Selling your Accounting Practice with Real Estate

Inevitably, some accounting practice principals purchase a building in which to operate their practice. Having your own building can create a lower cost of occupancy over time and also gives the principal a way to continue to build value inside the firm, shelter some profits and control the real estate location and improvements. These benefits are not available with leased properties.

For principals selling their firm who also own the real estate there are three primary choices with which to handle the real estate.

1) Sell the real estate along with the practice. As most principals know, moving a practice after acquisition adds additional retention risk to the deal. Clients do not like change and the less change introduced, the better the chances that client retention will be maximized. There are a number of different positives and negatives that should be weighed with the exiting principals financial goals after sale. Sellers should beware however; that some buyers will not be interested in using capital to buy real estate, and some will be consolidators only interested in the practice itself. This will shrink the buyer pool and may take longer to sell than a practice without a real estate acquisition. If the real estate is in an excellent location and is in great shape it will not slow down buyers that come knowing the real estate must be purchased. For firms where the real estate is not in the best area or suffers from deferred maintenance, the building price may warrant a reduction but the overall picture may actually lower the perceived value of the practice as well.

2) Lease the real estate with or without an option to buy. Leases should be structured so that they meet the current comparable lease structures in the micro market and provides enough cash flow to pay the mortgage, taxes and maintenance on the building. The advantages of holding on to the real estate and leasing the property may include cash flow, building wealth through real estate in retirement years or deal flexibility. The disadvantages are that default on one or the other usually means that the exiting principal gets a practice back and potentially a building that is no longer needed or leased. Depending on the real estate market one should carefully consider the lease option.

3) Sell the practice and do not require a lease or sale of the building to the buyer. This will maximize the buyer pool because all buyers will now be able to take a look at the practice without real estate considerations. It does however add some additional real estate risk to the selling principal. Without a sale or lease of the real estate to the practice buyer, the exiting principal will need to become a landlord and lease or sell the building to other potential suitors.

All of these options create a series of questions and risks that need to be carefully weighed with the selling principals exit goals. If you have more questions, or if you need help selling a practice with real estate, Berkshire Business Sales and Acquisitions is here to help you through the process. We have helped many customers navigate exit and the commercial real estate factor is just one possible nuance that can add complexity to a deal.

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