While maximizing value and securing optimal terms are incredibly important goals, there is an overarching theme we hear from firm owners time and time again. Most CPA firm owners think selling is about price – until they actually go through it. That’s when legacy takes over: Who will carry your firm forward?. When sellers evaluate who will take over their life’s work, it is hard to put a price on exiting and knowing that your clients and staff are being left in good hands.
The real goal is simpler:finding the perfect fit.
Protecting Your Legacy
While most guides (including ours!) spend plenty of time talking about valuation multiples and cash at closing, most sellers also place tremendous importance on protecting their legacy. In fact, many choose a buyer who will best serve their clients and staff, even if it means choosing a buyer that has made a slightly lower offer.
That’s an honorable decision, and it often pays off in smoother transitions, stronger retention, and a lot more peace of mind. It also often results in no financial sacrifice at all. In a recent deal, the seller had multiple offers but strongly preferred one buyer who initially came in lower. The buyer understood the fit and matched the highest offer because he knew he would succeed in the practice. The ultimate value of any practice is always influenced by the buyer’s fit. Both revenue and profitability can shift dramatically depending on firm leadership.Turnarounds or declines can happen quickly under new ownership. Therefore, evaluating who steps into your shoes is the most critical step you will take.
Why Fit Simplifies the Sale
Buyers who are not a good fit often make poor offers with highly contingent payment terms. Negotiations can be complicated and drawn out for this reason alone.
The right fit not only protects your legacy, but also the simplicity and results of the sale. A “forced-fit” buyer often complicates deal-making and due diligence, but can also create lengthy negotiations and a tumultuous transition. Every buyer will value your firm based on how confident they are in their ability to succeed in your practice.
The Three Pillars of Evaluating a Buyer
To help you feel confident in your decision, we recommend evaluating potential buyers across three key areas: Purpose, Character, and Experience.
- Purpose:
- Strong buyers have a clear vision of where they want to take their firm.
- It is critical to ask if their strategy aligns with what you know the practice can or can’t be.
- A highly motivated buyer is a huge component of a successful deal. With a motivated buyer, pricing and terms are generally much better, negotiation is much easier, and the pace of the deal is quicker.
- Character:
- Your clients and employees have chosen you in part because they relate to your personality or the culture of your firm. While no two personalities are identical, it can be beneficial when a buyer shares some of the personality traits of a seller.
- Successful transitions are often tied to values.. A buyer’s ability to maintain and grow what you’ve started will depend on having a similar appreciation of what’s important.
- A good buyer has the desire, and ability, to learn but also must respect existing processes.
- A buyer who shows indication that they communicate well will likely do much better in the practice transition than a buyer who shows gaps in communication skills.
- Experience:
- Running a firm requires more than technical skill. It also requires knowing how to manage people, clients and operations. Does the buyer have the leadership skills and experience to make it all work?
- It is best to consider buyers with the same or greater qualification/designation as the owner, which makes the transition much easier.
- If you are considering private equity, does the person who will be running the firm meet these qualification expectations?
- Does the buyer have the requisite technical knowledge to run the practice and provide the level of service that the clients are accustomed to.
A seller may occasionally have to compromise on a couple of categories to make a deal work. However, compromising on too many categories or on the most important categories, may end up making a deal more complicated and can make transition and retention tricky – assuming the deal closes at all.
If you are thinking about an exit, the buyers you choose to engage with will shape your entire experience. Start by reading our Seller Guide to Evaluating Buyers and make sure everyone in the deal is set up for success.
