Thoughts on ways to improve the management of professional services firms

Tuesday, November 07, 2006

Professional Services - selling your practice: making the sale succeed

I was flattered to receive a mention on Chris Marston's Inside the Firm of the Future, although I should note for the record that I am not myself an attorney, an inference that could be drawn from Chris's words.

Chris's article Apathy Abounds, Until The Walls Come Tumbling Down addresses the issue of poor succession planning in medium and big size firms, using a comparison between partnership and corporation structures to make a number of points relating to management and governance. These are issues that I have been addressing as well.

In my last post I looked at the mechanics and some simple maths associated with sale of small practices. In this post I want to look briefly at what is required to make a sale a success for both side. This is not rocket science, simply basic common sense.

The approach I described in my post was designed to reduce financial risk while increasing chances of success through transition arrangements with sale price dependent on performance in the period after the sale. However, risks still remain.

These risks are not so much financial, but rather the danger that scarce time may have to be diverted from other activities to try to make things work. Both sides can take action to reduce this problem.

Key Risks

There are a number of common reasons why acquisitions of the type we are talking about run into problems. They can be summarised this way:
  1. System and process incompatibilities. Information such as client records must be migrated from the old to the acquiring practice. Because systems and processes vary between practices, problems can arise in doing this.
  2. Business incompatibilities. This area includes service offerings, billing approaches and pricing policy. Simple imposition without thought of the acquiring firm's billing and pricing policies may lead to very real business problems.
  3. Client loss. Acquisition without a clear client migration strategy may lead to significant client loss.
  4. Cultural incompatibility and integration failure. This links to earlier points, but extends beyond this to include issues of cultural fit between the selling professional or practice and the new firm as well as failure to properly transfer knowledge from the original to acquiring practice. A clear integration strategy is therefore required.
  5. Exit failure. Exit failure comes about because both sides have failed to define properly how final exit is to be handled. Results can include unhappiness on both sides together with client loss.
Importance of the Due Diligence Phase

As I said, none of this is rocket science. Yet I remain amazed at how often both seller and buyer fail to address these issues.

The due diligence phase is critical if problems are to be avoided. Too often, this phase is seen in narrow terms, checking facts, negotiating required contracts. In fact, it is the core phase during which all the management issues associated with the acquisition need to be addressed and a proper integration plan developed.

No comments: