How to Price an Accounting Practice
…oh and by the way…what about the terms?
This is the kickoff of our busy season (we are busiest as we lead up to tax season) and in the last couple of weeks we’ve been busy setting asking prices as we are getting practices on the market.
Most practice owners have a fair idea of what the asking prices should be. You can look at various websites, do a little research and at least get in the right ballpark.
The biggest market miscalculation is – without a shadow of doubt – about terms.
All terms are NOT created equal!
Unfortunately too many owners sell their practices on an “earn-out” formula. We did an entire blog series on this topic. The truth is, when transition is handled with reasonable care and experience, client retention rates are actually very good. Revenue guarantees are in fact rarely necessary.
My point for this post is that you cannot look at price alone. Price and terms are inextricable! Sellers-stop thinking that you have to guarantee future revenues. What ultimately determines client retention? Service! Service! Service! Who is responsible for client service after closing?
If your practice carries more risk than most, then maybe your price is too high.
Find the price where a fixed price makes sense.
The problem with contingent deals is that there is often not a clear-cut hand-off of roles and responsibilities between the buyer and the seller….and that makes for a messy transition…and guess what…a messy transition does not produce good client retention rates.