6 Types of Due Diligence Procedures

Cyfra szeAvoid the temptation to concentrate on some and breeze through others.

By R. Peter Fontaine
NewGate Law

My approach in writing this post is to give you a comprehensive list of due diligence items for your consideration, and to let you select the reviews you wish to perform. The ultimate decision rests with you.

MORE ON MERGERS: How to Merge Sole Practitioners | Thinking ‘Downstream’ Merger? Check These 25 Potential Problems First | 20 Terms to Settle When Merging Up | 13 Questions to Assess an Upward Merger | What to Discuss at the First Merger Negotiation Meeting | What to Ponder Before Issuing a Letter of Intent | One Times Fees Is a Steal! | Looking to Grow Your Firm? How to Find a Seller in Four Steps | 14 Keys to a Successful Merger

The scope of due diligence will differ depending on the transaction, and should be appropriately tailored. However, your Letter of Intent combined with the six areas outlined below result in a fairly comprehensive list of due diligence procedures that should serve the needs of most CPA mergers.
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Practice Continuation Agreements and Why Solos Need Them

Woman and man shaking hands across a deskIt’s a favor, so treat it like one.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

A Practice Continuation Agreement (PCA) is a written contract between a sole practitioner and another firm for the latter to take over the solo’s practice, either permanently or temporarily, in the event of a sudden, unexpected event that prevents the solo from working, most commonly a health issue.

MORE ON MERGERS: How to Merge Sole Practitioners | Merging in Smaller: What to Ask | 18 Concerns About Merging in Smaller Firms | 12 Reasons to Merge In a Smaller Firm

Logically, it would make total sense for every one of the 30,000 sole practitioners in the U.S. to have a PCA in place. After all, the solo has no other partners to take her place and in the vast majority of cases, the solo’s staff doesn’t have the skill level or the certifications needed to run the practice in the absence of the owner.
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Why Due Diligence Is Done

Businessman sitting in office and reading documentsAnd the five steps you can’t skip.

By R. Peter Fontaine
NewGate Law

Few CPAs enjoy the due diligence part of a merger. It’s like proofreading legal agreements or checking the answers to a test before handing it into the teacher. It’s not very exciting.

MORE ON MERGERS: How to Merge Sole Practitioners | 13 Questions Between Merger Equals | 18 Concerns About Merging in Smaller Firms | What to Expect When Merging Up | 16 Reasons Merging Up Causes Anxiety | 14 Provisions to Include in a Letter of Intent | Want to Merge? Ask for Data | The Merger Process in 21 Steps | 13 Ways to Screw Up a Merger | 13 Reasons Accounting Firms Merge

By the time due diligence begins, the parties have usually decided they want to come together and due diligence is viewed as a process to confirm a decision which, for the most part, has already been made.
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How to Merge Sole Practitioners

Two businessmen shaking hands21 issues to consider.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

When considering a merger of sole practitioners, there are numerous critical issues to negotiate. Twenty-one, in fact.

MORE ON MERGERS: Merging in Smaller: What to Ask | 12 Reasons to Merge In a Smaller Firm | 3 Factors That Always Affect Negotiations | Mergers: Assessing Compatibility | Case Studies Reveal Potential LOI Issues | Merger Prep: Getting to Know You | Plant Seeds to Turn Up Merger Candidates | 15 Can’t-Skip Merger Terms to Decide | Mergers 101: When Negotiations Aren’t Really Negotiations

1. Method/system for splitting the profits. Keep in mind that if you devise a system that essentially revolves around making each solo a profit center, as if they still had their own firms, it will tend to discourage the two of you working together as one firm.
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13 Questions Between Merger Equals

Overhead view of 4 hands putting together 4 puzzle piecesNegotiations often are more difficult.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide 

Mergers of equals or firms close to equal (some call these sideways mergers) are much less common than mergers in which there is a clear survivor. But they do occur.

MORE ON MERGERS: Merging in Smaller: What to Ask | Thinking ‘Downstream’ Merger? Check These 25 Potential Problems First | 20 Terms to Settle When Merging Up | 13 Questions to Assess an Upward Merger | What to Discuss at the First Merger Negotiation Meeting | What to Ponder Before Issuing a Letter of Intent

Quite simply, there are two reasons mergers of equals are uncommon:
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Merging in Smaller: What to Ask

Businesswoman talking on phone33 questions the larger firm should ask smaller firm partners, plus a telephone screening form.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

Even though these questions are primarily intended for larger firms to ask smaller firms, some of the questions may be appropriate for the smaller firm to ask larger firms. These are general questions; based on your review of the other firm’s data, you will certainly have specific questions to ask in addition to those below.

MORE ON MERGERS: Thinking ‘Downsteam’ Merger? Check These 25 Potential Problems First | 18 Concerns About Merging in Smaller Firms | What to Expect When Merging Up | 16 Reasons Merging Up Causes Anxiety | 14 Provisions to Include in a Letter of Intent | Want to Merge? Ask for Data | The Merger Process in 21 Steps | 13 Ways to Screw Up a Merger

An important goal of these interviews is to get open, honest and brutally candid responses. At most firms, this is virtually impossible if you interview two or more partners together. Only rarely, where two or three partners appear to be “joined at the hip,” is it acceptable to do group interviews.

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24 Points for AFTER the Deal Is Done

Colleagues working side by sideHow to make sure these two firms start working as one.

By August Aquila
Creating the Effective Partnership

Congratulations! After years of planning and months of tough negotiations, you’ve finally closed the deal on merger of your CPA firm.

MORE ON LEADERSHIP FOR PRO Members: Innovate or Die | 3 Ways to Halt a Poor Leader | Partners Love, Hate Leadership | 8 Questions That Staff Ask In a Merger | The 4 Best Ways to Use Your Senior Partners | 11 Steps to Building a Better Partnership Team

You might be thinking the most difficult work is behind you. Think again! You now have to move your eye from the financial to the human side of the merger.
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Thinking ‘Downstream’ Merger? Check These 25 Potential Problems First

Two businessmen look at a tablet while one drinks coffeeMatch expectations to reality.

By Marc Rosenberg
CPA Firm Mergers: Your Complete Guide

When checking out a downward merger candidate, do your due diligence.

MORE ON MERGERS FOR PRO MEMBERS: 12 Reasons to Merge In a Smaller Firm | 3 Factors That Always Affect Negotiations | What to Discuss at the First Merger Negotiation Meeting | Mergers 101: When Negotiations Aren’t Really Negotiations | 5 Steps to Take Before Merging

Here are the first 16 major issues to consider:

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18 Concerns About Merging in Smaller Firms

Man rubbing his eye and holding glasses while looking at computer with notes stuck to sideThe good news? They all can be overcome.

By Marc Rosenberg

Though not universally true, larger firms will find many aspects of smaller firms to be below their own standards.

MORE ON MERGERS: 20 Terms to Settle When Merging Up | 3 Factors That Always Affect Negotiations | What to Discuss at the First Merger Negotiation Meeting | What to Ponder Before Issuing a Letter of Intent | Plant Seeds to Turn Up Merger Candidates | 13 Ways to Screw Up a Merger

The questions that the acquiring firm needs to ask are:

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