Art of Accounting: Deciding to start the process to sell your practice

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A longtime friend and colleague asked me how he could go about selling his practice. It dawned on me that most small firm owners who are considering retirement are not too familiar with how it works or how to get started. Here is some of what I told him.

Let’s say you have a substantial practice with considerable value. You also have extremely high leverage with only two partners. I believe there would be many firms that would want to acquire your practice. However, while there are standard price ranges for a practice, there are many variables such as your geographic location, specialties, the types of clients you serve, how long you’ve had them, and the ages of the owners. Other variables can include the fees you charge, the basis for those fees, your firm’s profitability, the types of services you offer, and the opportunities for added services for your clients such as advisory services, outsourced bookkeeping and asset management. You also need to take into account the chargeable hours staff and partners work, how long (and in what capacity) the owner or partners would want to remain, and the desire of the buyer for critical mass or for what distinguishes your practice. Also consider the down payment, the payment period and terms, deductibility or classification of payments, and other reasons.

You could probably come up with over 20 firms that would be anxious to speak with you and make you an offer. The price for your practice could be quite high. Using a broker to help identify the one perfect buyer could be well worth the fees they would charge. They could be intimately knowledgeable in how far the buyer would go in the payment, the terms, and the reasons why they would want to own your practice. There are many such brokers and it should not be too difficult to interview two or three of them and to choose one.

This would likely be the most important business transaction in your life and it is very important that you get it done right. I believe using a broker would be the way to proceed. If you try to find a buyer and negotiate the price and terms by yourself you would be doing yourself a disservice in the long run. The brokers create value and earn their fees. They could also present other alternatives that could include you acquiring smaller practices, finding successors or a true lateral merger.

In another vein, I hope you have an updated buy-sell agreement with your partner. If not, then you should work on this before you start exploring the selling process. You should also have a practice continuation agreement with another firm in the event of the premature death of you or your partner. Things happen, so be prepared and thoughtful.

If you want some checklists and templates to help you when you consider what to do, email me at GoodiesFromEd@withum.com, and put “Deciding to sell” as the subject with no message necessary.

Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People list. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” He also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. He is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where he shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. He welcomes practice management questions and can be reached at (732) 743-4582 or emendlowitz@withum.com.