Are you thinking of selling your PA accounting practice or CPA firm? You need to plan ahead. Selling an accounting practice takes preparation if you want to sell for a good price.
The first question to consider is timing–when it is a good time to sell and when it is a bad time to sell. A bad time is when you’re feeling burnt out and overwhelmed. A down market is also a bad time, because there will be few buyers, and those who are in the market are hunting for a bargain. The best time to sell is during a good market when you personally are truly ready to sell.
This last point is important. You have probably built your firm from scratch. You’ve certainly put a lot of your life into it. Are you prepared to walk away entirely and turn it over to someone else?
Even if you’re not quite ready to let go, or if the current climate is not conducive to selling your firm, you should be getting your firm ready so that when the time is right, you can make the perfect sale.
Preparing your firm for sale forces you to look with a critical eye at your current condition. An accounting business appraiser may look at the following factors, among others:
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Marketing strategy to continually draw new clients
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Growth rate
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Size and location of the firm
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Composition of client base
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The quality of your team
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Technology
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Services offered or niche markets
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Profitability of the firm
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Reputation of the firm
Business appraisers look at these factors because buyers do. These are the qualities that make for an attractive buy. Evaluating these factors and implementing upgrades before you have your firm valued will increase the appraiser’s valuation.
Once you have evaluated some of these factors, begin to implement any necessary upgrades. Get your whole team involved. Making changes to improve efficiency and increase revenue should be an ongoing process, not just when you are considering an eventual sale, so everyone should be on board. Bring them into the brainstorming process as you evaluate and implement new processes, policies, and technology. Consider the following categories:
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Financials and client base: Review your processes for bringing in new clients. Do you have an upselling policy or referral incentive program? What is your marketing outreach strategy? How do you retain clients? Do you have clearly defined goals and strategies for increasing annual revenue and actionable steps for implementation? Do you need to improve your Accounts Receivable aging? What debts do you need to address or consolidate?
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Staffing: Do you have the best staff for your firm? Are there any existing staff members whom you can mentor or to whom you can delegate more of your work? Would any of your staff be interested in buying you out, and would that person have the qualities and skills to keep the firm going?
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Services and markets: Are the services that you offer and the niches in which you work sufficiently profitable, or should some be phased out and replaced with more profitable options?
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Reputation and involvement: How is your firm’s reputation? Are you synonymous with your firm, or is there a sufficient distribution of responsibilities such that, if you left the firm, clients would still feel confident that the firm would continue? Do you have an emergency plan in place so that everything runs smoothly while you are gone? This emergency plan is critical, and not only because it ensures the firm continues if you have a sudden illness or take an extended vacation. It also creates structure and stability in the company, may highlight which employees might be good successors, and shows potential buyers that the firm runs smoothly, like a well-oiled machine.
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Technology and property: Buyers don’t want a paper-based accounting firm. If you haven’t yet, transition into cloud-based accounting programs with high-level security systems to protect client privacy and guard against fraud. If you own your office, refurnish and refurbish. A fresh coat of paint and upgraded furniture make every office look more valuable.
Structuring the deal
You have many options when it comes time to sell, and you may want to engage a broker who is experienced in accounting firm sales and buy-outs in order to evaluate the best options for you. Some buyers may have a client retention period, withholding part of the sale price until a certain time has passed and a certain percentage of clients have been retained. If you wish to continue working part-time, this might help with client retention. A lengthened payout period allows a buyer to see a profit sooner and makes it look more attractive to the buyer.
These and other options can be discussed with a business broker. But take the time now to prepare for the sale, and you will be in a stronger position when it’s time to negotiate a sale.