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How to Sell an Accounting Practice for Top Dollar

by Justin Farmer | Nov 05, 2019
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Baby Boomers are retiring en masse across all industries. And while the majority of accounting firm owners are baby boomers who are near the age of retirement (65 or older), just as many younger professionals are coming of age and seek to run their own businesses. For the former group, whether you want to retire, semi-retire (perhaps you just want freedom to travel without firm administration hanging over your head), transitioning the ownership of your firm should be high on your list of priorities. If you are asking, “How can I sell my accounting practice and get top dollar?” you will want to consider the tips below.

There is a Buyer for Every Size Accounting Practice

While the buyer universe is larger for smaller practices (less than $500,000 in gross revenue), there is a buyer for every size practice. With zero-down (yes, no money down) conventional financing options up to $1.2 million, the market for buying and selling any size practice is hot. We have found that, generally speaking, the buyer of a smaller practice is often looking for a “merger of equals”, meaning their firm is roughly the same size. Of course, larger firms also look to smaller practices, as it is often a less time-consuming task to absorb the work, provide notice to clients, manage the staff needed to ramp up production and, in general, integrate the practice. A larger practice (more than $500,000 in gross revenue) offers its own unique selling features as well. Often a larger practice will have more, and tenured, professional staff and stronger systems in place. In truth, a large part of the value of a firm, large or small, in today’s virtual 0% unemployment market, are the people employed who will join the acquiring firm. Whether you are the owner of a large or small accounting practice for sale, it is important to prepare now for your transition.

Continuity of Client Relationships Increases Value

Selling an accounting practice is not like that of a widget factory. A widget factory owner does not need to transition the widgets; they are simply sold. With an accounting practice, relationships, and goodwill from the same, is what is transferred. As such, in order to obtain top dollar, and ensure clients will remain with the new owner, remaining on as an employee or consultant will dramatically increase the value of your firm. We have found that, when the former owner remains involved in some capacity for a reasonable period of time, the acquiring firm experiences a nominal (the normal yearly level) of client attrition.

As such, you will need to consider the cultural fit of the acquiring firm (or personality of the individual buyer) to ensure that there are enough similarities. This will ensure clients stay even after you go, and will make it more comfortable for staff members involved in the transition.

Understanding the Buyer Market

As an accountant, you are intimately aware of the busy seasons. Accordingly, going to market immediately after the April 15th deadline is best. You will get the most interest, have the most time to be selective and vet a buyer, and also ensure that you are not putting yourself in an untenable transition plan. Keep in mind that putting a deal together can take several months, so you will be nearing the busy season (again) come closing of the transaction. More importantly, when you sell your accounting practice just before your most profitable cycle, the buyer can hit the ground running and realize a quicker return, and be able to service any debt more easily.

Modernize Systems and Technology

Systems and technology are rarely the main selling point of a practice, but they certainly impact value. Imagine that a new owner can “hit the ground running” with your electronic filing system, that your accounting software is backed-up to a server, and notice to clients can be automated. That is a huge selling point in that it paints a clear picture to the new owner about how quickly the transition can occur with minimal staff and client interruption. Conversely, if you are still hosting outdated accounting software and have not gone paperless, you will want to strongly consider upgrading before the sale. Older technology tells buyers that they will have to work harder to achieve the profitability they seek. However, if you invest in cloud accounting software or tax management technology, it demonstrates to buyers that you are able to conduct business quickly and efficiently. This means that the buyer will benefit directly as well.

Call a Brokerage Firm for Help

In addition to the tips above, if you are still wondering, “How can I sell my accounting firm?” consult with a Washington business brokerage that specializes in professional service company sales. A brokerage can accurately estimate the value of your business, search for and interview potential buyers, help secure financing, and ensure a seamless transition occurs.

Justin FarmerJustin D. Farmer, Esq., CBI, is President & Founder of Private Practice Transitions, Inc., in Tacoma, Washington. You can contact him at info@privatepracticetransitions.com.

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