a strong transition and profitable marriage. All parties need to be sure they have compatibility on engagement management, and have an open-minded approach to improvement.

5.

Days Receivable

If a firm’s days receivable -- or days sales outstanding (DSO) -- is growing, it means the firm is not getting paid as quickly as it could be. This might signal that clients are having financial troubles, or that they are not satisfied, or that your team is not being effective with collections. In an M&A situation, cash flow and working capital are essential. The more the parties understand each side’s financial behavior, the better they can anticipate success or difficulty.

6.

Average Fee By Service Line

Firms may be drawn together because they are similar or different. The average fees for the different service lines will provide grounds to answer how similar or disparate they are, and whether the parties are a match.