If you told us you were planning to sell your firm in the next few years, our immediate reaction would be: “Perfect. That gives you some time to work on your practice”
If you have a few more tax seasons, that is enough time to make meaningful changes that significantly increase your firm’s value, and it’s close enough to the finish line to keep you motivated and focused.
Many owners wait until burnout sets in or a health crisis forces their hand. But if you have the luxury of a multi-season runway, you have a massive opportunity. To maximize that opportunity, you need to look at your firm through the eyes of a buyer.
A big area of focus is likely your team, your client list and your pricing model. These often impact owner hours and cash flow significantly.
Here is a high-level game plan to maximize your exit in only a couple of tax seasons.
1. Build a Team That Doesn’t Need You
One of the biggest impacts to firm value is “owner dependence.” If the firm’s goodwill is tied entirely to you, your face, your handshake, your technical expertise, it is much riskier for a buyer to take over.
Buyers are looking for continuity. They want to know that if you step away, the clients will stay because they are bonded to the firm and its staff, not just to you.
Secure Key Talent Early In today’s market, finding staff is harder than finding clients. A firm with a tenured, capable team is highly attractive.
- Identify Future Leaders: If you have staff with the potential to manage relationships, start handing those reins over now with clients you’re comfortable moving. A quick audit of clients that you would either be comfortable losing or feel confident would move well to a staff member are the perfect ones to experiment with.
- Lock in Agreements: Agreements with key employees, specifically assignable non-solicitation or non-compete agreements have significant value in a sale. It is much easier to secure these agreements three years out than it is three weeks before closing.
- Culture Optimization: Buyers pay a premium for a strong culture and capable team because it drives retention. A toxic staff member can cost you at the closing table and in growth opportunities in the years prior. Use these next few tax seasons to assess your team honestly. If you have a “toxic” manager who negatively impacts morale, you need to address it now, well before buyer discussions begin..
2. Prune and Polish Your Client List
You may feel a need to take on every client that walks through the door to grow an accounting practice. The opposite is often true. To maximize value, you often need to shrink your client list to grow your bottom line and reduce working time.
The “Orphan” Tax Return Problem We often see firms clogged with “orphan” personal tax returns or returns not associated with a business client. While these bring in revenue, they often clog up your capacity, burn out your staff during tax season, and are generally less attractive to buyers.
- Disengage: Over the next three years, start pruning these low-margin engagements or raising prices significantly to make them worth the effort. This will give you room to offer more services to your existing business clients or to take on new clients who desire an array of service offerings.
- Focus on “A” Clients Buyers love recurring revenue. They love subscription models, Client Accounting Services (CAS), and advisory work.
- Analyze: Thoroughly review your client list. Who are your “A” clients? These are the clients you enjoy, who pay on time, and who value your advice. Shift your energy to nurturing these relationships and finding more just like them. Often, firms are so busy due to a lack of pruning, that their best clients end up being underserved.
3. Pricing as a Value Driver
If you haven’t raised your prices recently, you are likely leaving money on the table. This is often the single best way to improve your profitability. Clients are generally service-sensitive, not price-sensitive. A buyer is also going to like to see a client list that is used to standard fee increases. Many buyers are reluctant to come in and raise fees to meet the market.We consistently see that firms with strong billing and payment systems, specifically those on value pricing or subscription models with autopay command higher multiples. If you are still billing hourly and carrying large accounts receivable, spend the next few years transitioning to fixed-fee pricing. It eliminates A/R issues for the buyer and improves cash flow.
The Bottom Line
Transitioning out of your firm is the ultimate act of “letting go”. By starting three years or so early, you allow yourself to perform a “test run” with some of these ideas. We’ve given you a very high level view of these tactics. If you’d like to learn more, download our complementary e-book: Prepare Your CPA Firm for a Sale – How to reduce owner hours, increase profitability and transform your practice.
Would you like to know exactly what your firm would be worth in today’s market?
We offer a complimentary, confidential valuation estimate to help you benchmark where you are today so you can plan for where you want to be when you sell. Email [email protected]
