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?
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.