Has the thought of selling your accounting practice ever crossed your mind? Whether you’re ready to retire, pursue a career change, or simply increase your personal bottom line, selling a business is an exciting prospect. It can also be a long, complicated process, especially if you’re not quite sure how to sell a business. Approach this new chapter of your life with confidence by doing some research and asking yourself some tough questions before you officially begin the sale process.
Is Your Firm an Attractive Buy?
When you’re selling a business, it helps to put yourself in a potential buyer’s shoes. While you may be ready to sell, your practice may not quite be ready for the market just yet. Most buyers want to invest in a turnkey practice that has low owner hours and a high cash flow ratio, as well as a stellar staff and client list. In other words, they want to see a return on their investment without spending significant amounts of time in the office.
Ideally, accounting practice owners shouldn’t need to put in 40-hour work weeks. Potential buyers will be more inclined to purchase a well-oiled machine that has a solid track record for generating revenue whether the owner is there or not. While they could attempt to rehabilitate a poorly performing practice, most buyers would rather hit the ground running and invest in firms that are already generating profit.
Before selling your accounting practice, you should also consider the appeal of your team and client list. A solid staff is priceless because potential buyers don’t want to deal with such things as hiring new employees, therefore an all-star crew is a major selling point.
Perhaps the most important consideration is your client roster, and quality is often more important than quantity. For example, imagine that you have two high-paying corporate clients that you deal with regularly. The consistent incoming revenue may be more desirable than 10 small business clients that only call during tax season.
Client loyalty also plays a major role in the appeal of your firm. Potential buyers may worry that your clients are going to jump ship after the firm transfers owners. In order to assuage such concerns, you may want to structure a payment plan based on client retention. Instead of paying a lump sum, the buyer pays variable annual installments that are based on whether or not clients stick around. Additionally, you will want to be able to prove that your client roster is growing steadily. If you haven’t added a new client in a while, you may want to beef up your client list a bit before selling. Buyers want to own an active, motivated firm that’s consistently making moves. Being able to prove consistent forward, upward momentum is huge.
Consider Your Objectives and Goals
You’ve decided that your firm is ready to hit the market. Now that you’ve analyzed your practice and made necessary changes to make it attractive to potential buyers, it’s time to think about how to proceed. While you want a successful transition for the buyer and your staff, selling a business is a very personal endeavor, and there’s a lot to think about before signing on the dotted line.
Consider your time frame for selling; waiting an extra year or two can give you time to better prepare your business to sell at a higher price. You also need to have a plan for what to do after you leave. Whether you’ll be relaxing or working, it’s prudent to have the next phase lined up. Financial stability is also a huge consideration. If you have outstanding debts, you may be better off waiting until they’ve been paid off. Also think about who buys such businesses in your area. Do you have an ideal buyer in mind, or are you willing to sell to anyone who’s willing to pay? If you have a specific vision for the firm, it might make more sense to wait for the right buyer or investigate the possibility of an internal succession.
Know Its Value Before Selling a Business
Although your firm’s value largely depends on what a buyer is willing to pay, it’s important to have a general idea of its worth. Whether you’re receiving an offer or putting one on the table, knowledge is the key to successful negotiations. Go into your sale with a concrete figure and a rough price range, as well as the lowest figure you’re willing to accept and the highest figure you’re going to shoot for. In most cases, the final selling price ends up somewhere in the middle, but having a frame of reference to start with is critical.
Time the Sale Well
Accounting firms tend to be cyclical in nature. There may be long periods of drought followed by floods of incoming business, especially when tax season rolls around. With that in mind, it’s important that you think about the timing of your sale. There are pros and cons to selling the firm both before and after your busy period.
If you sell before things get busy, obviously you’re going to miss out on collecting that revenue. With that in mind, your first instinct may be to wait until the busy season has passed to sell. However, selling the firm right before the busy season can be a powerful selling point, as potential buyers may be thrilled to start off right out of the gate with the extra cash flow.
You should also consider your accounts receivable and whether you have multiple outstanding payments waiting to be processed. Again, your first instinct may be to wait until all of your clients have paid up before you sell. However, you can entice potential buyers by including those accounts receivable with the sale. You can even allow the buyer to collect those payments on loan, and then pay you back once the firm has stabilized financially following the transition.
Work with a Financial Advisor
Now that you’ve ironed out all the kinks, the next step is usually to contact a qualified financial consultant. Even if you’re a highly skilled accountant in your own right, another set of eyes can help you to make prudent decisions. Someone with experience selling businesses in Canada can help you navigate every step of the process from an impartial perspective. After all, when you’re so close to the business you’re selling, sometimes it’s difficult to make tough decisions. A financial advisor provides valuable, unbiased advice and may notice things that you might miss when selling your own firm. A third-party financial advisor can also help you to negotiate and structure the deal, whether it’s an earn-out payment plan or an upfront deal, depending on your desired outcome.
Entice Buyers with Modern Technology
If your practice still relies on outdated spreadsheets-or worse, paper ledgers-you may struggle to find a buyer. Buyers actively seek profitable and efficient accounting firms to invest in, so the use of cutting-edge cloud accounting software is a fantastic way to ensure that your practice is appealing to potential buyers. If you can prove that your team is proficient with modern accounting systems, you can confidently raise the asking price for your firm.
As you can see, selling your firm is a multifaceted decision which should be made only after all of the above considerations have been addressed. QuickBooks Online Accountant helps you manage projects, tasks and clients together. Sign up for free today, and empower your team to do their best work, so you can sell your firm for more.