Who are the Best Buyers When Selling an Accounting Practice?
Believe it or not when selling an accounting practice, but the best buyer is not a larger firm. It is usually an individual, and frequently a current employee of practice near you, or someone coming out of a large or regional firm who is looking for platform to build on. This is true for a couple of reasons. Firstly, existing firms often do not have the excess capacity in staff to handle the additional work. In a typical sale, the seller is ready to retire; at close, the buyer must be willing to assume the workload of the exiting practitioner and devote time to the transition.
The reason a large firm buys an accounting practice is oftentimes different from an individual buyer’s reasons; and even when they are similar, the reward for the individual buyer is greater. Firms are less motivated and less likely to carry a substantial amount of the risk involved in an acquisition, almost always insisting on a client retention agreement. When the potential buyer is an individual with several years of experience, who has dreamed of owning a practice, that buyer will be willing to bear more of the financial risk and assume greater responsibility of client transition.
The best buyer for an accounting practice grossing $2 million or less is an individual. They are motivated to pay a fair market price on terms acceptable to the seller and they also have the time and energy to complete a smooth transition. The clients are happier because they go from one owner-operator to another—after all, who wants to talk to a staff member when they are accustomed to dealing with the owner? When you hear about clients leaving in masse after the sale of a practice, it is often because it was sold to a large firm and the clients were shuffled off to an unknown staff person. How would you feel? The purchasing firm isn’t concerned because they will only pay a percentage of gross collected; and when there is no client, there is no gross collected.
If you are selling an accounting practice, the very best buyers are experienced individuals who currently work for someone else. They recognize that they are being paid X while billing 3X for their employer; they are fed up with being an employee and want to work for themselves. The next best buyer is a small practice owner who wants to “take it to the next level.” They realize it’s much easier to purchase an existing practice than slowly build up the clientele via referrals and marketing. These small practice owners will often step up and compete with individual buyers. Occasionally, a large firm will become sufficiently motivated to step up and compete with individual buyers, but it is a rare occurrence when they are willing to pay the same price, under the same terms, as a buyer who is purchasing a very good job.