Top Tips for Selling an Accounting Practice
Are you considering selling your accounting firm? If that’s the case, you’re probably wondering where to begin. While the procedure may appear intimidating, it does not have to be. Here are some pointers on how to sell an accounting firm.
First and foremost, make sure you have a sound strategy in place. This entails having a clear vision of what you want to achieve and how you intend to achieve it. Setting reasonable goals and creating a timeframe are essential. Take some time to evaluate your practice and its worth. To receive the best return on investment, you must first determine the value of your company.
Finally, effectively advertise your practice. This entails devising a marketing strategy and contacting potential buyers.
Are you considering selling your accounting firm? If that’s the case, you’re not alone. As the accounting business continues to consolidate, many accountants find themselves in this scenario. However, selling your accounting company may be a difficult process, so knowing what actions to follow is essential. Here are some pointers on how to sell an accounting firm.
Advice For Selling An Accounting Practice
Baby boomers make up about two-thirds of accounting firm owners, and they’re starting to retire. So there could be a sudden influx of accounting businesses on the market – but purchasers are limited.
If you’re planning to sell your accounting firm, you might be up against some stiff competition. Here are seven things to consider before putting your company up for sale.
Things To Think About When Selling An Accounting Practice
The Smaller Your Practice, The Easier The Sale
It will probably be easier for you to locate a buyer if your accounting firm is tiny. This is especially true if you’re the lone proprietor and have total control over the company. Larger corporations may be interested in small accounting firms because:
- Purchasing a client list from a smaller practice is far faster than gaining clients one by one.
- In transitions, smaller practices often have fewer employees to adapt.
A smaller practice is also less expensive to buy, which means you have a larger market – from large corporations to small businesses and even individuals. Prepare for a tougher sale if you own a larger corporation or if you’re a partner selling your equity.
Is Internal Succession An Option?
Selling your accounting firm to another company can spell the end of your business as you knew it. Consider handing over the reins to someone within your practice if you want to ensure that your practice’s vision and culture remain intact.
Partners in larger companies can sell their stock to the remaining owners or emerging stars. The business plan includes succession planning. Small practices face a greater challenge since they may lack the financial resources to hire and groom potential partners. You’ll have to decide whether or not you have someone who is capable:
- experience and leadership to run the practice
- capital to buy you out
You’ll also need to consider whether you have the time and resources to prepare them for the transition. If you have a good candidate for buying the company, you should start talking about it now. They’ll need time to consider whether it’s what they want, as well as a financial strategy to make the purchase.
The Importance Of Client Retention
One of the most important factors in determining the worth of an accounting firm is client retention. Buyers are hesitant to agree to an upfront sale because they fear that clients will quit once the principal has left. Rather, they are more likely to pay yearly instalments that are adjusted based on client retention.
The annual instalments will decrease if the firm loses clients. Annual instalments will rise if it obtains more clients. To put it another way, demonstrating that your organisation has loyal clientele will not suffice. After you’ve left, you’ll need to make sure that loyalty continues. Ensure that your clients have faith in your team.
It’s possible that the quality of your customers is just as crucial as the quantity.
- Have you put in a lot of effort to gain new clients? Slow growth might reduce the value of your firm, so maintain adding accounts.
- Is it easy to work with your clients, and do they pay on time? Accounts that aren’t lucrative will most likely lower your sale price.
The Timing Of The Sale
Many businesses experience busy and sluggish periods, which have an impact on revenue and cash flow. During a busy tax season, for example, you may be preoccupied with compliance. Perhaps you work in a seasonal industry, such as tourism. If this is the case, be cautious when selling. During a period of low earnings, buyers will be hesitant to invest in your practice.
The sale may be influenced by your accounts receivable. In effect, the money you owe for work you’ve already completed is your revenue. However, claiming it after the deal has been completed may place the buyer under duress.
Buyers are looking for a speedy return on their money. They don’t want to have to pay you more money after the transaction because they made a mistake. Consider measures to sweeten the sale, such as:
- transferring control of your practice shortly before your busiest season to assist the buyer in getting up and running
- a short-term loan of your accounts receivable to the buyer to help them with financial flow
A degree of goodwill on your part may result in the buyer investing less capital and, as a result, a higher selling price for you.
Prepare and plan
A successful sale rarely happens by accident. So think about how you’ll sell the company to potential purchasers.
Evaluate your company’s performance and identify areas where you thrive to assist you decide what your sales pitch will be. Those metrics should be heavily promoted. Likewise, you should recognise where you’re falling short and work to correct those problems before they come in the way of a good transaction.
Past profits are obviously crucial when selling an accounting firm, but attempt to portray a bright picture of the future as well. Tell a bigger tale about the company’s future.
What Technology Does Your Practice Use?
The technology you choose for your company can have an impact on its eventual sale. Is your firm, for example, still using outdated software or spreadsheets? If that’s the case, purchasers will assume you do a lot of low-paying manual labour. As a result, they’ll believe that they need to work harder for every dollar that comes in.
If you’ve used cloud accounting or tax and practise management technology, on the other hand, market it. Tell potential buyers how quickly you can complete a transaction. Also, emphasise the following:
- Your employees are tech-savvy and can easily move to a modern firm (or help transform a paper-based parent firm)
- Because your clients use cloud accounting, they are easy to work with.
Consultants Can Help You Value Your Practice And Find Potential Buyers
You’re a small business expert as an accountant. However, you are unlikely to have any experience pricing, marketing, or selling an accounting firm. Consider hiring a professional.
Merger and acquisition consultants are frequently qualified accountants who may assist you with timing and pricing decisions. They are likely to have in-depth knowledge of companies that are looking to buy and can:
- help get your firm in optimal shape to impress buyers
- promote your firm
- act as the broker
How To Sell My Accounting Practice
The second question, after “Should I Sell?” is “How can I sell my accounting practise?” How do you go about doing that? Nearly two-thirds of accounting company owners are in the process of retiring. Right now, the market is still a sellers’ market, with significantly more buyers than sellers. However, this is subject to change.
A good sale does not happen on the spur of the moment. Consider your company to be home. Would you just put it up for sale without cleaning it up? The same can be said for your company. Clean up the area, get rid of the junk, and replace the shattered glass.
What do you want?
Spend some time considering your goals. What would the ideal situation be like? What is unquestionably non-negotiable?
Where is your business heading?
A successful sale rarely happens by accident. Consider how you’ll present the company to potential purchasers. Make a draught of your pitch. Where does your company shine? Those figures should be promoted. Tell the story of your company’s future.
Are you honest?
Be candid and honest about your areas of weakness. A small white lie at the outset can cost you a fantastic buyer later on. As a result, be honest and don’t lie by omission.
Is your buyer already working for or with you?
Selling your accounting firm to a third party could be the end of your business. If you want to keep your practice’s vision and culture, seek for someone from within.
Partners in larger companies can sell their stock to the remaining owners or emerging stars. Succession planning is part of the business plan of larger practises. Partners can sell their stake in the company to the remaining owners or younger employees. Do you have someone on your team who has the expertise and leadership skills to run the practice, as well as the financial means to buy you out and the desire to succeed you?
Start talking about your idea immediately if you have a suitable candidate in mind. They’ll require some time to make decisions and organise their funds.
Will your clients stay?
Buyers are hesitant to agree to an upfront sale because they fear that clients will quit once the principle has left. Instead, they’re more likely to ask for an earnout, in which they pay yearly instalments dependent on client retention. Showing your client list will not suffice. After you’ve left, you’ll need to make sure that loyalty continues. Ensure that your clients have faith in your team.
It’s possible that the quality of your customers is just as crucial as the quantity. Slow growth might reduce the value of your firm, so maintain adding accounts. Is it simple to work with your clients? Is it true that they pay on time? Accounts that aren’t lucrative will most likely lower your sale price.
Is the timing right?
When selling, be cautious. It is preferable to sell when the economy is growing rather than when there is a drought. If your practise has a strong yearly cycle, offer to sell shortly before the busiest season so that your buyer can get up and running right away. This may eventually result in a higher sale price.
Is your data in order?
Buyers are most likely to be turned off by sloppy data. As a result, cleaning up your data should always be the first step. Get rid of past bad debts next. Finally, clean out the closet of any skeletons.
Are your accounts receivables cleaned up?
You own the money owed you for work you’ve previously completed. However, few purchasers are interested in pursuing it for you. And it takes much less to hand it on to you. So, either collect your receivables ahead of time or close your business and send them over to your buyer to keep when they are collected.
Is your technology up to speed?
If your practise uses out-of-date software and spreadsheets, your clients are likely to be out-of-date as well, necessitating a lot of low-paying manual labour. As a result, your buyer will make less money in the future. While technology isn’t required in and of itself, especially if you’re only selling a client list, it does help to construct a picture of who your customers are. And, perhaps more crucially, how your employees work.
Do you know somebody who can help you?
The majority of accountants, tax professionals, and financial advisors only sell once or twice in their careers. As a result, consider hiring an expert who does this on a regular basis.
How big is your practice?
A smaller practise is easier to sell since you may appeal to small accounting companies just as much as larger businesses. You’ll be able to accommodate fewer people and charge a cheaper sales price. As a result, more businesses will be able to afford to buy your practise. If your company is large or you’re selling shares in a partnership, expect a more difficult sale.
Top Tips For Selling An Accounting Practice
Selling a business successfully necessitates planning and knowledge in order to achieve the greatest outcome in the least amount of time. Every firm is unique, and accounting processes, in particular, require specialised attention.
To achieve a successful sale and a smooth transition for the new owner, several critical considerations must be considered.
Time Of Year
It’s natural to believe that the optimum time to sell an accounting firm is around tax season. An accounting practice, on the other hand, has busy and sluggish seasons, and it’s always best to sell when cash flow is good.
There is no such thing as a one-size-fits-all accounting practice paradigm. During tax season, a compliance-focused practice will be busiest. A firm that focuses on seasonal businesses will be busier at certain times throughout the year.
When your revenue and cash flow are strong, selling an accounting business will attract the suitable buyer faster.
Size Of The Accountancy Practice
It’s a common fallacy that the smaller the practice, the easier it is to sell it. The truth is that all types of practices have buyers; it just takes a different marketing strategy.
A typical accounting firm earns between $200,000 and $1 million in fees each year. So a $300,000 practice is in some ways more in demand than, say, a $800,000 practice.
However, there are plenty of buyers for larger businesses in the $800,000 to $3 million range. The difference is in the way it’s promoted. Firms in the lower category will advertise to attract buyers, while those in the $800,000 to $3 million range will sell by identifying who is seeking and approaching them personally.
The smaller companies cater to first-time buyers in the $300,000 to $400,000 price range. This is due to the fact that they are taking in enough money to hire employees and expand the firm. Firms in the higher category are frequently purchased by established practices that have access to finance and have done it previously, so they see no danger.
Maintaining a strong client database will undoubtedly aid in the sale of your accounting firm. Keeping a current client pleased is less expensive than acquiring a new one. When word comes out that the firm is for sale, though, there’s always the risk that clients will depart.
Don’t be alarmed! There is a way to deal with this problem; the key is to maintain things as normal as possible.
When selling a home, the existing owner’s desire to stay on for 6-12 months is crucial. Even if it’s just for a few hours a week, it’ll help make the sale and transition go as smoothly as possible.
It’s preferable to approach the sale and transition in stages. This allows the current owner to introduce the new owner to customers and gradually acclimate them to the idea of change.
Because the existing owner is frequently selling to retire, this is easier than you might imagine. As a result, he or she would be delighted to ease out gradually.
Technology And Data
Another misconception is that in order to sell your accounting firm, you must have the most up-to-date technology. This isn’t a deal-breaker at all. Although newer businesses are more likely to be paperless, there are plenty of accounting firms that have been in business for decades and still employ traditional data storage systems.
Every business has its own system, and buyers generally expect to be able to integrate their existing systems when purchasing another practice.
When it comes to selling, fees can be a concern. But, once again, it’s doable. An older firm’s fees may not have raised in years, and it may suddenly be regarded too low.
The buyer will undoubtedly want to raise the firm’s fees, but he or she must realise that this will not happen immediately. It takes some time to launch a new price structure successfully, so it’s more about managing consumer expectations and transitioning in stages.
It’s critical to consider the future when selling your accounting firm. Potential purchasers will naturally examine at the company’s past financial performance, but it’s also important to emphasise the company’s promising financial future.
Perhaps you’ve recently acquired new clients, implemented new technology, or hired additional personnel. Anything that has the potential to boost your revenue in the months and years ahead should be highlighted.
Mitigating The Risk
When it comes to selling an accounting firm, no challenge is insurmountable. It’s critical to keep emotions at bay and keep in mind that most things are negotiable. You can almost always reduce the danger.
It all boils down to how you organise the transaction. One client, for example, may account for 25% of your whole revenue. A potential buyer might be concerned about what would happen if that one client departed.
To get around this, ask the current owner to stay on for a few months on a part-time basis until you’re satisfied that the client is happy with the change. Alternatively, the buyer may initially join as a partner, easing the company into the sale.
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Is there anyone at your firm interested in taking over the practise? This may appear to be an appealing concept at first look, but it’s crucial to analyse the plan in its whole.
It’s time to put emotion aside and think at this from a business standpoint once more. Does the person in question have the financial means to purchase the company at your asking price? Do they have the necessary expertise, experience, and leadership abilities to run a business? Do you have time to work with them as a coach?
It’s sometimes preferable to market your company and sell to someone you’ve never met before.
Preparing For Sale
Preparation is essential when selling a business. The better your preparation, the better your results will be. Start preparing for the sale six to twelve months ahead of time so you may assess your practice’s performance and make any required modifications or enhancements to make it more appealing to a buyer.
Your client base and retention, pricing structure, staffing and employment contracts, and any leases or licences are all key considerations. Consider what distinguishes your accounting firm from others. Put yourself in the perspective of a possible buyer and think about what might appeal you to the practise.
To help you successfully navigate through the transaction, it goes without saying that your solicitor and financial adviser should be involved from the beginning. It’s also crucial to think about how you’ll sell your company. Remember that a business broker who specialises in accounting firms may already have purchasers lined up.