By Richard Frizzell, CPA, MSA
Gray, Gray & Gray, LLP
Selecting the right accounting firm represents a critical decision for a search fund entrepreneur. A well-chosen accountant not only ensures regulatory compliance but also adds significant value during your search process, transaction phase and post-acquisition operations. With the unique challenges that searchers , from raising capital to identifying target companies and executing successful transitions, your choice of accountant can significantly impact both your credibility with investors and your operational effectiveness after acquisition.
The Search Fund Landscape
Search fund operators face distinctive challenges that traditional businesses don’t encounter. Your accountant must understand the nuanced structure of search funds, including the capital stack, investor expectations and the unique pressures of the acquisition search period. Many accounting firms claim to serve small and medium-sized businesses, but relatively few have specialized knowledge of the search fund model and entrepreneur-through-acquisition (ETA) process.
When evaluating potential accountants, consider their experience with similar investment structures. Have they worked with searchers specifically? Do they understand the difference between a self-funded search, a traditional search fund and a search fund accelerator model? Their familiarity with these distinctions will influence how effectively they can anticipate your needs and provide relevant guidance.
Industry-Specific Experience Counts
Beyond understanding the search fund model itself, your accountant should have experience in the industries you’re targeting for acquisition. Industry-specific accounting practices, regulatory requirements and common financial challenges vary significantly across sectors. An accountant with relevant industry experience brings valuable context to their analysis, allowing them to identify potential issues that generalists might miss.
For instance, if you’re targeting manufacturing companies, your accountant should understand inventory valuation methods common in manufacturing, typical capital expenditure patterns and industry-standard key performance indicators. This specialized knowledge becomes particularly valuable during due diligence, when identifying financial risks and opportunities requires both technical accounting expertise and industry context.
Look Beyond Compliance
While compliance represents an essential function of your accounting firm, the most valuable accountant relationships extend far beyond basic regulatory requirements. The right provider serves as a strategic partner throughout your search fund journey, offering insights that inform your acquisition criteria, target evaluation, and post-acquisition integration strategy.
During your search phase, a knowledgeable accountant can help you develop financial due diligence frameworks tailored to your acquisition criteria. They can assist in identifying red flags in prospective acquisitions and help you understand the financial implications of different business models. Post-acquisition, they can guide financial reporting improvements, tax planning strategies and operational efficiency initiatives.
Size Compatibility and Service Level Expectations
The size and structure of your accounting firm significantly impacts your working relationship. Large firms offer comprehensive resources but may assign search fund clients to junior staff members. Smaller firms may provide more partner attention but potentially lack specialized expertise or geographic reach.
Consider where your needs fall on this spectrum. If your search targets span multiple geographies or industries, a larger firm with broad capabilities may be appropriate. If you value close collaboration and personalized service, a smaller firm with experience in search funds might be the better choice. The key is finding a provider whose service model aligns with your specific requirements.
Quality of Earnings and Financial Due Diligence
Quality of earnings (QoE) analysis represents a crucial component of acquisition due diligence. Your accountant should offer robust QoE capabilities. A thorough QoE assessment validates reported financials, identifies sustainable earnings, highlights potential risks and uncovers opportunities for operational improvement.
Evaluate potential providers based on their approach to QoE analysis. Do they offer a standardized process or customize their approach to specific industries and situations? How do they coordinate with other transaction advisors? The thoroughness and sophistication of their QoE methodology often indicates their overall value as an acquisition advisor.
Technological Capabilities and Efficiency
Modern accounting firms leverage technology to enhance both efficiency and insight depth. Cloud-based collaboration tools, data analytics platforms and automated testing capabilities can significantly streamline engagements while providing more meaningful analysis.
Ask potential providers about their technological capabilities. How do they leverage data analytics in their approach? What collaboration platforms do they use? How do they incorporate technology into their QoE and due diligence processes? Their answers will indicate not only their efficiency but also the depth of insight they can provide from your financial data.
Post-Acquisition Support and Integration
The period immediately following an acquisition presents unique financial and operational challenges. Your accountant should offer support services specifically designed for post-acquisition integration, including post-close accounting, net working capital true-up support, and accounting system transitions.
Discuss post-acquisition capabilities with potential providers. Can they provide transitional CFO services if needed? How do they approach the standardization of accounting practices following an acquisition? Their answers will help you assess their value beyond the transaction itself.
Building a Long-Term Relationship
Search fund entrepreneurs typically aim to operate their acquired businesses for extended periods, making the long-term viability of your accountant relationship particularly important. Consider how potential providers approach client relationships. Do they emphasize long-term partnerships or transaction-based engagements? How do they structure their client service teams to ensure consistency across years?
The right provider grows with your business, adapting their services as your needs evolve from acquisition through operation and eventual exit. Their commitment to understanding your long-term vision significantly enhances their value as a strategic advisor.
Fee Structures and Value Alignment
While cost shouldn’t be the primary selection factor, understanding how potential providers structure their fees helps assess value alignment. Some firms offer fixed-fee arrangements for specific services, while others work on hourly rates.
Discuss fee expectations transparently, focusing not merely on cost but on value delivered. Consider how their fee structure accommodates the different phases of your search fund journey, from capital raising through acquisition and ongoing operation.
Mutual Commitment
Selecting the right accountant represents a strategic decision that impacts every phase of your search fund journey. It is a mutual commitment to working in close collaboration to achieve the desired results, both during the acquisition and beyond. By carefully evaluating potential providers, you can identify an accounting partner who delivers both compliance assurance and strategic value. The right accounting firm relationship enhances your credibility with investors and lenders, improves your acquisition process and provides ongoing value throughout your ownership period.
Richard Frizzell, CPA, MSA, is a Partner in the Transaction Advisory Services Group at Gray, Gray & Gray, LLP. He can be reached at rfrizzell@gggllp.com.