Common Misconceptions About Selling a Practice
Selling an accounting practice is a once-in-a-lifetime experience for most practice owners. Since it is such a rare event, sellers need to be aware of some key misconceptions about the process.
“The seller needs to stay around for years to assist the buyer in the transition.”
Despite what most think when they consider selling their practice, extensive experience with countless practice sales has shown us that a shorter transition is much more effective for both parties.
It is also a common belief that the best scenario is for the seller to engage in extended and/or repeated meetings between the buyer and the clients. However, experienced buyers know that the tendency in such meetings is for the former owner and client to do all of the talking and for the buyer to be an outsider. Similarly, if the seller stays around the office, clients will want to talk to the seller rather than to the new buyer. However, if the buyer meets the clients without the seller, there will be a better chance for the buyer to get to know the clients and to establish good relationships.
“The best buyer for an accounting practice is another accounting firm.”
In many instances, an existing firm is not the ideal buyer of a practice because it doesn’t have the time to take on another practice. In a typical sale situation, the seller is ready to retire. The buyer must be willing to assume the workload of an experienced owner as well as do all the extra things involved in a transition. A typical buying firm does not have such an individual available who can fill the shoes of the seller.
This lack of time ties into the second reason why firms are sometimes not the best buyers for practices: Firms are often only marginally motivated to buy a practice. Of course, all firms are motivated if a seller offers generous terms and agrees to continue working at a reduced rate of pay. Compare this to a potential buyer who has several years of experience and has dreamed of owning a practice. That buyer brings to the table the willingness to devote much time and energy to taking over the workload.
“Accounting practices have some intrinsic value that all potential buyers recognize, and with which all agree.”
If one is selling a gallon of gasoline, this might be true. But most people need gasoline, purchase it regularly and have a good idea of what it costs. This is not true of accounting practices. Many people in the world would not purchase a practice if it were offered to them for a dollar. In a metropolitan area of millions, there might only be a couple hundred potential buyers for a particular practice. In other areas, there might be considerably less.
If a practice is offered at a certain price, all potential buyers might step up to the plate with check in hand. On the other hand, it could be priced at a level where only one or two would agree to purchase. Sometimes a seller turns away a very motivated and capable buyer because, for one reason or another, the seller decides the buyer is not quite perfect. His or her misconception is that there are many buyers and that all buyers are equally motivated and equally willing to pay some known price. That misconception could be costly.
This same misconception comes into play when sellers think that the only trick is finding a buyer. Practice owners routinely say, “I have someone interested in buying my practice.” The implication is that finding a buyer is the hard part. The object in selling a practice (unlike in selling gasoline) is to first locate all potential buyers for the practice and, from that group, determine the top five or 10 percent in terms of motivation and ability. It is from this group one must find the buyer if one is interested in finding the true value of the firm.
Holmes Group is a dedicated team of brokers with over fifty years of combined experience in accounting practice sales and acquisitions. The members of The Holmes Group have diverse backgrounds in accounting, sales and finance to assist in every part of the sales process from business valuation and marketing to closing and transition. Contact Accounting Practice Sales at firstname.lastname@example.org.
Sherif Boctor, CPA, is the president of Accounting Practice Sales II, Inc. (APS), a national sales and marketing firm specializing in the sales and acquisitions of CPA, accounting, audit and related practices.