There has been multiple times, where a seller approaches me in our pre-listing process to discuss his/her exit goals with me. Most of the conversations begin with the fact that they want to be ‘cashed out’ of the practice and do not wish to take on any retention risk. They usually continue with how important it is to find a buyer that the clients will work with and that has similar expertise. While 100% cash out transactions with no retention are nice, one has to ask who is it that makes these offers and why? 
Most of the CPA and accounting practice firms sold in the US do carry a retention component inside of the purchase agreement. It is a sound piece of advice and a sound tool when writing a contract to include retention provisions. If written effectively, it can give the seller the opportunity to reach for a higher payout while protecting the downside risk for the buyer.
What sellers do not realize in the beginning is that searching for a cash offer upfront is going to reduce the buyer pool significantly. The rule of thumb is the larger the size of the practice, the bigger the reduction to the buyer pool. In addition, finding the “right” buyer may be in direct conflict to the terms they think they desire.
Think about it. Why would someone make an all cash offer with no retention components in the contract? There are a number of reasons people make offers without retention.
1) They lack the business experience to understand all the nuances within a purchase contract. While they may be a CPA or an accountant, they may not have any direct entrepreneurial experience in this field. We have a number of CPA buyers without the experience of running a business and simply do not know any better.
2) Buyers may lack the cash resources to capitalize the purchase on their own. SBA financing will not allow for a variable purchase price and therefore no offers financed through SBA will have a retention component.
3) Competition may be driving them to make an offer that they feel the seller will take. If you have been unsuccessful making offers to purchase over a season or two, the urgency for the buyer to buy is multiplied and their offer reflects that. A very strong sellers market may also lead to this.
While offers come in many different shapes and sizes, a seller should do the same level of due diligence on each buyer. On offers that do not include retention, a seller should make sure they understand why the offer is coming in the way it did. Look for a financial statement from the buyer, pull credit on the buyer, and do a background check or reference checks. These extra checks will help sellers make the decisions.
Keep in mind that excluding seller financed offers or offers that may include retention may eliminate the best of the buyers. The most experienced, professional, and well-informed buyers will most likely have retention in the contract. If you are truly looking for the best buyers for your clients consider taking on the retention clauses within the contract. A properly written and executed transition plan will mitigate many of the retention risks and you can openly search for the best buyer.
