Is Now the Best Time to Sell Your Practice?

You’ve worked hard to grow your accounting firm. From landing your first big contract and steadily growing your revenue to long hours in your office, you have been through it all. When you want to focus on other factors in life and not just your firm, it may be time to sell your practice.

Many firms sell for a 1.0 – 1.5 annual billings multiple or 100% to 150% billings.

However, some firms are also selling in the 1.5 – 2.0 multiple. Seller’s discretionary earnings (SDE) will play a major role in the sale price. Single-owner operations or partnerships may have high billings and poor SDE. A new owner may help boost these earnings, but most will pay more for a business where strong management is retained.

It’s challenging to know the best time to exit or sell your business. Thankfully, there are five key considerations that can help you know if your timing to sell is right.

5 Factors to Consider When Selling a CPA Firm

1. Will Adding Services Add to the Sale’s Price?

If you’re selling your firm for 100% of your annual revenue, it may be worthwhile to squeeze every last dollar in revenue out of your business that you can. For example, let’s assume that you offer tax preparation and filing for both businesses and individuals.

You can likely sell tax planning services to your existing clients to increase revenue (and improve client satisfaction) with little marketing involved.

A few of the services you might be able to add this year to increase revenue and the sale price of your firm are:

● Financial planning

● Tax planning

● Advisory services

Over the short term, you’ll generate more revenue for your firm. In the long-term, you’ll boost your firm’s sales price potential.

2. Are Factors in Your Favor?

Life and professional factors will play a major role in your decision to sell your firm. For example:

● If you’re sick or have health issues, selling may be a good idea.

● What opportunities do you have for growth right now?

● Did you just sign a lot of major contracts guaranteeing substantial revenue over the next few years?

● Etc.

Additionally, if you just added a partner or put someone in place to take over your leadership role, these are all factors that are in your favor when selling.

3. Potential Lost Income

Do you have the motivation to make up for lost income? Potential lost income from your exit can drop the sales price because you’re a valuable asset to the business. You may find that stepping back from the business and putting leaders in place will reduce potential lost income. You’ll also want to make sure systems and processes are in place to keep things running smoothly.

4. Team Consistency and Resources

Acquiring a business is something that requires a lot of time and consideration. Buyers have hundreds of firms to choose from, and they want to purchase the firm with the least risk. Two ways to lower your firm’s risk are by:

● Creating a strong, valuable team

● Putting long-term leaders in the right position

Do you have the resources available to put the right team in place and make your firm a valuable asset to a buyer? The team you put in place should provide your firm with steady growth over the next 3 – 5+ years.

5. Market Condition Favorability

If 2020 showed us anything, it’s that the market can be stable one day and volatile the next. You want to research the current market conditions and try and forecast whether they’ll change soon.

Forecasts that show that the market appetite for accounting firms will fall in the next few months may mean trying to sell your business fast. Alternatively, you may want to spend this time improving your firm’s revenue for a future sale.

Don’t Forget About Succession Planning

Even if you want to sell your firm, you just never know what tomorrow holds. Succession planning can help you solidify your firm’s future by ensuring key roles are filled when you’re no longer involved in the business.

Unfortunately, over 55% of firms don’t have an approved succession plan in place.

Even when a plan is in place, it requires:

● Implementation

● Updating

Most firms (over 80%) believe that succession planning will be a major issue for them in the next ten years. Instead of putting off your plan, it’s crucial to start putting one in place. A lot of thought needs to go into your plan, such as:

● Identifying potential leaders

● Firm opportunities

A succession plan takes time to develop and implement, but it’s a crucial step forward in growing a successful business. Even if you do have plans to sell in the short or long term, a succession plan will help solidify your firm’s future.

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Joseph Graziano, CFP® is the Vice President and Wealth Management Partner at FFP Wealth Management. Through FFP management, Joe and his team help manage over 2.4 billion in assets. FFP Wealth Management has served the unique needs of the accounting community for over 28 years and was formed out of dire need for accountants and financial planners to join forces in providing premium services to their clients. If you’re thinking about selling your firm but aren’t 100% sure if now is the right time, schedule a discovery call with FFP Advisors Joseph Graziano.

Firm Management