Selling a CPA Practice? Cash is King
Have you built your CPA practice with great clients and a great team? Are your services priced well? Do you run your practice efficiently? Is your practice in a good location?
If you answered yes to most of these questions, then your cash flow to owner is probably very good and your practice is desirable.
Did you know that if you own a profitable and desirable accounting practice that you do not need to sell on an earn-out basis? You can get all cash, or all cash equivalent terms at closing-with absolutely no contingencies after closing. A fixed-price structure produces better results for both the buyer and the seller, and the current market for accounting practices supports cash deals for successful practices.
We believe, and will explain further in this post, how a fixed-price structure produces better results for both the buyer and the seller.
Here are four primary reasons why fixed-price deals help to create superior post-close cash flow when buying an accounting practice:
- Less Payroll – earn-out structures are most often accompanied by long transition periods where the seller is kept on as a paid employee or consultant. A capable buyer does not need a tremendous amount of transition assistance.
- Avoid “the dip” – transition can be stressful on staff and there will be a “dip” in productivity during the period where people are concerned about their positions. The speed of the transition is extremely helpful to minimize “the dip.”
- Clarity for Clients – a fixed-price structure allows for a faster transition which is actually better for client retention. More clarity for clients produces better client retention results. A buyer who is reasonably good at client relations and technically capable does not need the seller to stick around. Buyers will reach their potential much more quickly when they are free to lead the practice.
- Better Financing – banks will typically offer much lengthier loan terms than sellers are willing to accept. A ten-year bank financing is common, very few sellers will want to carry a note for that long. Not all banks fully understand accounting practice sales. When a bank has not done a fair number of these transactions, they do not understand the low-risk nature of these loans. Most buyers are better served by going to a bank with a successful track-record with accounting practice acquisition financing. Bank financing can offer the buyer stronger cash-flow, which makes most people more comfortable when starting-out.
In short, profitable, desirable accounting practices do not need to be sold on an earn-out basis. If you own such a practice, then in the overwhelming majority of cases, you can get all cash or all cash equivalent terms at closing – with absolutely no contingencies after closing.
Also, check out our AICPA column on deal structure.