Buying & Operating Secondary Offices has Some Challenges
As more and more practices seek to achieve growth through acquisition, an increasing number seem to be considering the purchase of secondary offices located, at times, in significantly different geographic areas that vary from their original location. This can be in a completely different area or even State. This concept is not necessarily new for some who have operated multiple offices in various locations for several years. However, for others it is a relatively new initiative.
That said, at times, such a strategy doesn’t always come up smelling of roses. It takes careful consideration and planning, some of which include:
1. Economic Benefit
Naturally, we generally wish to make an acquisition to gain a financial benefit which typically comes in the form of additional revenue that is generated from the acquired client base. However, as many of the larger firms discovered some time ago, operating multiple functioning offices often has an impact of around 2% to a firm’s bottom line.
Even in this day and age of cloud computing and virtual offices, aspects such as staff, premises and equipment are still required at each location. Furthermore, deciding to operate multiple offices will also remove or reduce the economies of scale that can be achieved from making an acquisition and relocating it into a firm’s primary premises. Therefore, it will be important from the outset that the practice operating in the secondary location be as financially sound as possible to ensure its impact upon operational costs of the group as a whole are limited. That said, for many, this initiative commenced due to the relative lack of practices for sale in the open marketplace.
2. Operational Management
Ding ding ding ding ….. this aspect is a major factor requiring attention and one that we see many purchasers overlook in multiple location acquisitions.
The big question; who is going to be responsible for the day-to-day operation of the practice? The proposed vendor may be prepared to provide a period of transition as part of the sale, however, generally they want to sell out to reduce their time in the practice, whined back to part-time involvement and pass the daily grind and responsibility of running the practice over to someone else.
When making an acquisition in a different location, it is imperative to determine who is going to be responsible for the daily management and operational decisions that will arise. It may be a capable senior staff member already at that location or it may require the relocation of a partner or senior employee from your primary office.
Certainly, in merger scenarios, the partners or principals in that secondary location may be willing to continue the daily operations. But surely having just made the acquisition, you want to start running the practice and put your stamp on it going forward. After all, it is now your asset.
3. Client Transition & Retention
Of course, another important factor associated with making an acquisition is the need to get to know the client base and for them to get to know you as the new owner. Without transition and retention, the purchaser never truly knows how successful the transaction has been.
If the transition from the old to new owners doesn’t take place, you have a reduced chance of maintaining and retaining those clients who may simply walk out the door once the vendor departs. This is at no fault to the original owner and is irrespective of all the clawbacks in the world, particularly those that will have expired by this time.
The owner, or their representatives, need to get in there, get active and be introduced to the clients.