By: Brannon Poe & Stephanie Smith
Many accounting practice owners are asking us if they should defer the decision to sell because of COVID-19.
In the past couple of weeks, we’ve had some incredibly interesting conversations which have been a great reminder of how lucky we are to be doing this.
Our clients sounded positive and busy. COVID-19 has certainly not made tax season any less busy. The extended deadline does not appear to change the season dramatically. Most accountants are still shooting for their original deadlines, but allowing themselves to have a more flexible schedule…allowing for more flexibility during what is usually a very inflexible time.
As to the question about selling this year. After all, the impacts that the virus may have on businesses are significant.
Here are some of the questions we’ve received and our best answers/impressions:
What will the market be like? – If the economy is growing by the 3rd and 4th quarter, then the market for CPA firms should be relatively stable by fall. Most CPA practices sell in the fall and in the first quarter anyway. If there is serious risk of a more severe outbreak later in the year, then that would be bad news for the marketability of firms…and for business in general – not to mention for public health. Overall, we are trying to stay optimistic about the second half of 2020.
What was your experience in the previous downturn? – Between 2008 and 2010, firms still sold. Our biggest obstacle then was the difficulty for buyers to relocate because they couldn’t sell their homes, which makes sense because the last downturn was sparked by a housing crisis. Overall M&A activity was down, but for our clients, prices and terms held up quite well. By our best estimation, there was only about a 10% decline in prices, but the market was really hot before the 2008 crash. Back then both the sell-side and buy-side of the transaction were hurt. A lot of sellers also decided they couldn’t afford to sell due to big hits to their retirement plans. So, in short, the market itself was fairly healthy, but the number of transactions were down. Another side note: we had a lot of buyers out of corporate accounting that came back into public practice then.
What is current buyer activity like? – We are still getting buyer registrations on a daily basis. Registration volume is actually higher than it was this time last year. There will be people who are dislocated and looking to buy a CPA practice instead of employment. A lot of strategic buyers seek opportunity during a slowdown to capture the anticipated recovery.
Is financing available? – Financing for CPA firms remained strong all through the last downturn. I would not expect that to change. Interest rates will be low and programs will encourage lending. I would, however, anticipate that banks will be more cautious and refuse marginal deals. Underwriting procedures will be followed to the letter. On the upside, CPA firm acquisition loans have a very low default rate so banks generally like lending for CPA firm acquisitions. Profitable firms will get financed.
It is safe to sell? – You don’t have to meet with all buyers in-person; we can facilitate virtual meetings and we can help you create virtual tours. All you need is a smart phone. That will reduce the need for meeting with “lookers” in-person.
Is it still a good time to sell?
- If your practice is healthy and profitable, then yes. If you had a desirable practice to start with, and most of your clients are able to weather this storm, then your practice is very marketable. Arguably, it’s a great time to buy a CPA practice because clients are more reliant on their CPAs than ever.
- Deferring your sale does not guarantee a better price and terms. The value of your practice is typically based on historical results. A year from now, your financial history will include your results for 2020. The question becomes – how long do you want to wait it out?
If I want to sell in 2020 – how should I prepare? – If you are ready to sell your accounting practice in 2020 (or anytime in the next one to five years), we’d be happy to have an exit strategy call with you. We also have numerous resources on our website. You can start with our succession planning guide and please check out our virtual workshop – Accounting Practice Academy™.
How are most of your clients adjusting? – Our clients are using technology to increase productivity and to keep everyone safe. This means staff working from home, clients using portals to upload documents and conducting meetings virtually. This virus may have encouraged us all to make some technology changes we wanted and needed to do more quickly.
The fundamentals haven’t changed. It is still about delivering great quality and service. Curb-side, home pick-up and delivery are all great ways to make sure that clients are well served. This also allows for common-sense COVID-19 contact. We might not be able to sit across the desk from our clients, but we can call, Facetime and video chat to encourage connection. Connection is going to be one of the things that will get us through to other side of this safely, successfully and sanely. Together, we’ll all get through this.
If you are planning to sell your accounting practice, we’d love to talk. Please know that we want to sell practices, not just have them “for sale,” and we only get paid when we get results. Therefore, we’ll only market a practice if we believe it’s a good fit for us and the timing is right for the seller.
About Brannon Poe: Brannon is the founder of Poe Group Advisors and has been facilitating successful accounting practice transitions throughout the US and Canada since 2003. He is also the creator of Accounting Practice Academy. Brannon is the author of the Accounting Practice Insights Blog and hosts the Accountant’s Flight Plan” podcast with other top thought-leaders in the accounting profession. Brannon is an E&Y alumnus. He has worked with some of the most successful and seasoned CPAs in the industry and has been privy to the behind-the-scenes methods that these clients have used to build highly profitable practices along with capable and independent teams. Brannon has authored multiple books, including Accountant’s Flight Plan – Best Practices for Today’s Firms (published by both the AICPA and CPA Canada) and On Your Own: How to Start Your Own CPA Firm, Second Edition (published by the AICPA). Brannon is passionate about entrepreneurship and is the president-elect of EO Charleston (Entrepreneur’s Organization).
About Stephanie Smith: Stephanie is the Lead Accounting Practice Intermediary at Poe Group Advisors. She has over 12 years of sales and marketing experience in banking. This prior experience lending to and working with small business owners assists her as a skilled negotiator helping maximize value for both buyers and sellers. Stephanie holds a bachelors degree from Northeastern State University in Tahlequah, OK. When not assisting a client, Stephanie enjoys spending time with her family, tennis, knitting and travel.
