Are you the CEO of a single-office accounting firm that is doing well and is beginning to think about opening a second office in a different city through a merger or acquisition? Be careful, because history has shown that many one-office firms that open up a second office in a different city are disappointed with its integration and financial performance.
Establishing a second office is high risk unless the headquarters office creates a one-firm, firm-first culture. Think outside the local geography by providing clients with the best possible client service team regardless of where they are located. Instill a sense of management consistency and standardization at the second office while allowing for individuality and flexibility based on geography, office size and the strengths and weaknesses of office leadership.
The partnership should understand that the acquisition of a second office is essentially a long-term investment in the firm’s future that more than likely will initially be dilutive. If it’s the right decision, it will be accretive over the long term.
There should be an effective local-office partner-in-charge who understands their key job responsibilities and what it takes to manage a local office, maximize opportunities and minimize risks.
One-office firms often fail when they attempt to open a second office because cultures at the two locations don’t blend and because the two offices develop an “us-versus-them” mentality. Essentially, the two offices don’t wear the same team shirts, so to speak. It’s not unusual for these offices to compete or cannibalize each other for new clients and new assignments at existing clients. To help minimize the possibility of falling into the “us-versus-them” mentality, it helps if the main office or “headquarters” cross-fertilizes partners, staff and clients. Partner and staff relocations, if possible, are highly effective, but if they’re not possible for whatever reason, cross-fertilization of partners and staff on client assignments is highly desirable.
Many partners at one-office CPA firms do not take the long view of the future and focus principally on “show me the money.” Many don’t want to make investments that won’t pay off until sometime in the future because they won’t be benefiting from the investment for some time, if at all, particularly if they retire before the investment turns accretive. This is a tough mentality to overcome, but it can be effectively dealt with if the firm’s leadership shows persistence and consistency in stressing the best interests of the firm over the long haul.
While it’s important to manage expectations, the most important ingredient in opening a second office through a merger or acquisition is having an effective partner-in-charge at the local office. The key job responsibilities of the office partner-in-charge include the following:
- Driving firm protocols, policies and procedures, including those required for risk management, communications, business growth and profitability, cost controls, and client service;
- Designing and developing a two- or three-year office strategic plan that mirrors, to the extent appropriate, the firm’s strategic plan and overseeing its implementation;
- Driving “go-to-market” strategies through the firm’s industry groups and fostering the development of skills;
- Becoming the “face” of the firm in the local community by being the lead spokesperson with major organizations and social media;
- Maintaining relationships with the management of other major firms in the local geographic area;
- Resolving major client disputes consistent with the best interests of the firm and collaborating with the firm’s internal legal counsel and functional heads when appropriate;
- Making it clear that partner compensation is determined first and foremost by how successful the firm performs, and secondly on how well the office does and, with the office, how well individual partners perform;
- Overseeing client rankings and addressing “D” clients;
- Approving new clients, including fee arrangements and profitability;
- Approving all major fee adjustments;
- Collaborating with partners on their annual goals;
- Coaching and mentoring partners as part of a quarterly review of how partners are doing against goals;
- Taking appropriate action to hold partners accountable for their actual collections versus budgeted collections;
- Overseeing succession and client transition plans for retiring partners and for partners who are reducing responsibilities;
- Recommending compensation and annual adjustments;
- Fostering partner involvement in office social functions and in supporting personnel recognized for outstanding community service;
- Developing and taking ownership of the local office’s financial budget with buy-in form office partners;
- Monitoring monthly and annual financial results and, if results aren’t meeting expectations, collaborating with the office’s management about corrective actions to take;
- Ensuring that all appropriate tools and information are provided to industry “go-to-market” leaders and other office partners;
- Managing daily operations, including human resources and receivables and work in progress management;
- Assuring office compliance with firm policies over capital expenditures and operating expenses;
- Ensuring the office has a personnel plan that addresses the talent gap between the office strategic plan and current personnel capabilities;
- Monitoring and enforcing firm culture to reflect the appropriate balance between financial and operational excellence;
- Coaching and mentoring staff;
- Recommending staff promotions, raises and bonus awards;
- Approving all major hires and staff terminations;
- Holding monthly partner and staff meetings to share firm and office developments;
- Ensuring timely employee performance evaluations;
- Completing an annual survey of office morale and taking appropriate action based on the results; and,
- Promoting programs and activities that reinforce the team and support the firm’s culture.
Opening a second office in a different geography can be risky business if the firm’s leadership doesn’t “set the table” and manage the expectations of the firm’s partners. Having said that, a successful second office is not that uncommon if the day-to-day leadership is vested in an effective office partner-in-charge who understands the responsibilities and how to carry them out. Oftentimes, the successful opening of a second office leads to the opening of a third and potentially more offices, all of which can be fruitful financially.
