Selling the CPA practice you’ve spent years or even decades of your life building is a big decision. It is often important to start preparing one or two years before the sale. While there are some things you can’t alter – you’re unlikely to move your Chicago CPA practice to New York – you absolutely can make changes to maximize value when you’re preparing to sell your CPA practice.
1. Enhance Bottom Line Profitability
Some argue that profitability is relatively unimportant compared to overall firm revenues in establishing the selling price of a CPA practice. We consistently find that this is not true. Assuming all other variables are equal, interested buyers are going to choose the more profitable firm every time. And pay top dollar for it. Additionally, higher profitability will make a firm more attractive to lenders financing the purchase price. In order to insure maximum value when you sell your accounting practice, you should continue to aggressively pursue new clients. Increase billing rates and fees where you can. Trim expenses where possible. “Tighten the ship”. Every dollar added to the bottom line can pay off multiple times in terms of a higher selling price. Increasing profitability is the single most important thing you can do in the year or two leading up to your sale.
2. Clean House
First impressions are always important. Just like when selling a home, your office should look good. Potential buyers will have a much stronger affinity for your work space if it’s neat, clean and well organized. This is especially important if the buyer is going to deep the existing office and space. If two firms are equal in profitability but one has a much nicer office environment that can be a deciding factor. Remember – a prospective buyer is likely picturing themselves sitting in your office, at your desk, being the owner of your CPA firm.
Also, clean house on your firm’s internal accounting records. Your paperwork and taxes should be in order. You will prepare financial summaries and schedules for potential buyers to review. They should cleanly tie back to tax returns and internal records, and should be professional looking. CPAs can be like overweight or smoking doctors – meticulous about their client’s paperwork while their own is shoddy. If a potential buyer or a loan underwriter finds that your internal accounting records are not in order, it can cause doubts about accuracy and can undermine the value of the CPA practice.
3. Minimize Long Term Commitments
In the year or two before your sale, you should try to minimize long-term contractual obligations. Considering a new seven-year lease? Don’t do it. Potential buyers might want to move the firm to a different space one block away, and having a long term lease could be a significant obstacle to a sale. The same thing goes for office equipment leases and other long-term commitments.
4. Keep it Quiet
Confidentiality before and during the process of the sale of a CPA firm is absolutely critical. You do not want your clients, your staff, or your competitors to know that you are selling your firm until you are ready to tell them.
In trying to be a good employer, potential sellers often make the mistake of prematurely sharing their intention to sell their CPA practice with staff. Don’t do this. You’ll create an environment of uncertainty for your employees. They’ll worry about losing their jobs, or that the new CPA owner or the new office culture will not be a fit for them. If you tell employees prematurely, they may leave, and leak word to clients and competitors.
Instead, wait until you are much further along in the process of selling your CPA firm to a highly qualified buyer who has made an offer you wish to accept. Prior to making an announcement to employees, due diligence should be complete, a definitive purchase agreement drafted with substantial points agreed to, and financing lined up and approved. Then, a week or two before closing, announce the sale to your employees so the buyer will have time to work out agreements with them just prior to closing. This buyer can reassure the employees that they will not be losing their jobs . . . and they will have no reason to go elsewhere to look for employment.
We suggest waiting to make the announcement to clients that you have sold your accounting practice until after the deal has closed. Waiting until then will save you significant embarrassment and “egg on your face” if something were to happen that would keep the sale of your CPA firm from closing.
5. Plan ahead for Non-Compete Agreements
A common concern for a potential buyer for your CPA practice is that after the sale, an existing employee will leave and take clients with them. A non-compete agreement can be an effective tool to mitigate this risk. It you don’t already have non-compete agreements with your key employees it is a good idea get them in place. You should broach the topic with employees a couple of years prior to the sale of your CPA firm. This way they won’t perceive the agreements as attributable just to the sale or to the buyer of your CPA firm.
If you follow these steps, you can maximize the value of your CPA practice when it’s time to sell. To find the absolute best buyer and to achieve an exceptional price and terms, call Accounting Broker Acquisition Group. With our database of tens of thousands of active buyers, we can focus in on the perfect person to take over your CPA practice. Accounting Broker Acquisition Group is the only national business brokerage of its type comprised 100-percent of brokers who are CPAs with significant “Big Four” merger and acquisition experience. Contact us now for your free report “Will You Leave Money on the Table? Discover the 12 Irreversible Fatal Errors You Must Avoid When You Sell Your Firm!”