By Joe Carufe.
As your tax and accounting firm’s leader, you know what’s best for your business, but when it comes time to sell your firm to another practice, how do you find the firm that makes the most sense?
Selling your firm isn’t an easy process. You put in dedicated time, money, and emotion into building your business, so selling it can be a difficult decision. That’s why you need to be confident with your buyer. You want your hard work, staff, and clients to be in good hands.
Over my years in the accounting profession, I’ve spoken with many owners on both sides – key stakeholders going through the sale of their firm and those preparing to acquire another firm. From this experience, here are the four core tenants to explore to ensure you find the right buyers.
1. Find the right culture fit
It’s important that you find a firm that shares your own values, so spend some time understanding the other firm’s culture. Are they going to mix well with yours, or will it be like oil and water?
If it’s the latter, the acquisition process is going to be difficult from the start. Your team needs to be excited about their future, so finding a firm that shares the same values, mission, and goals is critical in ensuring a smooth transition for both sides.
2. Understand where your team fits and safeguard them
I’ve seen and heard more than a few practices sell into larger firms, and while the ownership team was able to successfully exit, they did it with remorse for what happened to their team.
Originally, the ownership team had hopes and dreams for their team members, but ultimately, the buying firm didn’t share the same feelings – and you can’t blame them. After all, the buying firm won’t know your team members’ dreams and aspirations if you don’t share these with them.
On the other hand, if you are with a firm acquiring another firm, make sure you understand what your new team members are hoping for, and make sure that aligns with your future. If not, you risk attrition.
Whether you’re the buyer or seller, find out what’s in it for your key team members. You’ll get peace of mind heading into the acquisition, and secure your team’s enthusiasm and engagement around the whole process.
Next, understand where your people fit – not just today, but deep into the future. Do you see upper mobility as a result of the acquisition, or are there going to be certain divisions that will no longer be necessary? For example, if the buying firm already has a director of operations, where will your director of operations be deployed? What does their future look like?
Doing this research takes work, but it all goes back to doing right by your people, and from my experience, buying companies are looking for people to hire because the market is challenging right now. Hiring and training is difficult in these top Client Accounting Service firms, which means that strong teams who are well-trained will drive up your value. If you have good processes and strong workflows, your value will bump up even more.
Here’s an example of the rough difference between selling just your client base vs. a great firm with solid processes and people:
Purchase: Your client base
Acquisition cost: 0.75-1.2 x top-line annual revenue
Purchase: Your firm with strong processes and solid people
Acquisition cost: 1.5-2.5 x top-line annual revenue
Having a strong team and workflow is huge, which is why a culture fit and having a place for your people is important in your plans.
3. What’s in it for your clients?
The reality is, when you want to sell your firm, your clients may want to shop around, so take the time to understand why this sale is good for your clients. Ask yourself:
- Are there going to be complementary services for your clients to receive a more holistic experience?
- Will the new buying firm provide a service that your firm doesn’t offer to help fill the gaps for your clients’ outcomes?
At the end of the day, your firm’s people aren’t just your employees; your clients are people, too, so make sure you’re not rewarding their business and loyalty with a firm that isn’t aligned with yours.
4. Your bottom line
Ultimately, the price needs to be right. As I said above, firms with solid processes and strong teams generally sell for more than the firms selling revenue only.
Think about it from the buying firm’s perspective. If they have to spend time and money on sorting out your processes and training your team, it’s not just going to cost them that time and money. It will cause stress, and likely require them to divert resources away from growth activities, such as cross-selling.
Basically, if your firm runs smoothly (and, as the owner, you can take vacations) then it’s worth buying. After all, the buying firm doesn’t want to buy a 60-hour work week. So it’s in your best interests to ensure your processes are streamlined, your team is high-performing, and your metrics are tight.
If you’re in the situation where you’re working 60+ hour weeks, it’s understandable that you want to sell your firm and seek a better lifestyle, but you need to understand that this isn’t an attractive purchase. The reality is this: Buying firms don’t want your 60-hour work week, no matter how much revenue there is.
If you can get to a place where you’re working 20-30 hours per week (or less), your firm is automatically more attractive to someone else because they want to buy the lifestyle you’ve built and/or the processes you’ve created that enable you to work less hours.
When you can do this, two things will happen:
- Your firm’s value will increase.
- You can afford to be picky around who you sell to, ensuring the right culture fit, upper mobility of your team, and better outcomes for your clients.
Don’t just make a sale; make the right sale
Finding the right firm to sell your accounting practice to isn’t just a matter of finding the highest bidder.
Unless you want your years of hard work in building your client base, developing your team, and processes to result in a quick sale that doesn’t sit well with you as a person, then selling to the first bidder might not be the right path to take.
However, if you’re interested in maximizing your sale price, while also safeguarding your firm’s legacy, team’s future, and client outcomes, then it’s important to do your due diligence in setting your firm up to generate the best valuation. Yes, that’s a bottom line, but it’s dependent on your culture and people.
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As director of services for Karbon, Joe Carufe’s primary role is to ensure accounting firms have a successful onboarding to Karbon. With 10+ years in the accounting industry as an accounting firm owner and leader, Joe understands how to build scaling firms, the challenges firms face, and how to solve those challenges.
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Tags: Firm Management
