You built a flourishing accounting firm, but now it’s time to move on. You want to sell the business, you know that much, but how should you structure the sale? There are several ways to do it. The best method depends on the nature of your business and your post-sale goals.
In a straight sale, you hand over the business, and then get out of the way. It’s the best option if you want out quickly. A straight sale doesn’t require you to stick around for years to manage the transition. The buyer takes over the business and starts making payments on it right away.
The advantage of a straight sale is straightforward. It offers the cleanest break possible. It’s ideal if, say, you’re moving across the country or jumping right into a new venture you expect to eat up all your time.
The disadvantage is that such a sudden transition can shock clients. Low retention rates may result. Potential buyers know this and are often spooked by it. To mitigate the risk of client attrition, straight-sale buyers might offer you less for your company.
Buy-In Leading to Buy-Out
A buy-in leading to a buy-out offers a more gradual way to pass your business to your successor. The buyer first obtains a partial stake in your firm. At a later date, the buyer purchases the rest, obtaining full control. During the intervening period, you work alongside the buyer to manage the transition.
The advantage here? The unhurried pace of the transition is easier on clients, often leading to higher retention. The disadvantage? You have to stick around and continue in an active role in your firm’s operations longer than you might like.
Merger Leading to Buy-Out
This sale structure is a lot like a buy-in leading to a buy-out. The difference is the buyer never obtains an up-front stake. Instead, your firm merges with the buyer’s firm, creating a new company. Ownership shares are allocated based on what each firm brought to the table in the merger. Eventually, you cash out your shares in the merged firm.
In transactions where one or both firms have many owners or partners, mergers are more popular than buy-ins. But this type of deal tends to be the most complicated option. It’s recommended to have strong legal representation when entering into a merger leading to buy-out.
In a cull-out sale, you sell off part of your business and keep the rest. Maybe you have a niche operation within your larger business, such as a utility auditing service, that you want to continue running. A cull-out sale gets you out from under your main practice while letting you keep your utility-auditing niche.
A cull-out sale is also useful if you run your company with partners and want out, but your partners can’t find a suitable replacement for you. You can sell just your segment of the business, along with your client base, and your partners can keep running the rest.
Selling your accounting firm frees you up to chase new dreams. Ideally, it also makes you a nice chunk of change. Choosing the right sale structure assures you receive the best outcome to the transaction.