Client Retention – A Challenge for Practice Buyers and Sellers

Prepare for smooth transition

As a practice owner you spent your career building the firm from the ground up. You now have a book full of loyal, regular clients and business is still growing. The time will come when you will have to sell your accounting practice for some reasons, and funding your retirement years is one of them. In any event, getting maximum benefit from the sale of your firm will depend upon the successful transfer of your clients to your buyer. Losing clients during transition will usually reduce the payout.

In a personal service business such as an accounting practice, your clients trust you to solve their problems and meet their needs, and if they like the way you treat them they could be your clients for life. But this can make it difficult for you to sell your practice to someone else because clients tend to reassess their loyalty after an acquisition and you cannot guarantee that they will stay.  How then will you prepare for transition and maintain continuity?

Allay stakeholders’ fears

• Look at the deal from the clients’ perspective.  The clients will get an initial shock.  But once they get over it, they will realize they still need an accountant. The best option for the clients is almost always to give the new owner a try – convenience is their top priority. After all, the new owner already has their files and can be found in many cases at the same phone number and the same address as the old owner.   If the buyer makes it a priority to reach out to them as soon as possible then staying with the new owner is the easiest choice for the clients to make.
• The seller must clearly communicate to the clients, that he carefully prepared for this event and that services will be provided by the new owner in a similar manner with similar fees to put them at ease.  Informing them of an impending change will make them feel protected by their trusted adviser.
• Both the seller and the buyer must develop a business plan for a permanent takeover of the firm by the new owner.  It should include work processing, governance, billings and collection. For the protection of the buyer, the plan should also include a non-competition agreement.
• The seller must assist the buyer with introductions to clients and endorsement letters and to bring the goodwill of his clients to the new owner.  It is important that he makes himself available to the new owner for a period of time after the sale to answer questions and help with issues. The smoother the transition for clients is, the more likely they are to stay.

Structuring the transfer of the practice

In an article written by Joel Sinkin, a partner in Accounting Transition Advisors, LLC, he suggested two ways to structure transitions from one firm to another.

• Merger Contract with Buy-Out.
  The seller and successor merge their practices with a future buy-out, the detailed terms stipulated, signed, sealed, and delivered up front,creating an affiliation starting an appropriate time before the seller’s retirement. Not only does this allow for a stronger, more comfortable transition of the client base, but in the event of the seller’s death, permanent or temporary disability, back-up is already in place.

The seller may also be the beneficiary of increased technology and support, to better service clients until the eventual buy-out. While the buy-out can be done in stages, it is important to have it in place in advance. Neither party wants to wake up three years after initiation of the merger and realize that one or the other cannot agree on the next step of the buy-out or how to structure it. An agreement that details the entire process should be acknowledged prior to establishing any affiliation.

• Sale with a Consulting Agreement.
  Selling a practice with a continuing consulting agreement can give the seller many features of a buy-out without the liability exposure of continuing as a partner. The greater the possibility of increased exposure to the seller, the more this arrangement may make sense. While a consulting agreement is obviously for the purpose of an orderly transition, i.e., giving the clients an opportunity to get accustomed to the change, it should not be announced to the seller’s client base up front as a “done deal.”

Keep the clients happy

Practice acquisitions expand client bases, but holding onto clients can be a significant challenge.  Changes in products and services can often be the catalyst that forces clients to go and look for another provider.  From what we have observed the risk of retaining clients should be shared by both the buyer and the seller.  But for the most part, it is the buyer who has control over client retention.  It is the new owner who makes decisions regarding quality of services and if he does not provide fair solutions for them, they will leave no matter what the seller says.