Merger of CA Firms - Bombay Chartered Accountants Society

Bombay Chartered Accountants’
Society
Presentation on
Merger of CA Firms - Strategy for growth
& Practical issues
14 th September 2005
Shariq Contractor
1

Some Fundamental Questions.
� Are you getting the work you
deserve? deserve
� Are you charging the fees you ought
to charge?
� Are you rendering quality services?
� What is the direction you wish to
give your practice?
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Trends in CA practice As on
Total
Size of CA firms
16/6/2004
More than 10 members
4 to 10 members
2 to 3 members
Proprietary
Numbers
118
2,742
10,114
34,505
47,479
%
0.24
5.78
21.30
72.68
100.00
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Changing hanging shape of professional
practice
� Increasing dependence on technology
� Need to understand client business in
the dynamic environment
� Shift from compliance related to
value-added work
� Client relationship now professional
rather than personal
Continue …
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Changing shape of professional
practice
� Traditional tax/audit practice dwindling
� Importance of specialization & niche
area practice
� Need to provide multi-discipline
services
� Continuous education for partners/staff
� Need for net-working/PR
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Challenges in professional practice
� Retain client base – especially those
clients growing big
� Recruit/retain quality staff
� Make effective use of technology
� Risk management & litigation
� Need to upgrade knowledge –
mandatory CPE
� Introduction of peer review
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CA Firms compete in two distinct
areas in the Market Places
� Compete for:
� Client and
� staff
� The ability to attract, develop, retain
& deploy staff will be the single
biggest determinant of competitive
success in the coming decade
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Categarisation of Professional
Practice
• Brains (expertise) practice:
Hire us because we are smart.
• Grey Hair (experience) practice:
Hire us because we have been
through this before
• Procedural (efficiency) practice:
Hire us because we know how to do
this and can deliver it efficiently
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Why not to Merge?
� Why put to risk a successful
practice
� Loss of independence & Flexibility
� Need to compromise and
accommodate
� Rivalry and clash of personalities
� Possible loss of clients
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Why Merge?
� Improved efficiency through in-house
specialisation
� Increased credibility and recognition
� Attracts talented human resources
� Enhances circle of influence
� Greater investment in training,
technology and infrastructure
� Shared burdens and tensions
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Obstacles to Merger
� Fear of Change
� Inability/reluctance to delegate and
empower
� Fear of losing control
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Framework laid down by the ICAI
� Merger agreement in prescribed form to be
filed with Institute
� The existing names of the merging firms
frozen in the Institute’s records for 3 years
� Seniority granted to the new firm from the
date of establishment of the firm under whose
name the merged entity operates
� New name for merged firm possible without
losing seniority
� Demerger possible within 5 years of merger
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Issues to be addressed
� Organisational Philosophy
� Profit sharing
� Decision making authority
� Limits on partner spending
� Security of partners & retirement
and succession plan
� Issues relating to office premises
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The Pre-requisite
� Commonality of thinking amongst
partners
� All issues cannot be visualised
upfront
� Open communication is the key to
resolving unanticipated problems
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Organisational Philosophy
� What is the fundamental guiding
factor for the organization
� Is it shared amongst partners and
communicated to the staff
� Is there clarity on organizational
ethics
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Ethics
� Binds the organization
� Establishes the work culture
� Brings clarity of purpose
� Provides guidelines to tackle
tricky/exceptional situations
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Organisational Structure
� Hierarchical Vs. Flat
� Specialisation Vs. Rotation
� Dedicated staff Vs. Floating Staff
� Customer Centric Vs. Specialization
Centric
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Effective use of Technology
� Invest in technology to enable
downward delegation
� Technology for research and retrieval
of information
� Create knowledge centre
� Systems to track work
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Suite of tools
� Online & offline databases
� Off the shelf & customized software
� Document management systems
� Web/intranets
� Specialist search engines
� Video-conferencing
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Invest in Human Resources
� Monetary rewards
� Work environment
� Job security
� Scope for growth
� Training
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Work Environment
� Nurturing – stimulating – non- threatening
� Allows staff to maintain their uniqueness
and creativity
� Systems are the means to achieve the end
and not an end in itself
� Reward performance and provide support
and guidance to those willing to learn
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Invest in Training
�Technical Technical staff making in house
presentation
�Training Training sessions jointly with other
organisations
�Invite Invite outside faculty
�Encourage Encourage and sponsor staff for
outside training programmes
�On On the job training
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Leverage & Profitability
The Dupont profitability formula for
industrial companies
Profit =
Equity
Profit x
Sales
Margin x
Sales x
Assets
Assets
Equity
Productivity x
Leverage
Continue…….
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Leverage & Profitability
Formula for Industrial Companies
Profit = Profit x
Equity
Sales Assets
Sales x Assets
Formula for Professional Firm
Profit = Profit x Fees x Staff
Partners Fees Staff Partners
Equity
Margin x Productivity x Leverage
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Productivity
Fees = Fees x Hours
Staff Hours Staff
Value x Utilisation
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Under Delegation
• Lack of skill building
• Adverse impact on morale,
motivation, satisfaction and
excitement
• Under investment in the future
• Reluctance of partners in coaching
& supervision
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Integration
� Ιmproves mproves work environment, results
in team building & bonding
� Improves efficiency, gives sense of
security and belonging
� Avoids misunderstanding,
disharmony and conflict
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Quality of Work Vs. Quality of
Service
Goods are consumed but services
are experienced
Satisfaction = Perception - Expectation
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Pre-requisite for Growth
� Ability to take risks
� Willingness to delegate & empower
� Continuous upgradation of skills
� Provide quality service
� Value addition to the client
� Win trust and confidence of client
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Finally
� If everything is coming towards you,
it only means you are driving in the
wrong lane
� Merger is the beginning of a journey
and not a destination
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Acknowledgement
� Managing the Professional Service
Firm by David H. Maister.
� The Professional Service Firm Bible
by John Baschab & Jon Piot.
� Re-engineering the Corporation by
Michael Hammer & James Champy.
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