Thinking of selling your accounting practice and moving on? Well, before you put your business on the market, there are several pertinent points which need to be considered. However, firstly, one must take time to prepare a comprehensive profile for prospective buyers. This profile should include a detailed description of the practice and a brief summary which should include the sale price and the support services being offered. One must include the type of clients and why the owner is selling. Other points to include would be:
– the exact address
– appearance of the office
– details of any lease agreement and options for renewal
– list of all services and products provided to clients
– gross fee income for the last three completed years
– number of clients and average fees per client
– computer hardware and software in use
– telecommunication systems and lines in use
– currently used operations and procedure manuals
Once this is done, the next step would be for your legal advisor to look through the document to ensure there is no information there that could be used by potential buyers to damage your business. It is essential that every buyer and seller ensure the entire process is overseen by a professional lawyer and broker. This will ensure a well drawn up legal agreement. A thorough due diligence, with proper legal advice and a well-drawn up legal agreement will result in better prices, terms and better result for all. You will also need to determine the price you want to sell your business and this is usually done following an analysis of your client base and fee structure. Your sale price should be influenced by the market for practices of your type and typically, the price will trade at a premium or discount to value. Also, it has been noted that the best time to advertise for potential buyers is at the start of each calendar year and before the new financial year.There are numberous situations that can negatively impact the price which include poor or missing accounting records. Other factors that could play a significant role in influencing the price include:
Buyers usually focus on the top 20 or 30 fee paying clients and if they are all aged 55 plus then buyers fear up to 40% of the practice will cease within a few years. The dependence on top clients means the risk is even higher for the buyer and they might want to negotiate a reduced price, a higher retention amount or an extension of the retention period.
No one will pay big money for a practice that is going downhill. If the practice is a baby boomer and has become complacent with no marketing, website or financial planning, then buyers would be under the impression that it is probably in its twilight years and not worth pursuing.
With increasing rentals and wages, it would be pointless for buyers to invest in a practice where the fees have remained flat or even decreasing.
Getting quality staff these days has become a major challenge and if a particular practice has employees producing three times their salary in fees, then this may greatly influence the buyer’s decision.
Also, other factors such as the technology used in the practice may influence the price as technology these days has been noted to be a sound investment for the future value of businesses. The primary purpose of technological change is to drive efficiencies and better productivity that leads to improved profits. There are also numerous misconceptions one may have when deciding to sell his or her accounting practice. One common misconception is that the best buyer for an accounting practice would be another similar firm. In many instances, an existing firm is not an ideal buyer of a practice. This is especially evident as most existing firms often do not have the time to take on another practice. Also, an individual who has several years of experience and often dreamed of owning his own firm would be more willing to devote time and energy to taking over the workload and making the practice work. Such an individual is much more motivated than the typical firm buyer. Also, very often we think that the average selling price for practices determines the value of a specific practice. Averages often tell nothing important about the value of a specific practice its specific location. When you consider the value of a practice, you must realise it has many unique characteristics including location, client mix, staffing, profitability and others. These specific qualities of a practice must be addressed to determine value, not averages.
At the end of the day, selling or even buying an accounting practice is not an easy task. However, one must keep in mind that a professional and qualified consultant can make things much easier and help you value your practice and find potential buyers. Most accountants do not usually have much experience in pricing, marketing or selling an accounting practice and this is why one should consider using a specialist. Very often deals fall apart due to the re-negotiation of terms over and over again, inadequate due diligence, underestimating client loss and negotiating a one-sided agreement.