Selling your large accounting firm might seem like an overwhelming prospect, especially if you’ve never sold a major business before. As with any large business sale, the change of hands doesn’t happen overnight. Finding a deal that you, your partners, and your buyers all agree on may take several months. When you decide to sell your accounting business, you want to start by figuring out what kind of acquisition deal you’re looking for; then, move toward valuing your business and working out a plan for your sale.
Valuing Your Large Accounting Firm
Accurately valuing your business is arguably the most obvious step of a large business sale. There are several methods you can use to value your firm. Since your firm is large and well-established, it probably has a fairly steady stream of incoming cash. Because of this, it’s a good idea to use a method of valuation that takes into account your current level of income, and possibly a projection for future income.
The earnings before interest, taxes, depreciation, and amortization, or EBITDA method, is a popular technique for valuing businesses. In this method, you calculate the total value of your firm by taking your company’s net income and subtracting all your expenses except for:
- Interest fees
- Depreciation costs
- Amortization, which are payments toward loans that are spread out over a period of time
On the other hand, if you want to sell only a section of your company, or some assets, you might want to value your business by determining the market cost of your building, equipment, and other tangible items.
Finding an Acquisition Deal That Works for You
A large firm sale isn’t always a cut-and-dried affair. Work with your partners to find out what type of acquisition you want. Maybe you want to sell only part of your business. For example, maybe your accounting firm has a department that deals specifically with wealth management, but you want to focus more on business accounting. You can sell off just the wealth management department in what’s known as a cull-out sale.
Maybe you’re close to retirement, but you want to keep working for a couple of years to save up some more money. In this case, you and your partners may want to look for a two-stage deal. In this type of deal, your buyer essentially merges with your firm for a year or two before the business actually changes hands. The buyer takes up a portion of your client work, and you get plenty of time to introduce your clients and employees to the new owners. You continue to get paid as you normally would for two or three years. During this period, the buyer gradually takes over more of your business until you’re ready to leave. At that point, the buyer pays you your asking price for the company, and you and your partners relinquish ownership.
A two-stage plan is similar to a succession plan, which is a longer-term plan for transferring the ownership of your business to a successor (like an heir or a trusted colleague) upon your retirement.
Resolving Conflicts During the Sale Process
Selling a large accounting firm is a process, and as with any process involving numerous people, conflicts are bound to arise. Don’t try to avoid conflict entirely. Instead, make sure you have strategies in place for resolving those conflicts.
A possible conflict that could occur with the sale of a large firm is that you and your partners may have different ideas of how quickly you want to sell the business, and how involved you want to be with the business after the sale. In a situation like this, you may want to work out a multi-tiered deal with your buyers. If you and your partners each own separate stock in the firm, you can opt to sell that stock at different times. A partner who wants to get out earlier can sell their stocks to the buyer right away. Partners who want to stay on longer can do so later or join the firm as employees under the new ownership.
During sale proceedings, it’s a good idea to have a lawyer on hand to help you and your buyers work out a contract that covers the sale process, including exactly who owns what and when ownership is set to change hands. A solid contract can protect you from disagreements during the sale and for years afterward, and serves as a written record of the sale process.
Retaining Clients and Employees After Selling Your Firm
A sale that allows some time for your buyers to gradually take over your firm is also ideal if you want to keep your existing clients and employees. In the two-stage deal example above, a high percentage of client and employee retention can be easy to achieve because you have lots of time to let your employees and clients know the sale is happening.
The year or two that both you and your buyers are actively working with your existing clients should be treated as an opportunity for troubleshooting. During this period, encourage clients and employees to ask questions and voice any concerns they might have. You can work with the buyers to address these issues and impart your own experience and expertise, which is a much better strategy than throwing your buyers and employees in at the deep end. If your buyer has clients and employees of its own that it wants to retain, a longer acquisition process can give your employees time to meet each other and build trust.
Selling your business takes time, especially if it involves merging two existing work environments. Take steps to accurately value your business, and work together with your buyers to retain customers and clients. Good communication during this period benefits all parties.