First and foremost, if another firm gains a competitive advantage, it often puts you at a competitive disadvantage. An example of this would be in the case of firms located in major metropolitan areas such as Chicago, Philadelphia, Los Angeles, etc. that have historically billed out for services at a higher rate, are now acquiring or merging with firms outside these metropolitan areas and pushing out work to those other locations that can complete it at lower rates. If the client is billed at the historical rate and services are now performed at a lower cost, the reduction in service cost (additional profit for your competitor) becomes a tool to accomplish many things including, but not limited to:
- Competing with you at comparable rates
- Reducing the amount of work you can go after or compete for
- Having the financial wherewithal to acquire currently available talent
- Expanding its geographic reach, potentially infringing on an area or industry that you may serve
- Negatively impacting your bottom line directly or indirectly
- Making it less likely you can compete for a piece of the business on certain clients
Should you hit the panic button? No, but you should begin a process of strategic planning and practice analysis. It does not take much thought to realize the potential ripple effect on the smaller firms in the coming years and values of practices continuing to drop.
For more information:
- Mergers Emerge as Dominant Trend by Joel Sinkin and Terrence Putney, Journal of Accountancy, c2013
- A Two-Stage Solution to Succession Procrastination by Joel Sinkin and Terrence Putney, Journal of Accountancy, c2013
- Alternative Deal Structures for Succession by Joel Sinkin and Terrence Putney, Journal of Accountancy, c2014
- CPA Firm Mergers: Is It a Buyers’ or Sellers’ Marketplace? by Joel Sinkin, AccountingToday.com, c2012
