Over the last 18 months, we have advised on the sale of several Accounting firms in regional areas. Our direct approach to interested parties has been successful in every case, but we believe that metropolitan firms looking to expand through acquisition are missing opportunities. This blog explores why.
Let’s explore why you should consider acquiring regional Accounting firms…
Demand for Accounting Practices
As we have noted over the last few years, it’s a seller’s market. That is great if you are a seller but can make it hard to compete if you are a buyer. Let’s be honest, we don’t see this dynamic changing in the foreseeable future. Why? There are plenty of buyers who see the value in acquiring an Accounting firm and implementing changes that make the experience quite profitable.
The demand comes from the top and trickles down. We would say that demand is at all levels of revenue, from $200k to $5m+. Some don’t like buying practices with lots of individual returns, while others love them. Some firms don’t like buying practices with less than $1m in fees, while others couldn’t afford to buy more than $500k in fees. Both are keen to expand through acquisition.
If you are a regional Accounting firm considering exiting the industry, we suggest allowing yourself plenty of time (not just one or two years) to transition. Giving more like 3-5 years allows firms more time to find Client Relationship Directors or Managers who can fill your void once you exit. This time is crucial for many firms.
One mismatch in the market, in our view, is the demand for metropolitan practices versus regional Accounting practices!
The number of times a firm has said to us, “Look, we would be keen to acquire an Accounting firm in Sydney, Melbourne, or Brisbane,” is very high.
High interest = High demand = High prices & seller-sided terms
Yet in regional areas, this has yet to follow through. When we look at the dynamics of the changing industry, we scratch our heads and wonder why not.
Regional Accounting Firms – Why They Should Be in Demand
Pricing & Terms:
If the demand is centered on the regional area, then demand is muted. There are only so many firms around the area, and quite often the seller is not interested in selling or merging with a firm in the same town (for obvious reasons).
This means the prices for similar firms in metropolitan areas versus regional areas can vary significantly. We are not talking just 10%. Additionally, the terms agreed upon in regional areas are much more balanced compared to seller-sided terms in metro areas (see our eBook).
Clients:
If we go back 5 or 10 years, we can completely understand why firms in metropolitan areas were hesitant to expand into regional areas. Someone had to manage the clients post-merger. On the other hand, many metropolitan firms keen to expand may have had some clients in a particular regional area but not enough to justify opening an office.
Since COVID, we are now hearing that much of the client interaction is via digital communication. The need to meet clients face-to-face in the same room (as opposed to Zoom) has decreased significantly. The question is, how many clients really need a face-to-face meeting during the initial transition of relationships, and how many clients need to meet monthly?
Just working with a small regional practice at the moment with 80 business clients, the owner suggests meeting eye-to-eye with key clients once every six months. Two days tops. That is a commitment of 4 days per year.
It’s a function of realistically determining how many clients need that face-to-face meeting. How many each month? Each year?
Staff:
If you think finding good staff in metropolitan areas is difficult at the moment, consider the challenges facing regional firms.
We know a number of regional firms that set up offices in metropolitan areas simply to source staff. It’s that difficult. But from their perspective, with advances in technology, staff can work anywhere and still be great team members.
Maintaining exposure to the regional area is important, not just the office but staff as well. The stress of losing a staff member in a regional area isn’t as high if there are metro links.
Finally, when considering acquiring a regional practice, look at the staffing situation. Do they have the resources to get the work completed on time now? Can you assist in that situation? If so, you are ahead of the pack.
So Keep an Open Mind
Start by thinking about where some of your clients are located. Perhaps a staff member or two grew up in a certain regional location. There are plenty of regional areas growing quite rapidly, and positioning your firm in that area might be a really good idea.
Tell us where. We can go from there.
Interested in growing your practice outside a metropolitan area?
Call us on 1300 121 013.