For many years, the business sales and acquisitions market within the accounting industry has been controlled by sellers. There have consistently been myriad buyers vying for their share of a limited supply of firms, so intelligent buyers were required to make some reasonable concessions in the past.
Recently though, there has been a shift in the tides. More and more established practices are being sold by principals who want to retire, and the pool of buyers cannot keep up with the increasing supply.[1] The silver wave is coming in full force, with more and more Baby Boomers (born 1946-1964) requiring an exit strategy to facilitate their retirement.
So, how can you prepare to sell your CPA firm in a buyer’s market?
Attacking the sale proactively, ensuring your firm contains some differentiation points that sellers are looking for, understanding the marketplace, and finding the right intermediary to help you find buyers are all important when preparing for a sale.
This change in the market does not have to bode ill for sellers if they consider a few key points while selling your business.
Table of Contents
- Do not try to ‘Wait it Out’
- Make your Business Desirable through Differentiation
- Be Prepared to Make Minor Concessions
- Contact a Broker With a Long and Successful History of Connecting Sellers with Prospective Buyers
Do not try to ‘Wait it Out’
When you hear that the market is transitioning into a buyer’s market, a very reasonable assumption would be that sellers should simply wait for the tides to shift back in their favor. Though the logic is sound, the issue is that the baby boomer generation will continue reaching retirement age for at least the next decade.
Because of the Economic power that the Baby Boomers wield and their sheer demographic size, this will likely mean a continuance of the buyer’s market for years to come unless there is some other shock to the industry. Since the tides are still in the process of turning, the best time to exit in the foreseeable future is right now.
Make your Business Desirable through Differentiation
In a market that has more buyers than sellers, you must make your business stand out. Do you have trained staff that is willing to stay at the firm through a sale? Is your staff age diversified? Have they signed non-solicit agreements with your firm? Are you prepared to stay on to become a production arm and aid in the transition for a year or two? Human capital can be a significant advantage in your practice’s salability in the current labor shortage age.
A healthy profit margin is also critical. Labor should be billed out at a 3x multiple to maximize margin and negate rising costs. Robust software that can reduce labor, increase efficiencies and drive service improvements are also key areas of differentiation. Proper differentiation will cause buyers to flow toward your firm for the opportunity to make a worthwhile acquisition.
Be Prepared to Make Minor Concessions
Selling your CPA practice in a buyer’s market may require minor concessions, such as subjecting the purchase price to some amount of earnout. For those who aren’t familiar, an earnout is a term that refers to the adjustment of the purchase price and resulting payment plan if specific revenue or profit targets are met within a defined period.
Subjecting the purchase price to earnout is a common way to convince the buyer of the robust health of your firm and can help facilitate a successful deal.
Contact a Broker With a Long and Successful History of Connecting Sellers with Prospective Buyers
Another critical step in this process is finding a broker who will fight to get you the best possible deal in this market and help you to find your perfect buyer. Work with a CPA and accounting firm broker who will individualize your business sale, highlight your points of differentiation, and put all available resources into maximizing the price and terms so that you can retire and live comfortably off the proceeds.
Picking the right broker can greatly reduce the difficulties inherent in this process, which puts less strain on you as the seller and increases the odds greatly of a successful transaction.
Berkshire Business Sales and Acquisitions has over a decade of experience in the Accounting Practice Mergers and Acquisitions market. We are experts at personalizing exit plans, finding the areas in your firm that will be highly sought after, and negotiating for terms that can maximize your success in the transaction and the transition. Berkshire will give the sale of your CPA firm or accounting firm the attention it deserves.
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