Earlier this year I wrote an article with a focus on succession via internal means. Observations about succession in accounting firms – Planet Consulting I promised I’d write on the option to achieve succession through an external sale.
Whether you go down an internal or external path for succession really depends on your circumstances and beliefs. I know some accounting firm owners who are laser focused on the idea that they are the short term custodians of the firm and will be leaving the firm in great shape as they pass the baton to the next generation. For a variety of reasons, there will be other firm owners who see a sale of their firm as the ideal succession option. An obvious reason for this would be where there are no people in your firm wanting to come through and become owners. That can occur for some reasons beyond your control, but I’ve also seen situations where owners were not committed to developing their team members to get to this level. Ouch!
Here is a quick summary of some things to keep in mind when looking for succession through an external sale. First let’s look at what adds value for a sale.
- Great clients / client relationships
- Long history & low churn
- Pay a fair fee promptly
- Good compliance history
- The right demographic for the buyer
- Potential to provide additional services
- Great systems
- Best practice consistently applied
- Documented
- Followed in practice
- Regular billing and collection
- Own accounting in great shape
- An attractive niche
- Fees at market levels
- Smart use of technology
- A great reputation
- Great team members
- Well trained, engaged
- Low churn
- Paid at market
- Restrictions in employment agreements
- Location
- Business or high net worth individual clients
- Consistent growth
- No reliance on a single or small number of clients
- No litigation past, present or pending
- Owner working sensible hours
- Low level of dependence on owner
- No long leases or other commitments
- Favourable other terms and conditions, including your own flexibility in terms of handover period
Second, let’s talk about when you talk to your team about the sale. I’m a huge fan of high levels of transparency with the team. However this is one instance where it will often be better to keep your powder dry, so to speak. There are lots of things that can derail a deal, and you could be causing anxiety amongst your team if you start talking about a sale and even more so if you have a failed deal. Sometimes the timeline to make a sale can be long so you want to keep your existing team focused on business as usual while this is in train. There may be one or two really senior people you are briefing up front and who and when will be a matter of judgment for you. But fundamentally it seems your interests are going to be best served by maintaining confidentiality until the deal is done. Then you can talk in detail about how it will unfold and how the team will be looked after.
Third, let’s talk about being prepared. Any buyer is going to want to do due diligence and will expect a significant amount of financial and other information. If you are using a broker (like my preferred broker Quinn + Associates) they will coach you through this. Be prepared to avoid slowing the process and frustrating a potential buyer. All of the points I’ve made above are likely to be areas you will be asked to provide information on.
There is also a longer term component of being prepared. A buyer will like to see some consistency in the numbers over a few years. (Hockey stick revenue graphs will be a red flag for sure!) So you really do have to think ahead and make sure you get a few years of consistency in place to get the best result from a sale.
There is no doubt that it is, and has been for some time, an attractive market for sellers. For small firms with up to $2m in fees there are plenty of buyers and that is often reflected in pricing. In the cities there are deals being done up to about $1.30 in the dollar for revenue, but this depends on all the things I note above.
If you would like support through an internal or external succession process or event, please contact me for a confidential, no obligation discussion.