4 Important tips for successfully selling an accounting practice
Richard Ferguson, CEO Ferguson & Associates, was a highly reputed public accountant and an avid golfer. His firm, Ferguson & Associates, was noted for its impeccable customer service and its wide range of financial services.
Ferguson & Associates scaled new heights under Richard’s leadership, and a change of ownership or a sale was never a point of discussion until his son, also a CPA, found his calling in music and decided to start his rock band. A natural planner that he was, Mr. Ferguson, decided to give a serious thought to his succession strategy.
As a first step, he conducted a thorough SWOT analysis of his business. Next, he evaluated some of his firm’s services and fees and decided to withdraw services for some low paying clients. Finally, Richard developed strategies for smoothly transitioning his existing clients.
The initial sale attempts were not fruitful. Without hesitation, Mr. Ferguson decided to seek professional help. He approached professional brokers for evaluating his multiples and for identifying suitable buyers for his firm. The brokers thoroughly evaluated all the scenarios and developed strategies that fetched a fair price for Ferguson & Associates.
Finally, in July 2019, Ferguson & Associates was successfully transitioned to its new owners. One interesting fact is that the new owners of Ferguson & Associates are not accountants.
So, what are your takeaways from this story? Here are ours:
Tips for successfully selling an accounting practice
Focus on increasing the multiple of your sale value
An accounting practice is not a commodity that sells at a fixed MRP. The value of an accounting firm depends on various parameters such as the size of the firm, number of clients, the location of the business, competitors, and cash flows. Often, there will be a retention period after a sale, which means that the buyer will retain a certain percentage of the sale price for an agreed period, not exceeding five years. The amount received after the retention period solely depends on the number of clients acquired or retained during the retention period. Focus on improving the overall profitability of your business. If it means that you will have to let some low paying clients go, don't hesitate to make the decision.
Move to value-based billing and annuity model of recurring monthly payments
Value-based pricing models and the Annuity model of recurring payments are catching up for the mutual benefits they offer for business owners as well as clients. Rather than charging for the time spent on each activity, you can bundle similar activities and charge for the overall service offered. If you haven't moved away from timesheets, then this is the right time to do so. These methods of billing separate potential profits from time, improve productivity & efficiency of your practice and make your practice more lucrative for potential buyers.
Embrace technology
Technology acts as a key differentiator when it comes to determining the value of your practice. Cloud accounting solutions and SaaS applications for accountants automate activities such as tax-preparation, practice management, client onboarding, documentation, etc. while allowing you to scale your business.
Our experience shows that firms which embrace technology:
Attract more buyers
Fetch higher sale prices
Sell faster and for better terms
Integrate easily with the buyers business
Offer a seamless experience to both buyers and existing clients
List with a certified business intermediary
Instead of trying to market your practice all by yourself, it is always a good idea to seek professional advice from knowledgeable brokers. Brokers are intermediaries between buyers and sellers and offer expert advice to both parties for negotiating a mutually beneficial deal.
Sellers need not go through the hassles of researching and marketing their businesses. Brokers come with a thorough understanding of market conditions and will be in a position to negotiate a better sale proposition on your behalf. Also, their knowledge of business and legal terms will help you to devise a complete plan for a hassle-free transaction.
The services of brokers are not just limited to sellers. Even buyers can reap the benefits. With their in-depth knowledge in business, brokers help buyers to identify and acquire profitable businesses that share a similar business philosophy. Brokers understand the buyer's business and financial capabilities and match them with ideal deals. In some situations, they even arrange for funds required for closing the deal.