In the overwhelming majority of cases, owners of profitable accounting practices can get all cash or all cash equivalent terms at closing-with absolutely no contingencies after closing. In this segment, we will discuss
the four primary reasons why fixed-price deals help to create superior post-close cash flow when buying an accounting practice.
Less Payroll
Earn-out structures are most often accompanied by long transition periods where the seller is kept on as a paid employee or consultant. A capable buyer simply does not need a tremendous amount of transition assistance. In the example of a sole proprietorship, the result is very often two owners getting paid where only one is necessary.
Avoid “the dip”
Transition can be stressful on staff. There will be a “dip” in productivity during the period where people are concerned about their positions. This creates an internal focus rather than a client focus. These internal concerns will consume the energy of your people (owners included) and take away from technical work and client service. Speed of transition is extremely helpful in minimizing the “dip.” This is very helpful for retention of both staff and clients. Fast transitions allow the owner to focus on growth instead of simply maintaining the business. This difference in perspective can help to create a major difference in the trajectory of the firm.
Clarity for clients
More clarity for clients produces better client retention results. We covered this aspect in our last post.
Better Financing
Banks will typically offer much lengthier loan terms than sellers are willing to accept. Ten year bank financing is common and very few sellers will want to carry a note for that long. Banks with experience with accounting practice acquisitions have some generous loan programs available. That will be the topic of our next post.
(If you would like to know more about our compiled statistics for deal structure for our 2013 deal flow, please email us at info@poegroupadvisors.com with your contact information. Please type “deal flow” in the subject line.)
To go to part 4 of this series, click here.
Check out our podcast series on our resources tab.
Buying or listing a CPA firm? We assist both parties in planning and implementing a strategic, successful transition of clients and staff.
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)
