Most sellers of accounting practices and CPA practices would prefer to get a cash payout at close. The reality is that rarely happens. Buyers perceive risk with the personal relationship the principals carry with their clients. Most savvy buyers will make offers with a retention component in the purchase contract. This retention component will limit the price of the practice to the clients that actually transfer to the new firm and stay with the new firm after sale. 
While this seems like a perfectly fair way to structure a practice from a buyer perspective, the seller looks at this differently. I have always thought that the retention risk in a client sale should be shared between the buyer and the seller because the actions of both the buyer and the seller will ultimately determine which clients stay and which clients go. In addition, both stand to benefit or loose depending on what happens with retention. The seller loses hard dollars and the buyer loses critical mass and the ability to support the expenses and debt repayment.
If the new buyer doesn’t treat the clients in a similar way to the exiting principal or forces a lot of changes to clients, increases fees, moves the office or makes things less convenient for clients, it will effect the number of clients staying with the new firm.
On the other hand, if the seller is not involved in the transition, does not support the new buyer with calls to clients or even bad mouths the current owner, that will certainly affect the number of clients that will stay with the new company. Keep in mind this principal has been working with these clients most likely for years and generally has more than just a business relationship with these clients.
I recently met with a CPA that had already sold a practice in a different state. He had a very bad experience with the buyer of his practice when he moved to Arizona from a different state. The deal was structured with a retention component and seller carryback. The buyer treated him, his staff and clientele so poorly that the staff quit and the seller’s clients left in droves shortly after the deal closed. The seller was on the hook for all of the lost clients and had very little to do with them leaving the firm. It cost this seller several hundred thousand dollars, causing them to have to open a new firm in the new state when they had planned on retiring.
Limiting this risk is part of the negotiation process. From my perspective and expertise, the seller should never step into the deal where they carry all of the retention risk unless there are extenuating circumstances. At a minimum, the risk should be limited to 50% and more likely limited by the amount of the seller carry back if less than 50%. Most savvy sellers or sellers with very good attorneys; limit the exposer of the seller to some manageable risk. You can negotiate an arbitrary amount of risk, limit to the seller carry, or limit the time frame in which retention will be calculated. In all cases, the amount of retention risk should be defined. The seller should look at the worst-case scenarios and determine an acceptable amount or risk to take on.
The seller in this case should have had an attorney that has been through accounting practice negotiation and a seasoned business broker that understand these nuances and how to best massage the deal structure so that acceptable levels of retention risk are not exceeded. If you want to find out more about retention risk and how to limit this, please speak to a business intermediary.
