Top Tips For Selling An Accounting Practice

If you are thinking about selling your accounting practise, it is imperative that you take the necessary steps to properly prepare and plan for the transaction. Here are some helpful hints that will make the operation run as smoothly as it possibly can.

First, you need to have a good understanding of your objectives for the transaction. If you have a crystal clear notion of what you want, it will be much easier for you to focus on the correct prospects and negotiate in a way that is favourable to you. This is true whether your goal is to make a quick sale or to maximise your earnings. The second step is to check that all of your books are in line and current. This can bolster prospective purchasers' faith in your company and make the investigation into its legitimacy far less time consuming. In conclusion, get an early start and be ready to put in a lot of effort!

When you make the decision to sell your accounting practise, it is critical to formulate a strategy that will make the transaction as uncomplicated and devoid of anxiety as it can possibly be. The following is a list of some of the most helpful recommendations for selling your accounting practise.

Planning is crucial! The less stressful the sale will be for you, the less organised you are likely to be. Create a list that includes everything you have to do and the date by which it must be completed.

The easiest strategy to locate a purchaser for your accounting practise is to engage in some form of networking. Make connections with other local industry experts and let them understand that you're interested in selling your product or service.

Best Practices For Selling An Accounting Firm

Getting the best possible return in the shortest amount of time when selling a business requires extensive planning as well as extensive knowledge. Because of the unique nature of each company and the varied nature of accounting procedures, businesses of all sizes warrant varying degrees of focus.

Not only is it necessary to think about a few important factors in order to make sure that the sale goes well, but also that the transition to the new owner goes off without a hitch.

Period of Time

One could be led to believe that the most profitable time of year to sell an accounting practise is when tax season is in full swing. When selling an accounting practise, the ideal time to do so is when cash flow is positive, as the practise will experience both busy and sluggish periods.

However, there is not a single model of accountancy practise that is suitable for all businesses. The busiest time of year for a practise that prioritises compliance is during the tax season. A practise that caters largely to seasonal clients may see its popular times of the year at certain points throughout the year.

When you want to sell your accounting practise, it will be easier to find the proper buyer if you do so when your income and cash flow are robust.

Regarding The Scale Of The Accounting Firm

There is a common misunderstanding that the selling will be simpler the smaller the practise is. The reality is that there are potential customers for every kind of business; the marketing strategy needed to reach them is simply different.

The annual fees that an average accounting firm brings in might range anywhere from $200,000 to $1 million. A practise that costs $300,000 might be in higher demand than one that costs $800,000 in some respects.

However, there are also numerous buyers in the $800,000 to $3 million price range interested in purchasing larger businesses. The difference lies in the manner in which it is marketed. Businesses in the lower group will attract possible buyers by advertising, however businesses with an asking price of $800,000 to $3 million are typically sold by directly approaching those who are wanting to acquire them and knowing who they are.

In general, first-time buyers in the range of $300,000 to $400,000 are drawn to the offerings of the smaller firms. They are generating a sufficient amount of revenue to warrant the hiring of staff and the expansion of the company. The companies that fall inside the upper range are frequently acquired by existing practises that already have funds available to them and have completed the task in the past, so they do not perceive any risk in doing so.

Customer Retention

Keeping a robust database of clients is obviously going to be helpful when trying to sell your accounting practise. It is more cost effective to maintain the happiness of an existing client than it is to acquire a new one. However, there is always the concern that customers would stop doing business with the company if they find out that it is up for sale.

Don't lose your cool! There is a way to handle this problem, and the key is to carry on as if nothing has happened; this is the "business as usual" method.

When it comes time to sell, it is essential that the current owner be willing to continue on for another six to twelve months. Even if it's simply on a casual basis for a couple of hours each week, it will contribute to making the sale and the transfer smooth and seamless.

Dealing with the sale and the transfer in stages is the optimal strategy. This affords the current owner the opportunity to familiarise customers with the new proprietor and ease them into the concept of transition over a period of time.

This is not as difficult as you might believe it to be because, in many cases, the legal owner is selling in plan to retire. They would be more than willing to ease out gradually if given the opportunity.

Both Technology And Information

Another common misunderstanding is that in order to sell your accounting firm, you need to have all of the most recent technological equipment installed. This is not, in and of itself, a deal-killer. Although more recent businesses are more likely to be digital, there are still plenty of accountancy offices that have been in business for a significant amount of time and make use of conventional methods of data preservation.

When purchasing another practise, prospective purchasers typically anticipate having to integrate their existing business management software into the new operation.

Fees

When it comes to selling, fees could be a problem. On the other hand, it is not insurmountable. If a company hasn't raised its prices in many years, people may view them as being unreasonably low now because of this.

The buyer will almost probably have an interest in raising the prices charged by the company, but they must be aware that this cannot be accomplished overnight. Because it takes some time to successfully implement a new price structure, the primary focus should be on regulating the expectations of the purchaser and making the transition in stages.

Looking Forward

It is essential to plan ahead when you are putting your accounting practise up for sale on the market. It is expected that prospective purchasers will investigate the company's historical financial performance; yet, it is essential to emphasise the organization's promising financial prospects for the future.

You might have recently acquired new customers, implemented innovative technological solutions, or expanded your workforce. Anything that has even a remote possibility of increasing your revenue in the months and years ahead should be brought to your attention.

Reducing the Risk

When it comes to the process of selling an accounting practise, there is no obstacle that cannot be overcome. It is essential to separate emotion from the situation and keep in mind that nearly everything is up for negotiation. You can almost always find a solution to lessen the risk.

Everything depends on how you organise the business transaction. Take, as an illustration, the possibility that only one customer contributes 25% of your whole revenue. It is understandable that a potential purchaser might be concerned about the consequences of losing even a single customer.

The issue can be circumvented by requesting that the current owner continue working there on a part-time basis for a period of time between three and six months, or until you are certain that the customer is okay with the transition. Another option is for the buyer to join the company first as a partner, which will help the company transition more smoothly into the sale.

Within-Group Succession

Is there a member of your company who would be interested in taking over the practise? Although at first blush, this may appear to be a tempting proposition, it is essential to examine the idea in light of all of its positive and negative aspects.

Again, it's necessary to detach ourselves from our feelings and think about this situation strictly from a business perspective. Does the potential buyer possess the financial resources necessary to acquire the company at the asking price? Are they equipped with the necessary business acumen, expertise, and leadership qualities to run their own company? Have you set aside some time to instruct them?

There are instances when it is in the best interest of your company to market itself and sell to a customer with whom you have no prior connection.

Getting Ready for Sale

When marketing any kind of business, planning is the most important factor. The more thoroughly you prepare, the more successfully you will do the task. Start planning the sale six to twelve months in advance so that you may analyse the performance of your practise and make any required modifications or enhancements to make it more appealing to a buyer before you put it up for sale.

Your client base and your ability to keep them are two of the most crucial things to think about, along with your price structure, personnel and employment contracts, and any leases or licences you may have. Think about the aspects that set your firm apart from others that offer accounting services. Put yourself in the position of a possible buyer and think about the features of the practise that would appeal to you in particular.

It is obvious that your financial adviser and your solicitor must be involved from the very beginning of the sale process in order to assist you in effectively navigating through the process. It is also essential to think about the process via which you will sell your company. Keep in mind that a business broker who specialises in accounting practises may already have interested purchasers waiting for the practise that they are selling.

Advice on How to Sell Your Accounting Firm

The owners of over two-thirds of accounting firms are baby boomers, and many of them have started the retirement process. Therefore, there may suddenly be an overabundance of accounting firms entering the market, but there are only a limited number of customers.

If you are considering selling your accounting practise, you should be aware that there is likely to be some competition in the near future. Before you put your company up for sale, you should give some consideration to the following seven factors.

When Your Practise is Smaller, Making a Sale is Much Simpler

If your accounting practise is on the smaller side, you should generally have an easier time finding a buyer for it. This is especially important to keep in mind if you are the only owner of the company and have entire control over its operations. Larger accounting firms may be interested in purchasing smaller practises for the following reasons:

• Buying a client list from a local business that has less customers is a far more time-efficient strategy than attracting customers one by one.
• In general, smaller practises have fewer staff members to assist patients during shift changes.

It is also often less expensive to acquire a smaller practise, which means that you have access to a larger market, ranging from large corporations all the way down to small practises and even individuals. Be prepared for a more challenging sale if you operate a larger company or if you are a partner selling your ownership stake in the business.

What About Internal Succession?

It's possible that selling your accounting practise to another company will mark the end of your company as you've known it. If you would rather secure the continuation of the vision and culture of your practise, you should think about handing the reins over to someone already employed there.

Partners in larger companies have the option of selling their equity to the company's current owners or to rising stars in larger companies. The succession strategy is incorporated into the overall business plan. It is significantly more difficult for small practises, since there might have been no funding to hire and train potential partners. This makes the process much more difficult. You will need to make a decision as to whether or not you employ someone with sufficient:

• the necessary expertise and direction to manage the practise
• capital to buy you out of your contract

In addition to this, you will need to determine whether or not you have the necessary amount of time and resources to prepare them ready to take over. If you know of someone who would be a good fit to buy the company, you should probably begin speaking about your idea right away. They will need some time to think about whether or not it is something that they desire, and they will also need to construct a budget in order to buy it.

The Value Of Customer Retention

When determining the worth of an accounting practise, customer retention is one of the most important criteria to look at. The possibility that clients will depart after the handover, after the principal has moved on, is one of the primary reasons why buyers almost never agree to an up-front transaction. Instead, it's more probable that they'll pay in annual instalments, which can be changed dependent on how long they remain a customer.

If the company loses customers, the annual instalments will decrease as a result. In the event that it acquires new customers, the annual payments will be increased. It will not be enough to show that your company has devoted customers, to put it another way. You will need to take steps to guarantee that loyalty is maintained after you have left the organisation. Ensure that your customers have faith in the members of your staff.

It's possible that the value of your customers is just as crucial as the quantity of them you have.

• Have you put in a lot of effort to get new customers? It is important to continuously adding new accounts because a poor growth rate could hurt the value of your practise.
• Are your customers straightforward to work with and prompt with their payments? Your sale price will most certainly suffer as a result of unprofitable accounts.

When The Sale Will Begin And End

A great deal of businesses go through busy and slow cycles, both of which have an impact on revenue and cash flow. For instance, you may be focused on compliance due to the hectic nature of tax season. Or perhaps you cater to cyclical businesses such as the tourism industry. If this is the case, you need to be careful about the timing of your sale. When earnings are low, prospective purchasers won't be interested in investing in your practise.

Your outstanding invoices have the potential to influence the sale as well. Your income might be thought of as the sum of money that is owing to you for work that you have already completed. However, collecting it after the deal has already been completed can put the buyer under unnecessary stress.

The purchasers are looking for a rapid return on their investment. They would prefer to avoid the inconvenience of having to make an additional financial transaction with you so soon after the sale. Think of methods to make the offer more appealing, such as:

• handing over control of your practise shortly before the time of year when it is expected to generate the most revenue in order to assist the buyer in getting off to a quick start.
• providing the buyer with more cash flow by lending them your accounts receivable for a limited period of time.

If you demonstrate a certain degree of kindness towards the buyer, they may make a smaller initial financial investment, which could result in a higher selling price for you.

Plan and Prepare

Rarely does a successful sale merely happen by itself. Therefore, give some consideration to how you will present the company to prospective purchasers.

Evaluate the success of your company and identify the areas in which it excels to assist you in deciding what your sales pitch is going to be. Emphasize the importance of certain measures. Equally as important, you should be honest about the areas in which you are struggling and make an effort to fix these problems before they prevent you from making a profitable transaction.

When trying to sell an accounting practise, it is crucial to highlight the firm's historical profitability, but you should also strive to build a positive picture of the firm's prospects going forwards. Share a more comprehensive narrative regarding the future of the company.

Steps to Take Before Listing Your Home for Sale

Create a practise profile for prospective clients

This should be a detailed description of the practise, with a title such as "Accountancy Practice for Sale" or "Accountancy Practice Information Memorandum," and it should include the following information about the practise:

Summary for executives

A concise overview of the medical practise that is up for sale, including the asking price, any critical terms that are necessary, and the handover support that is being provided.

Information on the setting

General comments about the company, such as its history, team structure, mission, and vision of the company into the prospective, competitive advantages or points of difference, a brief overview of the professional services provided, the type and source of clients, and the geographical area serviced, as well as a brief description of corporate office and details about the technology employed.

Owners' justification for selling

The cause (or reasons) and/or problem (or problems) that have led to the idea to sell the business.

Business premises

Provide specific information regarding the following: the exact address(es), the surrounding environment and physical appearance of the office, as well as whether or not there is scope for growth; whether the occupancy is available as tenant or owner, details of any lease agreement, and options for renewal; and whether or not there is parking available for both customers and employees.

The provision of services and/or products

A comprehensive listing of all of the products and/or services that are now being offered to customers, as well as a list of any future services and/or products that are currently in the development stages. Provide information regarding whether or not there are referral sources for the company, as well as whether or not there are any contracts that document the comprehension of the arrangements, such as who has ownership of the customer and management of client service delivery and income sharing, etc.

Suppliers

Provide specifics regarding the primary categories of vendors serving the company, including the categories of costs they cover (e.g. subscriptions, software and licences etc.). Include external service suppliers for client tasks such as auditing and financial planning in addition to other service suppliers to the firm such as those providing advertising, marketing, information technology, and so on.

Customer analysis

• The gross fee income of the firm for the previous three completed years as well as the current year to date (including a budget for the remainder of the year if applicable) along with an apportionment of the income between the practise service areas (such as tax, accounting, audit, financial planning, consulting, etc.) along with the percentage split on the same basis.
• Analysis of the client base of the company based on segmentation, which includes clustering the amount of customer within value bands (according to fees generated) within the most recent completed year, as well as gathering the amount of customer according to the type of engagement completed (for example, the type of tax return completed, etc.), and displaying both the total number of clients and the average fees per client.
• Client history and background – provide an outline of the firm's client selection criteria as well as a summary of the typical client in terms of age group, tenure with firm, industry type, geographic area, services currently being being used and whether or not under fixed price agreements, what percentage of fees are paid in advance, and whether or not there are honorariums or pro bono assignments. In addition, indicate whether or not there are honorariums or pro bono assignments.

Financial analysis

• Profit and loss statement for the last three years and the current year to date (including a budget for the
• balance of the year if applicable) adjusted for vendor expense items
• Current balance sheet
• Specifics regarding the amount of money brought in by fees from particularly large or unique projects (if any)
• Firm KPI report
• Registers of plant and equipment as well as software
• Provide specific information on all active purchase, lease, and other financing agreements.
• Provide specifics on all of the expenses that have already been paid, such as rent, memberships, subscriptions, and insurance.

Marketing strategy

Describe the marketing strategies that are already in place for the company's services. This could include the methods used to acquire new customers, as well as any particular advertising or marketing plans and contracts that are currently in place across all types of media.

Human resources

Include the following information regarding the members of the company's team:

• organisation chart showing job titles, areas of responsibility and reporting lines
• credentials together with areas of expertise and specialisations
• years of experience
• productivity, total wages and charge-out levels, average weekly hours worked and average weekly hours billed, and average weekly hours worked
• %, WIP write-offs/ons
• accruals of annual leave, sick leave, long service leave, and maternity/paternity leave entitlements and time off in lieu of those leaves and times off in lieu of those leaves
• amounts taken etc.

All of the aforementioned information should be provided on behalf of the outgoing principal, as it will provide a better indication to the prospective buyer of how much time he or she will be needed to dedicate to the fee creation and administration of the existing firm and client base. This is an extremely important step that should not be skipped. Alternately, it will give an idea of the amount of skill and role(s) that are required in order to replace the departing principal with the appropriate staff (s).