5 key things to consider before selling your accounting practice

Talk to your partners

It is rare that partners will have exactly the same exit timetables. Often, for the partner(s) that will continue the practice, the impacts of an exit can be significant. It’s important that you have the full support of the remaining partners to help facilitate your exit. The sooner you discuss your desire to sell your accounting practice with partners the better.

Get your timing right

Timing is really important. The best time to sell is when you are ready to do something else with your time. Obviously you want to maximize the value of your practice, but exiting is only partly a financial decision. After all, if you are selling to retire, then you will always make more money if you keep working. Our happiest clients are those who have clear plans and a strong desire to move onto the next chapter of their lives. You may never feel 100% ready to sell, but you should at least get to the 80% mark before putting your practice on the market. Also, don’t wait until you either have to sell or are burned out to the point where you are ready to walk away from your practice. Markets vary significantly in terms of the time it takes to sell an accounting firm. In a “hot” market it may take a couple of months, whereas in a slower market, it can take years. At Poe Group Advisors, we actually recommend fairly brief transition periods.

Position your practice

Ideally, your practice is always ready for market, but it’s wise to get a bird’s eye view of your practice a few years prior to a sale. This will give you enough time to get your practice in optimal condition to make it attractive to buyers. Below are a few of the most important things that buyers will consider:

  • Positive Revenue Trend – Declines in top-line revenue can be very concerning because they can indicate a decline in service. Trends can continue after a change in ownership so modest growth is best.
  • Revenue Mix – Take a look at your service offerings and consider eliminating lines of work that are rare and/or unprofitable. If your firm has a small segment of business that isn’t extremely profitable and/or not a service that very many firms provide, then keeping that segment could harm your marketability. For example, all buyers are likely to want business tax work, but few may want to perform governmental audit work. If you have only one or two of these audits, it’s often smart to eliminate that work and to focus on growing other areas that are more desirable. In our experience, most firms are surprised at how fast new work replaces old work once those hours are free.
  • Cash flow to owner – It’s important to remember that a buyer is likely to have debt service payments on the acquisition loan. The cash flow available after paying their debt service will have a significant impact on their value of your firm. There are often a few key areas that you can focus on to increase cash flow to your practice. Please check out our succession planning guide for more information.

Decide on your approach

Partner buyouts are often quite straightforward and hopefully even spelled-out in partnership agreements. If you are putting your practice on the market though, your approach will likely impact your timing, your price, and your terms. Hiring an intermediary who can act as an objective party in the transaction can have significant benefits such as:  helping make better decisions around choosing buyers, handling negotiations, managing the transition and understanding market conditions.

Keep your eye on the ball

Selling can take a lot of time and energy. It is important that your management and client responsibilities are well-maintained while your practice is being marketed. Keep the practice growing, avoid any dips, and keep the sale confidential.

Brannon Poe, CPA, is the founder of Poe Group Advisors a leading accounting practice brokerage firm. He is the author of Accountant’s Flight Plan: Best Practices for Today’s Firms and On Your Own: How to Start Your Own CPA Firm, and blogs at Poe

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