All posts from April 2010

Brokers Lie? Part 2

by John Ezell, CPA

In my last blog, I asserted that some brokers lie in order to induce practice owners to list their firms. So, how should a broker approach a practice owner?  They should be upfront and honest.  

First, I think it is very important to learn information about the practice and the owner before we talk about price and terms.  This frustrates some practice owners because they usually ask about price and terms early in our conversation.

Ultimately, it is not fair to a potential seller for me to tell them the price they want to hear just so I can get the firm listed for sale.  My reluctance to inflate a price means sometimes I lose a practice listing to another broker because they “quote” a higher price.  That is OK with me.

Next, even if I think I know who the buyer might be, I still want to market the firm to many prospective buyers as if I do not know who the buyer might be.  That may cost my company a little more in advertising and marketing the firm for sale, but it is important that we identify the “right” buyer for a practice and not sell to the buyer we just happen to have in our back pocket.  It is important to me that I do not get calls from buyers and sellers a year later saying they made a bad deal or the firm was a poor fit.  Frankly, I like to sleep at night.  

I look at it this way, either I will get the listing down the line when they figure out the other broker’s tricks or maybe the other broker did have a desperate buyer that was willing to pay an unrealistic price.  In both cases my goal is met, a happy seller and buyer.

Comments (0) • Posted April 30th, 2010 at 3:15am

Broker Code of Ethics

by Ken Berry, CBI

John Ezell wrote a blog last week on the unfortunate truth that sometimes brokers lie to get listings.  This blog has generated quite a bit of discussion and email with one of the most common questions being, “what are the ethical guidelines for business brokers?”

Before we address the ethical guidelines, let’s define what we are talking about.  We need to understand that in selling a practice (a listing) a broker is establishing an agency relationship based on a contract. This is a relationship that involves one party (the broker) acting for the benefit of another (the seller).  For this reason, when entering into a contract it is important for an agent, in this case the broker, to disclose all facts which could be considered material even if not expressly asked about.

A false statement of fact made by one party to another party, which has the effect of inducing that party into a contract, is known as a misrepresentation.  There are several bodies that have statutes, canons or codes of ethics that address misrepresentations:

  • First, there is the Uniform Deceptive Trade Practices Act.  This is federal legislation and addressed in statutes in every state in the nation.  Direct reference in this Act is given to “Using deceptive representations in connection with goods and services” as constituting a deceptive trade practice.  The FTC and many states also prohibit unfair practices that include taking advantage of bargaining power of vulnerable groups.
  • A handful of states regulate business brokerage through their Department of Real Estate. Most enforce the National Association of Realtors code of ethics.  Article 12 states, “Realtors shall be careful at all times to present a true picture in their advertising and representations to the public.”
  • In addition, there are many state and national associations for business brokers. The International Business Brokers Association has a code of ethics and business broker standards for its members. Article 1 of their code of ethics states, “Business Brokers should avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to properties and business transactions.”

So the ethical guidelines for business brokers are out there, published and readily available for all brokers to follow.  Be aware of the tricks and deceptions some use and avoid being induced into an agency relationship based on a misrepresentation.

Comments (3) • Posted April 27th, 2010 at 6:09am

Brokers Lie?

by John Ezell, CPA

It is an unfortunate truth that sometimes brokers lie to get listings.  It is an easy thing to do when a listing is on the line.  You see sellers usually want to get the most money they can with as much cash down and with the least possible hassle.

So an easy way to get practice owners to sign up, or list, is to inflate the price you tell the seller they can expect, assure the seller it is easy to get all cash and tell them you have a “special” buyer ready to pounce.  Great, where do I sign up?

I have to admit; early in my career I may have inflated a price or two just to get the listing. I think this comes from fear and inexperience. Fear that if I did not tell the client what they wanted to hear they would not hire me. Inexperience because an experienced broker knows their worth is not in the number of practice they list but in the number they actually sell.

Timing is a funny thing because as I wrote this a friend of mine received an email message that stated, “A buyer contacted us specifically about buying your practice in his city (I will keep it confidential). If you’d consider selling this year we will provide more details regarding this particular buyer.”  My friend sent it to me because he found it funny since he does not own a practice and he never has.  I found it disturbing because it is such an obvious trick to get an owner to call the broker.

We work hard in our role and in maintaining our ethics.  We see ourselves as valued advisors, but struggle with the market perception that “brokers” are not trustworthy.  After all, how trustworthy is a relationship based on a lie?

Comments (2) • Posted April 21st, 2010 at 4:43am

Planning an Exit Strategy

by John Ezell, CPA

Many accountants we meet are excellent business advisors but sometimes neglect to take their own advice, especially when it comes to firm development and succession planning.  For many accounting practice owners, the exit strategy has been thought about and consists of building up a client base, adding a few staff, and then selling the practice to an employee or younger partner, merging with another firm, or the selling their accounting practice to an outsider.  Then, the plan is typically shelved until just before the accountant is ready for retirement.

Steven Covey, in his best selling book, The Seven Habits of Highly Effective People, advises people to begin with the end in mind.  So the wise accountant, even with no plan to sell their firm for several years, develops their firm keeping their exit in mind.

The reason this is typically not done and the plan is shelved until just before retirement is usually a flawed perspective of succession planning.  When asked what succession planning is most will reply that it is a plan focused on a single succession event.  We think succession planning is a development process that leads to an event.  The focus is spread across a series of development stages and growth steps with the natural outcome being the sale or merger of the firm to an outside firm or the continuation of the firm under new internal leadership. 

The succession plan begins with understanding your firm and your long term goals.  Only then can you begin developing, documenting and executing a succession plan.  The plan should be an all inclusive roadmap of your development stages and key milestones including client acquisition, staff development, pathways to partnership, expansion of services.  The succession plan should be developed today if not yesterday and implemented long before the seller or partners approach retirement age.

The result of a well-designed, implemented succession plan will be a larger, more profitable and easier to manage firm that can be transferred with greater ease to the successor.  The reward for the exiting owner is in greater value and consideration at the time of succession and a stronger legacy for years to come.

 

Comments (2) • Posted April 19th, 2010 at 7:00am

Projecting Practice Growth for 2010

by John Ezell, CPA

We heard from an accounting practice owner last fall, “My practice is doing about 10% more than last year”, he said.  That caught my attention since we were in the midst of a recession.  He attributed the growth to his “marketing efforts the past few months.”  Last week we checked back in with him to ask how tax season was going and he responded that his efforts were paying off and he was having the best tax season in his practice’s history.

It’s no wonder his practice is doing well.  He developed a marketing plan and executes his plan.  This may seem like a no-brainer for many, but the fact is many accountants do not plan when it comes to marketing.  We surveyed more than 1,000 accounting and tax professionals last year and 48% responded that they seldom or never follow a strategic marketing plan.  Only 21% of respondents often or always follow a plan.

Can you imagine investing in a company that admits to not creating or following a marketing plan?   A company that is going to rely solely on referrals and repeat business clients from last year to help them achieve this year’s goals. 

Now, I am not saying that every firm needs a marketing plan or that every plan needs to be extensive.  Some accounting practice owners are happy with the status quo.  But 54% of respondents to our survey expect their practices to grow this year, both in revenues and in number of clients.  Many are going to hit that number by accident.  Others will do it by keeping busy and working hard.  A majority or going to need to work hard, be smart and following a strategic plan if they hope to achieve this goal.

My advice is to spend some time after tax season looking back at what worked for you and what didn’t work. Then, lay out a simple plan on how to leverage those successes throughout the remainder of the year.  Then, implement and follow the plan.  You will likely need to make adjustments during the year, but having a roadmap is an important starting point and will help you document lessons learned so you can tune and improve the plan year to year.

We will have discussions and posts related to this topic throughout the year.  Keep an eye open for them let us know what you think.

Comments (0) • Posted April 12th, 2010 at 8:55am

Emotional Investment in an Accounting Practice

by Ken Berry, CBI

In our Becoming a Rainmaker seminar, we remind our participants that prospective clients buy for an emotional reason.  They need an accounting service performed, of course.  But there are many ways to satisfy that need and many accountants willing to do it.  The most successful accountants take the time and have a process to uncover the client’s emotional motivation underlying the need and then cater their service to encompass this motivation.

We can apply this same principle to buying and selling accounting practices.  Buyers buy for emotional reasons and for a successful acquisition it is important for them and those they are in dialog with to understand their emotional motivation.

We all function alike.  Human behavior involves three parts – motivation, intention and action.  

  • Motivation is the driving force.  It is the need, want, or desire that inspires movement.
  • Intention is what we aim for.  It is what we hope to accomplish.  
  • Action is what we do.

It is also the case that sellers sell for an emotional reason.  The decision to sell a practice is an emotional decision.  When a practice owner offers her practice for sale, she is offering many years of work to the world.  

  • Risking investment in property, furnishing, fixtures, equipment and training.
  • Slowly developing the value of the business one precious client at a time.
  • Long days and nights during tax season.
  • Building trust in the business community providing one careful audit after another.
  • Advising clients to make strategic business decisions.

When it is time to sell a practice the seller is filled with many complex emotions, some of them will be conflicting emotions.  

  • I am burned out, but I do enjoy many aspects of the job.
  • I am aging and just can’t keep up with the work-load any more, but I love what I do.
  • I am going through a divorce and need to sell my practice in order to divide the assets with my ex.
  • My spouse is ill and needs me at home.

We have encountered all of these scenarios over the years.  When a seller meets two prospective qualified buyers, he or she will sell the practice to the one that feels right.  The wise buyer will be sensitive to the feelings and emotions of the seller and the wise seller will be sensitive to the feelings and emotions of the buyer.

Comments (0) • Posted April 5th, 2010 at 10:05am