Client Retention in the Purchase of an Accounting Practice

Client retention in the purchase of an accounting practice

Client retention in the sale or purchase of an accounting practice is probably the one topic that all buyers and most sellers ask about. It’s also an often misunderstood topic. A proper understanding of the aspects of client retention are critical to a successful hand-off of an accounting practice.

In this article, we’ll explore the key concepts to help you better understand the drivers of strong client retention rates in the beginning years of owning a purchased firm.

You might also like to read 5 Important Concepts of Successful Accounting Practice Transitions in conjunction with this article.

Ultimately-What determines client retention rates?

Service, service…service! Yes, it is that simple. However, knowing this is so and actually delivering great service can be quite challenging. After all, you don’t know what you don’t know. This is why it’s really important that when you are evaluating practices to purchase, you have a good understanding of the practice being considered. You need to do your due diligence on the practice and you need to be able to evaluate your own talents and skills very objectively. Your skills and talents need to match the practice well. Check out Find the Right Accounting Practice to Buy to learn more.

You also need to have the proper amount of capacity. The buyer must have the time to devote to the acquired clients and staff. If you already own a practice, make sure you understand the requirements of the acquisition and be realistic about your current obligations. Allow for a learning curve. Plan to work hard the first year after the acquisition. Plan to communicate frequently with clients to build those relationships. It’s better to have more capacity than needed to keep service at a high level. In general, this is the smart way to run any growing practice.

Look at client retention from the clients’ perspective.

Will they be sad to lose the accountant who they might have been working with for many years? Sure, but they’ll also likely be happy for the seller who is taking a new path in life. If the seller-client relationships have been strong, the clients likely have a good deal of trust in the seller’s succession choice. For many, it just boils down to the fact that it is inconvenient to go out and search for a new accountant. Our experience shows that only a handful of clients have a relationship with another accountant and immediately shift their business elsewhere right after closing. The lion’s share take the easiest path made available to them which is to follow the seller’s recommendation. Many clients are very relieved that the seller has searched for a proper replacement. Add to that, the purchaser has access to all files, access to the seller, retains the existing staff of the firm, and often the same office and phone number; all of which makes a compelling case to work with the new owner. If the service remains good, there is no reason to leave. If, for whatever reason the service is not good, then attrition generally will occur slowly a couple/few years after the hand-off has occurred.

What sort of client retention rates should a buyer expect?

When you purchase a CPA practice, you will lose the clients the seller would have lost anyway. There is normal attrition in any practice. Talk with the seller about what their history has been with this. After years of helping buyers and sellers transition into and out of practice, I’ve come to expect that when transition is handled reasonably well and the buyer is competent, the practice can grow in year one and beyond when the buyer also works to grow the practice and implements a referral strategy. No matter how long someone has owned a firm, they have to find ways to bring in new business in order to simply maintain their practice. Client retention risk under normal circumstances is relatively low. Buyers do need to be aware of potential risks when buying. The two main exceptions we see are employees who pose a competitive threat and large clients that represent a large percentage of overall fees. In these two instances, client retention risk can be quite large and these risks should be mitigated in the purchase structure.

Purchase a successful CPA firm

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