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Read below for some commonly asked questions from business buyers and sellers:
Are there financing options available?
Yes, a seller can provide financing and carry the balance of a practice with a strong down payment from the buyer. Often times a buyer will prefer this method because it requires the seller to remain engaged through the transition period and help with retention. In addition banks lend regularly on accounting practices and CPA practices through the Small Business Administration (SBA). A buyer can often finance 85% of the sales price and get working capital on top of that. The loan is amortized over 7-10 years. The practice itself must exhibit strong cash flow and the buyer must qualify based on experience, credit history and other factors. SBA typically requires 15% equity injection (down payment) on the purchase of a practice. This can come partially from the buyer and partially from the seller. This financing makes it incredibly easy to purchase a practice today.
What are the major risks associated with purchasing a CPA or accounting practice?
There are lots of risks and rewards to navigate when making any business purchase but there are some that are unique to an accounting practice. We can help you understand the risks of concentration, key employees, non-compete, location, retention, and quality among others. We can also help you mitigate some of these risks. One of the largest risks out there in the purchase of an accounting practice is the way the contract is written around the Transition. If things go wrong it is often times transition related. We encourage accountants and CPA’s to put a transition plan right in the purchase agreement. It is critical that all parties feel the accountability of a transition and that the transition itself has key points and timelines. Both buyer and seller should commit to a robust transition plan. We have listed some other potential risks and items to be aware of below:
- Employees: Retaining the employees of the practice even if it is short term can have a really big impact on retention. It is also important that the employees not enter into competition with the buyer after the purchase. Carefully assess the possibility of their leaving the practice and taking clients with them while looking at the impact financially of leaving them in place for a period of time.
- Concentration: If several clients represent an abnormally large share of the practice revenues a buyer needs to be careful. It doesn’t mean that it needs to get in the way of the purchase but it does likely mean there will be some additional contract terms or transition terms that will specifically address the conversion of these clients to the new firm. We recommend looking carefully at the 10 largest revenue producing clients. A buyer should discuss each one with the seller and make decision on how each one will be treated in the contract and in the transition plan.
- Quality: CPA’s and Accountants should complete Due Diligence. The quality of the file and work papers differs widely in the industry. During Due diligence don’t just focus on the numbers but review files and make sure that the same level of quality that you would expect in your practice exists in theirs. If there are questions of quality in your mind…you should either address them up front or pass on the practice.
Who is responsible for retention?
This is a shared risk born by both the buyer and the seller. In our expert opinion, practices sold with transparency and clearly identified transition plans don’t generally experience significant client erosion. Those who try to position themselves to have no risk in the transaction generally have not been willing to work the transition plan effectively. The transition is a mutual responsibility and needs careful planning and forethought. If buyers and sellers enter the transaction knowing that transition is of key importance, execution of the transition usually follows.
How long does it take to obtain financing to purchase a business?
Seller financing can be obtained in a matter of days not weeks or months and is most often agreed to in the purchase agreement. Bank financing can take between 30-60 days from start to finish but we often obtain a pre-qualification in a matter of days. We know many of the lenders directly and can help you with packaging the loan and getting in touch with lenders who do these regularly.
What if I want to sell my own practice?
We are so glad you asked. I repeatedly hear of principals that sold their practice only to find out they did not get the most important items covered in their contract. I hear horror stories of poor transition plans, undervalued practices, principals inundated with complaint calls on the new buyer. There are a plethora of land mines that exist in this process. We are experts and understand how to truly value and sell your firm. Many times principals have to bend and twist and make sacrifices to make the sale work and agree to terms even though it may not meet their goals when selling on their own. We understand the most common and most dangerous pitfalls. We also know the local market and the local market demand. We spend a great deal of time understanding your goals and building a professional prospectus that will attract buyers that want to purchase your practice the way you want to sell it. If you insist on selling it yourself, consider bringing us in as a consultant.
How do you find buyers? Where do you market my practice?
Because we specialize in accounting practice sales, we have a very large network of buyers in ans around Phoenix, Arizona. We stay in regular contact with these individuals and make them aware of opportunities as they arise. We also network with other intermediaries through our local Arizona Business Brokers Association. We use industry specific media, multiple listing sites, business for sale sites and other electronic media such as the Wall Street Journal, USA Today, and the Arizona Republic as well as social media. Marketing is not just local however, we have marketing sources that span the nation and have sold a number of practices to out of state buyers who desire to relocate.
How do you plan to market my practice while maintaining confidentiality?
This is another area where Berkshire shines. We market your practice in a way that maintains your confidentially and guards your identity until a buyer is found who is both qualified to purchase your practice and has a desire to do so. We will consult with you regarding any special needs in the area of confidentiality and structure a program that meets these needs. Every buyer must sign a robust confidentiality and non-compete/non-solicit disclosure before finding out any specific information regarding your firm.
What if I want to sell to my employees?
This strategy is called a Key Man strategy and has significant risks and problems with its structure as the sole exit plan. This strategy can be executed effectively but not without a broader strategy and a back up strategy. We can help you plan your full exit strategy with a back up strategy if your “key man” begins to turn out not so key.
I want to make sure my employees and clients will be taken care of?
Finding the right buyer is not just a matter of finding someone willing to meet your price and terms. We understand the need for finding buyers who have sufficient experience and demeanor to treat your clients and employees as you would. The best way to insure you find a buyer you are comfortable with is to bring a multiple of qualified buyers to the table. We also encourage the seller to become a part of the transition plan after the sale. Being a part of the plan gives the buyer and your client’s additional confidence in the new business.
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