Prepare for smooth transition
As an owner of a practice, you have dedicated your career to building your firm from the ground up. With a roster full of loyal, regular clients and continued growth, the time will eventually come when you need to sell your accounting practice for various reasons, one of them being funding for your retirement years. However, ensuring that you receive maximum benefit from the sale relies heavily on successfully transferring your clients to the buyer without any loss. During this transition period, it is common for clients to reevaluate their loyalty, making it challenging for you to guarantee their retention once ownership changes hands. So how can you effectively prepare for this transition while maintaining continuity?
Allay stakeholders’ fears
- Consider the situation from a client’s point of view. While clients may initially be surprised by a change in ownership, they will soon realise that they still require the services of an accountant. In most cases, it is most convenient for clients to give the new owner a chance. After all, the new owner already has access to their files and can be contacted at the same phone number and address as the previous owner. If the buyer promptly reaches out to these clients, staying with the new owner becomes a logical and effortless decision for them.
- It is imperative for the seller to effectively communicate with clients, reassuring them that thorough preparations have been made for this transition and that the new owner will continue to provide services in a similar manner, along with comparable fees. By informing clients of the upcoming change, they can find solace in the knowledge that their trusted adviser is looking out for their best interests.
- The seller and buyer alike are responsible for creating a comprehensive business plan that outlines the seamless transition of ownership. This plan should address crucial elements such as workflow management, corporate governance, billing procedures, and collections. Additionally, to safeguard the interests of the buyer, it is essential to include a non-competition agreement within the plan.
- It is crucial for the seller to provide the buyer with support in terms of client introductions and endorsement letters, as well as transferring the goodwill of their clients to the new owner. It is also essential for the seller to be accessible to the new owner post-sale, offering assistance and guidance whenever needed. By ensuring a seamless transition for clients, their likelihood of remaining with the business increases significantly.
Structuring the transfer of the practice
According to Joel Sinkin, a partner at Accounting Transition Advisors, LLC, there are two recommended methods for structuring transitions from one firm to another.
- Merger Contract with Buy-Out. The seller and successor collaborate to merge their practices through a future buy-out, with all the specific terms established and agreed upon in advance. This creates an affiliation that starts at an appropriate time before the seller’s retirement. By doing so, not only does it facilitate a smoother and more seamless transition of the client base, but it also ensures that there is already a backup plan in place in case of the seller’s death or any permanent or temporary disability they may experience. The seller may also receive enhanced technology and support to improve client service until the eventual buy-out. It is crucial to have a buy-out plan in place ahead of time, even if it is done gradually. Neither party wants to find themselves in a situation three years after the merger where they cannot agree on the next steps or how to structure the buy-out. It is important to establish an agreement that outlines the entire process before entering into any partnership.
- Sale with a Consulting Agreement. Selling a practice with a continuing consulting agreement can offer sellers the benefits of a buy-out without the risks associated with remaining as a partner. This arrangement becomes increasingly appealing when there is a higher potential for increased liability exposure. The primary objective of a consulting agreement is to facilitate a smooth and controlled transition, allowing clients to adapt to the change gradually. However, it is important not to prematurely announce this arrangement as an absolute certainty to the seller’s client base.
Keep the clients happy
The acquisition of practices can lead to the expansion of client bases; however, retaining clients can prove to be a considerable challenge. Changes in products and services often serve as the catalyst that prompts clients to seek out alternative providers. Based on our observations, the responsibility for retaining clients should be shared by both the buyer and the seller. Nevertheless, it is primarily the buyer who holds the power in terms of client retention. As the new owner, they are responsible for making decisions regarding service quality. If they fail to provide satisfactory solutions, clients will inevitably depart regardless of any assurances made by the seller.
