What happens with the IT infrastructure when two practices merge? What is the strategic approach? How long should it take to move one party onto the other’s platform? Are there reasons to hold off and maintain disparate systems? Does the merger raise any peculiarities or issues particular to the sector? Read on…

The financial and analytical acumen that practitioners gain in their studies doesn’t always translate into them making the best decisions when it comes to their own business.

And the merger of two practices – generally the acquisition and absorption of one into another – is certainly an area that relies on strong diligence, project management and planning, rather than the detail of FRS 102 or the latest Finance Act.

So, how much does ‘technology’ form the merger or acquisition process? Focus may be on complementary client bases and service lines plus the culture and working practices of staff and partners – does IT get a look-in as a key aspect of dealmaking and integration among practices?

For Keith Underwood, MD of practice advisers Foulger Underwood, undertaking IT due diligence should be a key part of any merger, and to an increasing degree.

“IT has become a key factor in helping generate additional profitability by putting the two practices together onto a single platform,” he says.

“You’d want as much of that to take place on day one as possible to gain rationalisation and a benefit to the bottom line.”

One anonymous practitioner told AdvanceTrack that during an acquisition of a smaller practice the approach was simply “you’re coming onto our system”. But they had failed to gauge the quality of the acquiree’s technology – or the lack of quality in their own system: “Looking back, at the point of merger there should have been a review of the overall systems from a big, small and joint perspective. The due diligence was focused on securing the financial deal, rather than the logistics.”

Mark Taylor, a technical manager in the ICAEW’s IT Faculty, concurs. It can be difficult to set out a stall for knowing how the tech integration will work, he says, but consideration must be made as part of the pre-deal diligence process.

“For some organisations it will come down to who has the ‘newest and shiniest kit’, particularly if one of the parties has been through a recent IT change,” says Taylor.

“A lot of decisions will be made as you approach the merger: the fit seems right on a client and cultural level, and then the IT representatives from each side meet and find out things are similar. The tech will be as much a reason to merge, as cultural, client base or service approach.”

The digitisation of practices is being driven by regulation (Making Tax Digital; complex, continuous tax updates; FRS102; and GDPR), along with the ability of new tech to automate processes that were once manually intensive. The increasing pace of change of technological advances means that many practices have moved quickly to new cloud-based platforms and services. Others are muddling through, making smaller changes or putting in more effort to stay still.

Without wishing to over-generalise, there will be a substantial number of firms whose owners are looking to get out before having to invest in change. For practices that have digitised their offering, the slow-movers can become attractive targets.

“Because one firm is more technically mature than another, the acquirer will say ‘rather than you have to invest, why don’t you merge with us and we’ll save you that pain?’,” explains Taylor.

“It puts you in a position to take over a firm that’s not digital savvy – digital often drives cost savings as well.”

Conversely, Underwood has seen deals “killed” where the acquirer is paper-intensive in its processes, and can’t find a way to embed a digital-only practice into the fold.

Data protection

GDPR is worth mentioning. Data protection and privacy rules have broadened, and punishments increased greatly, under the new European legislation. So, the process of client data transfers in a merger or acquisition require a robust approach.

Consideration must be made that a merger project will likely see changes to systems and access controls during the process. “They’ll need breaking down a bit to allow movement,” suggests Taylor. “So you’ll need a solid change management programme in place”.

Underwood is seeing GDPR become a factor within the due diligence process of a deal. The great risk is that the acquiree practice has failed to purge itself of unnecessary or old client information.

“If a firm hasn’t cleaned their files then work is involved… if you’ve got data on people who are no longer clients, that has to be identified and deleted,” he says.

Another hurdle to clear is data formatting, says Taylor, a process he describes as “extract, transform and load”. Common problems include client dates of birth being in American format, or something other than DD/MM/YY. “It can be different things in different organisations,” he says. Again, time and cost need to be considered for such issues.

Impact on clients

There are two other extremely important considerations. First, the question of client-facing IT must be considered. As Underwood posits, if an acquiree’s client base uses QuickBooks and your practice’s clients use Xero, will you port them across and what impact will that have on retention?

“There will be increasing questions over the retention of clients in relation to the use of different apps or data entry. It is a risk consideration in determining the suitability of a potential target or merger,” says Underwood.

Finally, when considering your practice’s IT requirements post merger/acquisition, it’s vital to maintain flexibility where possible.

For Carl Reader, a co-owner of Swindon-based accountants d&t, a successful integration may set off the spark for further deals.

“If it works, then you’ll probably have found a way to fund the acquisition or merger, and have the appetite for appropriate risk. Once you have that in place, why would you not consider doing it again? So you should think about systems with a growth perspective,” says Reader.

“It’s something I’ve seen other practices do: they get fit for purpose of where they are now, but not where they’re going to be.

“Clients don’t have a ten-year life any more. From that perspective you have to think about acquisition or organic growth, so you need systems that allow the practice to grow.”

Practice viewpoint: Kingston Burrowes

Bruce Burrowes is a CIMA-qualified member in practice, running a three-office firm in Surbiton, Kingston and Wimbledon.

His small but burgeoning practice has taken on a number of client lists, and also brought across staff from acquired practices.

For him, he “keeps an eye on the tech” but it’s not a key influencer in the deal. “My starting point is that their clients will end up on my systems,” says Burrowes. “The reason is that we like to think that what we’re doing is pretty good.”

He does, however, “take a peek” at the acquiree’s tech choices and processes, “to learn”. “You talk to the seller about their tech, what they use, why they like it and how they use it,” Burrowes explains.

For his firm, part of the process of bringing acquired staff on board is to get them involved from day one on helping port across and manage their previous client list into the new system. “They’re an expert on the client, but not your systems,” he says. During that process they work with existing staff and is the first step in them becoming part of the team.

Crucially, he calls on an acquiree to produce a “control list” database. This contains details about how clients are linked together. For example, the name of the client, how they’re referred to in documentation, what businesses they own and what names they trade as. It will also contain information about what services they currently receive and what they’ve been billed.

For Burrowes this is a crucial reference document to help manage situations and double-check details when the previous practice owner has gone.

“Clients may be linked by family, it’s important to know that information,” he says.

Ultimately, Burrowes tries to manage IT risk by operating a single platform that provides a full suite of products. While expensive and no product is perfect, he knows the software covers “every eventuality” and simplifies the integration process.

“I remove risk by getting one product to do the lot,” he concludes.

Vipul’s view

AdvanceTrack MD Vipul Sheth takes the IT infrastructure issues out of the merger equation, and focuses on helping the key personnel work together

You might think that, with our main feature covering the topic of IT in practice mergers and acquisitions, I would also speak at length about the issues covered? Well, no – I think our commentators have done so extremely well, and you don’t need more from me.

I find the non-IT issues around mergers are fascinating but also extremely important. For example, considering the culture of the two organisations in a merger. More narrowly, can the senior leaders of the practices work together if both sets are staying on?

There is then lots of work to understand the skillsets of both firms’ staff, along with setting a clear idea of what post-merger financial and responsibilities will look like.

As you’ll see below, we can help take much of the IT integration weight off your back, particularly when you have so many other considerations to take into account.

 

Referring clients to other service providers is a path well-trodden by advisers, but it is often handled by practices in an opportunistic, ad-hoc, and ‘arms-length’ manner. But thinking about a strategy where clients receive high-level business advice from their accountant fits with ‘holding their hand’ for other types of business support they require – even if outside the practice’s comfort zone. However, ‘outsourcing’ front-end services to other professionals requires processes and strategy, much like outsourcing compliance services or back-office functions.

“Clients value having a business partner on their journey; one who can assist them in negotiating the twists and turns of their business life as they strive to achieve their goals and who can empathise with them,” says Wood & Disney’s Brendon Howlett. “While we can outsource a substantial amount of the ‘doing’, we can’t outsource this relationship building and we wouldn’t want to. After all, people do business with people.”

One practitioner told us that their approach was to act as a “go-between” for clients and the third-party service provider – an arrangement that suits all involved. Working with third parties requires research: find out about them from other practices they’ve worked with; learn if your goals and culture is aligned with theirs; and discuss how the relationship will work with them. Finally, start working with them in a strategic way that truly tests the service before rolling it out.

Paul Barnes is the managing director of My Accountancy Place, which provides accounting and finance services to digital agencies. The practice, which operates with two directors and 15 staff, uses AdvanceTrack® to free up its team to provide deeper and more valuable services to clients. He explains the practice’s strategy, and development beyond compliance work.

Paul, tell us about your practice

We are a niche firm based in Manchester. We only service one industry: digital agencies providing marketing, creative and digital services, predominantly in the North West. We turn away those that don’t fit that. Our practice works using Xero technology.We have moved from being a ‘good, proactive firm of accountants’ to a full finance outsourced function. Rather than clients building their own finance team, we provide the full finance function. This encompasses strategy, financial control, making sure their systems run smoothly, and bookkeeping. My team works across clients (from our office), but spend a lot of their time with those clients in their offices.We can do just compliance, but we can do the whole lot. We bring industry expertise and systems expertise to the table as well.

When did you start using AdvanceTrack®, and why?

We started My Accountancy Place in 2014, and began using AdvanceTrack® in mid-2015. For the compliance function and historical accounting services that we provide, these are becoming more and more commoditised. It was an opportunity for us – we have real skills to grow and improve our clients’ businesses but were restricted by the amount of compliance and bookkeeping work.So, we streamlined that offering and outsourced, allowing our team to spend more time on the more rewarding and challenging work that truly makes a difference to our client’s businesses. For the value provided by AdvanceTrack® in terms of cost and service level, it was a complete no-brainer. It has removed the headache of managing that service, and we can use highly-qualified accountants from the start with our clients.

What impact has AdvanceTrack® had on the running of your practice?

Everyone in the practice has moved up a gear or two in terms of what they can give clients. When you sign up new customers, the on-boarding process can be challenging and you’re under pressure to provide value straight away. Now we can map out clients’ processes straight away – then that becomes an ongoing task run through AdvanceTrack® and it just repeats.We then get on with our job of advising clients. Anything non-client-facing goes to AdvanceTrack®; some of that is complex work but AdvanceTrack® can do it. Straight away we can start improving the clients’ business.

What is the future for your practice? What are you looking to achieve, and how?

There is still a lot of confusion in the accountancy market around what ‘advisory’ is all about. For us it’s about simplifying the journey the business goes on. We want to illustrate that journey through our own IP, delivered through workbooks, guides and workshops… moving the client away from the office and allowing them to focus on strategy and growth and to help them short-cut the mistakes and bad investments. We’re seeing small businesses now starting to expect what big businesses expect from their professional advisers, and they have every right to. Speak to AdvanceTrack® about helping you create a modern and pro table practice. Call us on +44(0)24 7601 6308 or email advice@advancetrack.com.

It is interesting to observe the changes in the profession as a result of technology. As a technologically advanced accountancy outsourcer, we understand the changes and are driving the biggest changes in the profession. Cloud accounting is transformational.

What is surprising is that there are a significant proportion of firms who have yet to develop an integrated approach to cloud accounting and bookkeeping.

Receipt Bank contribute their thoughts on making bookkeeping pay for the professional firm. This is available to read on our website.

Many accounting firms have steered away from bookkeeping in the past due to the relatively low value and the large volume of paperwork. Consider how much work you passed to local bookkeepers in the past? Consider how inconsistent the quality of these bookkeepers has been over that time.

So what are your options today?

No change (The Do nothing strategy)

That is a strategy of sorts. The long-term impact of such a strategy is to reduce the long-term value of your practice, as few new entrepreneurs will buy your firm’s services if you don’t demonstrate cloud capability.

Half-baked cloud strategy (Partial cloud strategy)

There are many firms that fit this profile. Consider how many of you have clients that use Sage, Xero or QBO (and many others) and because your client has introduced you to them, you do support them, but it is almost accidental?

In this instance, you support anything as long as you win the client.

Full cloud strategy

This is where the firm has a clear strategy as to which products it will support and how they will transition appropriate clients to their chosen software products and how they will attract new clients using their expertise in the chosen products.

A truly professional outsourcer like AdvanceTrack® can deliver cost-effective and efficient delivery of bookkeeping and other compliance services. This strategy can also help deliver a cloud strategy faster than in-house staff.

Outsourcing should help you focus on what you do best – deliver better service and advice to your clients.

AdvanceTrack® is run by UK based ICAEW Chartered Accountants and are certified by BSI in the UK for ISO9001:2015 (Quality Management) and ISO27001:2013 (Information Security Management) and operating since 2003.

Call us today to arrange a meeting to help you develop and deliver your cloud strategy on +44 (0)24 7601 6308

“It is interesting to observe the changes in the profession as a result of technology. As a technologically advanced accountancy outsourcer, we understand the changes and are driving the biggest changes in the profession.”