Covid’s Impact on Accounting Firm Acquisitions (and What’s Next?)
- Covid’s impact on accounting firms
- The emergence of cloud firms
- Preparing to sell your firm
- Visit poegroupadvisors.com (includes a listing of firms on the market)
- Connect with Brannon Poe on LinkedIn
- Learn more about Accounting Practice Academy
Returning Guest: Brannon Poe
Making his second appearance on the Growing Your Firm Podcast, Brannon Poe, also known as the “Head Coach of Accountants,” shares how covid impacted his business and where he sees M&A accounting headed after the pandemic. As founder of Poe Group Advisors and Accounting Practice Academy, Brannon knows the importance of continuing to provide quality services but also knows when it may be time to step back and make a change. In today’s episode, he explains covid’s impact on accounting firms, the emergence of cloud firms, and provides tips to help firms prepare to sell.
Covid’s Impact On Accounting Firms
Coming as a surprise to Brannon, accounting firms were busy in 2020. With the tax deadline being pushed back, there was a shift in the busy season, not the expected decline in work. For M&A firms, it meant they began listing their firms in July rather than May or June like they normally would.
With the shift in deadlines, Brannon mentioned there isn’t really a good time to buy to get the best deal. He says the best deal is to buy the firm that works best for you. While you may find cheaper prices in the summertime, you may not be able to find a firm that runs in a way you are familiar with. Waiting for the right fit is the tricky part, not finding the best price.
Brannon noticed firms who thought they were ready to sell, waiting because they were so busy and didn’t have the time to focus on preparing to sell. Depending on the state of the firm, Brannon says it can take anywhere from a few hours to years to fully prepare for selling.
Even with the lack of focus from traditional firms, Brannon and his team had a big month in Canada, launched Accounting Practice Academy, and were able to sell cloud firms, which kept them flat in firms overall.
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With the recent surge in technology, cloud firms have become all the rage. They are in high demand and consequently are selling for higher multiples than traditional firms. Brannon says he sees an increase in price for cloud firms between 10% and 25%, depending on the firm’s profitability. He mentioned that underwriters at the bank have control over how much someone can legally sell a cloud firm for, which is why they don’t sell for much more than 10-25%.
Circling back to the impact of profitability, Brannon says cloud firms tend to grow very quickly but are not nearly as profitable as they should be. They are typically great at the business development side but lack the skills needed on the operations side. This rapid growth eats a lot of cash, making the firm less desirable to buyers because of the lack of profitability.
Brannon’s tip to cloud firms that are growing quickly is to take a step back and focus on the areas you excel. Once you’ve done that, you can narrow in on what makes you profitable and go from there. He advises hiring where hire is needed; fill in the areas you are missing.
Preparing to Sell Your Firm
As mentioned previously, profitability is a major driver in the buyers market. However, there are plenty of ways a firm can miss out on profitability without even noticing.
Brannon’s main tip to improve profitability before listing your firm: prune. He suggests going through each service you offer and ridding the ones that are (a) not used often by your clients and (b) don’t make you enough money.
Brannon also suggests:
- Providing services you enjoy
- Ensuring you are charging the premium prices for the services you provide
- Getting rid of clients who don’t fit within the means of your services
Looking towards the future, Brannon believes firms should all begin making the switch to the cloud. In a now predominantly virtual world, there is much more buyer interest in firms who have made the switch or are in an excellent position to do so. Having a cloud base also raises profitability. While he says it isn’t an easy process, a gradual switch will be invaluable in the long run.
Covid’s impact on accounting firms has shifted the M&A industry towards cloud firms. With these firms making a huge impact in the market, it has become nearly essential to transition traditional firms to a cloud base. Automation will save you plenty of time, but more importantly, it will make your firm more profitable. Brannon Poe, the author of the new book The Unplugged Vacation, which teaches firm owners how to truly take the day off, explains more about covid’s impact, cloud firms, and prepping for sale in our new podcast. Be sure to listen to the full episode above!