2012 Succession Survey for CPAs: Practice Continuation Agreements (Part 3)

We have been discussing the results of the 2012 succession survey for sole practitioners completed by the AICPA. The respondents are sole practitioners with or without a professional staff. Among sole proprietors, 20% expect to receive less than $1 for $1 of revenue. The following table describes the expectations of the group of respondents:

Dollar amount that respondents expect to receive for $1 of revenue:

  • $ .50 or less                                         6%
  • $ .51-to $.99                                       14%
  • $1                                                      48%
  • $1.01 – $1.30                                      24%
  • $1.31 or more                                       8%

What we do not know from the information above is if the respondent is responding to the contracted sales price for their practice or what is actually realized. The reason I bring this up is most contracts sell based in some way on retention. We know that the value ultimately received is in large part due to how successful the buyer and sellers are at transitioning clients.

The AICPA goes on to indicate that they believe that average receipts are in the 70-cent range for each 1 dollar of revenue due to retention issues. While my experience is that firms transition better than this, it might be because we spend a significant amount of time on the transitions plan. For those practitioners that do not have a transition plan or have not taken the time to prepare their firm for exit, the results could very well be this dismal. However, for well-prepared firms that are willing to work with the buyer to retain clients, actual realization can be much higher. The bell curve created with the data from the above table would coincide with my experience if you do not look at actual realization at all and just look at contracted rates. We believe the rates above are referring to contracted rates of acquisition and not necessarily after retention.

There are many different ways to sell a practice but if you are considering exit, a business intermediary that has significant experience will help stack the odds in your favor. With an intermediary, we have many interested buyers. The principal can take their time and not only find someone willing to buy but find someone that has the same values and principals and that will mesh with both the principal and the clients. They can also help build a transition plan that is catered to their firm. Before you engage in selling your firm, contact an experienced business intermediary to see how they can help.

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