What Does your A/R Say About your Accounting Practice?
Smart buyers almost always look at A/R aging when completing their due diligence in a purchase. Personally, I would look at A/R aging before making an offer on a practice. Here is what can be gleamed from this review:
- It will tell me in very general terms if the owner runs a tight-ship or not…lot’s of slow-paying clients would indicate NOT. If clients take advantage of the owner in terms of payment, what else are they doing?
- It may a good indicator of the financial health of clients. For example, a lot of late-paying clients in a particular industry can indicate trouble in that industry. A practice with too many slow-paying clients can indicate real trouble with the entire client base.
- Slow-playing clients can be indicative of problems with billing practices. It may be that invoices are going out too late after service is performed…or perhaps clients have been rewarded in the past with discounts and concessions when payment is delayed?
- It could be a great practice with great clients, but the owner is just a bit lazy in this regard. This could be a sign of nothing more than burn-out? Or maybe he/she is rich now and just doesn’t really care that much?
Whatever the reason, it’s helpful to know. It’s much easier to fix a problem if you know the reason for the problem. If you are a practice owner thinking of selling in a few years…cleaning up your A/R will likely be a profitable use of your preparation efforts. If you are new to practice ownership, start properly with up-front pricing…aka…value-pricing. In a perfect world, their is no A/R….and yes it can be done.
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