Avoid These Buyers When Pursuing Accounting Practice Sales

If you are serious about getting the maximum market value in an accounting practice sale, the most important task is finding the right buyer. There are a myriad of criteria you should look for in an accounting practice buyer. This subject has been discussed in depth at the following link: https://accountingbroker.com/5-questions-for-prospective-buyers-accounting-firm-sale/

However, there are CPA practice buyers that you should absolutely avoid to keep from losing the value you have spent years investing in, growing, and carefully nurturing your accounting practice for sale.

Here are a few of the worst types of buyers:

Buyers Who Desire a Large Percentage Earn-out Contingency

Earn-out buyers are the number one type of buyer to avoid. Their strategy is to shift as much risk as possible to the seller. A typical earn-out deal is structured so that the CPA selling an accounting practice receives a small percentage of the purchase price in cash at closing, with earn-out payments based on a percentage of collections that the buyer receives from the seller’s client list for an agreed period of time.

The primary problem with this type of deal is that it offers no incentive for buyer performance in an accounting practice sale. Some people who desire to buy a CPA firm on an earn-out basis may start out with the best of intentions. But, if the going gets tough and the buyer overestimated his or her excess capacity prior to the CPA practice sale. The end result may be a buyer who does not pursue all of the purchased clients.

Such buyers may begin with good intentions, but later falter during the transition due to the disincentive of the earn-out arrangement. Often, the end result is poor service to all but the best clients acquired. This situation results in high client attrition with the sellers expected earn-out payments being reduced.

Accounting Broker closes CPA practice sales with the majority of the purchase price paid in cash at closing. When a buyer pays a high percentage of cash at closing, he or she is incentivized to transition and pursue as many of the clients as possible. This ensures the seller is not left holding an empty bag.

Cherry Pickers

Cherry pickers are disingenuous buyers who negotiate a large retention contingency or earn-out deal with the intent to keep only the top clients in an accounting practice sale. There is no diplomatic way to put this: Cherry pickers are dangerous and must be avoided at all costs when pursuing CPA practice sales.

This type of buyer, after buying a CPA firm with an earn-out deal containing very little cash at closing, will intentionally target the best clients to service and forget the rest. Many times, entire lower-paying or lower-profile segments of the client list are not even pursued by such buyers. The neglected clients often feel compelled to find another accountant. Those “lower-tier” clients will often never have their calls or emails answered . . . and they will find another CPA.

The buyer is not held responsible for the attrition in this type CPA practice sale. The earn-out deal forces the seller to take the reduction to what he or she will receive from the buyer related to the accounting practice sale.

First, we recommend that sellers should avoid accepting any offer for the sale of an accounting practice that includes a large percentage contingency, because too much can go wrong. We also recommend receiving as much cash as possible in a CPA practice sale to ensure that the buyer will work toward the goal of keeping every single client.

A seller can identify a disingenuous buyer by asking for and speaking with others who have sold their accounting practice to this buyer. Conduct a background check that includes lawsuits. You should also consider dealing with a business broker that specializes in the sale of CPA practices for the best protection against this type of buyer and for your piece of mind. A good broker will eliminate such buyers from the process when selling an accounting practice.

Unqualified Buyers

It seems a simple statement to say, “You simply must avoid unqualified buyers.” First, the buyer must have the correct licenses and the right experience to take on a firm, especially if the firm has any niche specialties. The seller can avoid wasting time, money and trouble by applying this rule from the beginning.

What is not as well understood is that there are other forms of “unqualified” that the seller should zero in on that have nothing to do with test scores, or years working at a similar firm. The completely qualified buyer of a CPA firm must also have people skills, management skills, and have the capacity, at a minimum, to pick up the slack with the seller retiring.

People skills are a must. The buyer should convey a sense of competence, confidence and amicability in dealing with the clients of the CPA practice. Some accountants who wish to buy a CPA firm are really better suited to the back office due to a lack of people skills.

The right buyer will typically desire to retain your employees, but that does not mean he or she (or the acquirer) will have the excess capacity to perform the seller’s job. The buyer must absolutely have the ability of excess capacity available to take over the seller’s role with the CPA practice being sold. It is often the case that the seller and buyer desire the seller to work part time after selling an accounting practice. The buyer, in this instance, should pay the seller for any billable work performed by the seller.

The right buyer in an accounting practice sale should have some demonstrable direct supervisory experience. While there is no specific requirement, this point is important to conventional and the Small Business Administration lenders. Some lenders will not approve a loan for a buyer who has no supervisory experience when the selling firm has employees.

How to Avoid the Wrong Buyers

In order to avoid the wrong buyers and receive maximum value for your CPA practice for sale, it will require competition among a group of the right buyers competing for your practice. At Accounting Broker Acquisition Group we achieve unparalleled results in the pursuit of maximum value firstly because we have the largest pool of qualified buyers in the nation, who are serious about taking their game to the next level.

We are the only national business brokerage of its type comprised 100-percent of brokers who are CPAs with significant “Big Four” merger and acquisition experience. Our marketing, promotion, deal-making strategies and negotiating techniques are not just unique, they are proven to get “sales price maximization.”

We have promoted and negotiated hundreds of deals, involving many millions of dollars in value for sole practitioners, small partnerships, and larger firms. Unless you have to create competition among a group of the right buyers and understand all of the processes and negotiating techniques necessary to achieve full market value, optimal deal structure, and minimization of legal and other risks, you should give us a call.

________________________________________________________________

Journal of Accountancy Article – Read our featured article to learn how to Maximize Value when you sell your accounting practice:
Click Now: https://accountingbroker.com/articles/

Receive the Free Report: “Discover the 12 Fatal Errors You Must Avoid
When You Sell Your CPA Firm”
Click Now: https://accountingbroker.com/areyouselling

Call or email now for free consultation to see what Maximum
Value could mean to the sale of your accounting practice:

(800) 419-1223 Ext. 101
Click now to contact: https://accountingbroker.com/contact/
Email: maximizevalue@accountingbroker.com

Categories

Let Accounting Broker Acquisition Group be the catalyst to enable your new future . . . without leaving money on the table!

Please Call Now: 1-800-419-1223 Ext. 21 . . . or Register Now!