Accounting Practice Buyer Cash Flow 101
We have three major goals for every accounting practice we sell:
- Maximize the practice’s value.
- Keep the process simple.
- Help the buyer succeed.
One major way to help accounting practice buyers succeed is to have them get cash flow right in year one.
Cash is the oxygen of business
Regardless of how good your service is and how great your long-term strategy is, if you run out of oxygen…well…It’s not good. Short term cash management is crucial. There are a large number of issues requiring a buyer’s focus leading up to – and after a purchase. A little planning early on can make a huge difference in short-term cash management. Eliminating this as a serious worry in the first year of an acquisition allows you to focus on what really determines your success – your ability to lead your team and serve your clients well.
The Shoemaker’s children have no shoes
You would think that since our clients are all accountants, this post would be completely unnecessary. However, you’d be surprised. While writing On Your Own – How to Start Your Own CPA Firm, an interesting thing happened. We reached out to a large number of CPAs who are currently in practice to try to find a sample business plan. Weeks went by, and we could not find a single business plan for a start-up practitioner. We were very surprised by that! The lion’s share of CPAs who have started their practices never created a serious business plan prior to starting their practices. (With acquisitions, banks often require a business plan, but a lot of buyers don’t take this as seriously as they probably should.) This is too bad because planning is where you make your real money. Planning makes a difference. We preach that to our clients, but we rarely take our own advice.
Creating Conservative Projections
A good friend told me once…”Money is never an issue as long as you have some.” It’s better to borrow more than you need and pay a little more in interest to make sure you have some cushion. It’s also important to map out your cash needs with detailed, monthly projections for the first 12 months after an acquisition. As you are doing these, put the rose-colored glasses away and be stodgy, crusty and downright cantankerous instead.