Consolidation and the Medium-Sized Firm.

• Author: Aquila, August J.

There is little doubt consolidation in the accounting profession will continue. You cannot pick up an industry publication without reading about two firms merging. The players may change, but in reality, it doesn't make too much difference who they are (banks, local accounting firms, regional accounting firms, or financial services firms). The underlying reasons for consolidation are still the same--a fragmented industry, no existing strong brand name, a rising requirement for capital, too many unfunded retirement plans, and poorly thought-out succession plans, to name a few.

Even though publicly held companies won't acquire most firms, most firms will eventually feel the impact of the consolidation movement. The question that firms should be asking themselves is, "What should we do to prepare for the future in this ever-changing environment?"

Prepare for the future

No one can tell you how the consolidation movement will affect your firm, how your current business model will change, what your future mix of services and products will be, or what you should ultimately do. However, certain issues indicate what the future may look like and what problems you may face. If you want to prepare your firm for consolidation or just for long-term survival, you need to pay attention to certain areas that, if not fixed, can cause your firm serious future problems. Eleven of these issues follow, along with questions to help you identify whether each problem exists in your firm. Start resolving these issues now!

1. Partner issues. Partner issues are perhaps the biggest area that can cause your firm future problems. Do you have many partners near retirement? Will you have unfunded retirement problems? Are there founding partners who will retire with huge retirement liabilities? Will you be losing key partners? Will this cause client retention problems? What are the current unfunded retirement liabilities? What are the skill levels and entrepreneurial talents of younger partners? Are there partner compatibility issues? Prima donnas? Are there partner productivity problems? Do you have a managing partner who "knows it all"? Do you have partners who have retired but have failed to tell anyone yet?

2. Service/product line issues. Balancing which services and products to offer is next in line to cause problems in your firm. Are you still a traditional accounting firm? Are you offering financial services? What new services have you added in the last three to five years? What strategic alliances have you formed in the last three to five years? How many non-CPAs are shareholders in your firm?

3. Service quality issues. Service quality often becomes a...