Maximize Accounting Practice Sale through Transition Planning

Most sellers would prefer to receive all cash when selling an accounting firm. The problem is that most savvy buyers and certainly the best operators in the accounting field understand client retention risk. Buyers cannot truly understand the size or scope of the risk of retaining clients within a firm, so they hold back a portion of the sale proceeds to ensure that clients transfer before settling up fully with the owner of the firm. The amount of the hold back and the extent to which the buying and selling principal execute a transition plan will partially determine the number of clients that are retained and ultimately how much you will receive in your sale. The key is to retain your clients through employees and communications.

Clients and employees do care about this and having them in the know and working with you in this transition is imperative. In addition, there are new ethics requirements for CPAs selling in the state of Arizona and these require that your clients are notified and consent to the move of their information to the buying entity. Below are some ideas and discussion about employee and client communication in transition planning.

Employee Retention and Education: First of all, it is imperative to keep employees in the know and clearly give them the benefits of the merger for them and for the clients. Like it or not, your employees will be talking to clients and other employees over the course of the transition and this can either make or break the way that clients are retained. People dislike change, and this goes for your employees and your clients. The last thing you need in a transition is employees bad mouthing the new firm or the transition. This is tough to do and requires sincere leadership and change management throughout. Employees need to understand that their own pay and benefits are important to the new firm. There should be a discussion of why you (the selling principal) believe this to be good for the clients and the firm. Employees with customer contact must be able to articulate why this will be as good or better for the clients.   Some employees could be so turned off by the thought of the change or indifference from the buying principal that they may leave, which may result in a communication gap with clients as well as a productivity gap. There is tremendous retention risk that enters the picture as soon as the employee leaves. Many employees will no doubt try to take some clients with them which further complicates the matter. Allowing employees to voice their concerns in private and helping them to work though those thoughts is also important. Listen to your employees and help them view this transaction positively and realistically.

Client Communication and Education: Both the buying and selling principals should agree to the transition strategy and communication standards before the transaction closes. They should answer questions like how we will communicate this to existing clients, how we will segment the book of business for communication and how will we address workflow. Will there be some joint calls or visits to top earning clients? Will there be an open house to bring clients in and for CPAs, how will we manage the consent process? What benefits can we promise to clients as a result of the merger or acquisition and how should we communicate these benefits. I have seen many transactions go through the transition with only minimal attrition issues, but I have also seen transactions that go horribly wrong. From past experience, clients want to know three or four simple things when they are being sold to another company.

  • Does the person I work with regularly change?
  • Will the firm or the new employee understand my needs and are they technically strong enough to handle my company…will they add value?
  • Will the location still be convenient for me?
  • Will my costs go up as a result of the change?

While these are simple enough to answer, it is amazing how many times I see transitions moving forward without communications addressing these items. A letter to a client to let them know about the merger and to answer the questions proactively and with the correct spin is a must. CPAs should also include a consent form with this letter. These communications can take many forms but should generally be positive, upbeat and to the point. It should thank the client for their loyalty over the years and demonstrate your appreciation for them. It should highlight how this will affect them by addressing the items above and hopefully there are additional benefits to bring to them as a result of the change. The letter should invite them to call or email you with any concerns. One of the best practices was to identify the largest and most complex clients with a joint meeting or lunch. Having an opportunity for the client to meet the new principal in this fashion sends a huge message to how important they are to the firm.

If both employees and clients are notified and educated about the merger or acquisition, the negative noise about the merger and contingent risks of employee and client loss are minimized.   There are other items that can make a transition go wrong or right. Before beginning to sell your firm, think about calling a Specialty Broker for accounting practice sales or CPA sales. Berkshire Business Sales and Acquisitions is a local Arizona based firm that specializes in these transactions.

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