Living together

In the 1990s roll-up craze, a lot of business commitments were made without the proper due diligence or regard for corporate culture compatibility.

Even with the lessons learned from past mistakes, it’s still not uncommon for service firms to acquire or merge with other small firms without doing their homework. But there’s much more to these transitions than just handing over a book of clients.

“We have acquired sole practitioners who are looking for an exit strategy or smaller practice groups who want to be able to offer more services and need a resource base to do so,” says Robin Baum, managing partner at accounting firm Zinner & Co.

Zinner has done nine mergers or acquisitions as part of its growth strategy. But it has taken a different approach from the ” roll up whatever lies in your path approach” that many larger companies have taken. Instead, the firm “lives together for a year” with its potential partner.

“Living together is a strategy that Zinner has used that dates back to the early ’90s,” says Baum.

The process allows for thorough due diligence, increasing partnership’s chances for success.

“We would rather know about them before we go through the process, and before finding out that we need a divorce,” says Braun.

In the living together strategy, the firm or practitioner in question subleases space at Zinner’s location and shares administrative and computer resources while maintaining separate client files.

This approach, Baum says, allows her and her staff to observe their prospective partner’s method of conducting business while determining if there are any deal-breaking problems or differences.

“It allows there to be an apples-to-apples comparison,” she says. “We go through one tax season (and) you see how people have operated during a very stressful time.”

Zinner’s management can also observe how the firm’s leadership handles a higher level of accountability that comes from going from entrepreneur to partner.

“When you are picking people that have grown their businesses successfully, they’ve had a certain level of autonomy,” says Baum.

Some entrepreneurs simply can’t handle the change in responsibility. But it works both ways. As much as Zinner wants to make sure the firms it is living with will be a positive addition, these companies are concerned with the service their long-term clients will receive.

“In many cases, they have a great concern that their clients will be serviced well,” says Baum. “In our arrangement, they (the co-habitating firm) are willing to do whatever is necessary to make the right introductions and facilitate that transfer of integrity.”

The seamless transfer that comes from living together is much more effective in retaining clients when it comes time to make it legal, says Baum.

“We learned very quickly that clients don’t like to be treated as chattel,” she says. “If they feel that way, it is a prelude to losing that account. It’s important not to make any client feel that they are not big enough or don’t fit into the organization.”

It all boils down to a touchy-feely approach to growth through acquisition, which has previously been considered more of a numbers game.

“The corporate culture aspect has been the driving force in our due diligence … it is a driving force in any niche practice,” says Baum.

And it seems to be working.

“We’ve had a total of nine living together arrangements,” says Baum. “And in only two cases did we make the decision not to merge or acquire … and both were mutual decisions.” How to reach: Zinner & Co., (216) 831-0733 or

Now for some good news

The hiring of full-time accounting and finance professionals is expected to increase a net 6 percent in Cleveland during the first quarter of 2004, according to Robert Half International Hiring Index, outpacing the projected national average of a net 2 percent.

* 11 percent of local CFOs surveyed plan to expand their accounting departments, while only 5 percent anticipate reductions in personnel. The majority, 88 percent, anticipate no change in hiring.

* 11 percent of CFOs in the East North Central region plan to expand their accounting departments, while 1 percent anticipate staff reductions.

* 15 percent of financial executives in the insurance, real estate and finance industries expect to hire more personnel — a trend that has continued for the last three quarters.

* 37 percent of CFOs who said they plan to hire accounting and finance professionals during the first quarter cited anticipated business growth as the primary factor driving the demand, up from 30 percent in the fourth quarter.