All posts from August 2011

How is WIP Handled in an Accounting Practice Sale?

by Ken Berry, CBI

Last week, Ali the Accountant sent in a question, “When buying or selling a practice, can you please advise how you split up the work in progress (WIP)?  I would presume it is done based on time spent and not billed before the sales and how much time is spent on the file after the sale can you please confirm?”

My response:

It is going to depend greatly on the timing of the sale, the amount of WIP, the nature of the WIP and the two parties in the transaction.

  • For timing example, if the selling practice has high quantity of individual tax extension work, closing a sale on October 1 vs October 20 would result in a very significant difference in WIP.
  • For amount of WIP example, are we talking about hundreds of hours of WIP or less than a hundred hours?  If the amount is not too significant and will not take to long to complete it might make the most sense to let the seller finish the WIP and collect the fees.
  • As to the nature of the work, is it a short term project or a long term project that is 80% complete.  If the seller has completed a significant portion of the work, they are going to have strength of collection for the entire job, plus they will be more efficient in completing it.
  • The key is for the two parties to identify the WIP on a case by case basis, evaluate the type of work and nature of the project, and then determine the best way to finish the work and collect any outstanding and new fees due. It has to be a discussion point and agreed upon.

I have worked on transactions where the seller stays on to transition and complete and collect on the WIP and I have worked on transactions where the seller let’s the buyer collect on the portion of the WIP the seller completed prior to the sale.  It all just depends on the situation and other factors of the transaction.  I would recommend you attend our Buying webinar or our Selling webinar to learn more.

Let us know what other questions you have.

Comments (0) • Posted August 18th, 2011 at 10:20am

Is it Possible to Buy Part of an Accounting Practice?

by Ken Berry, CBI

Last week, David the CPA sent me a great question that I thought would be relevant to the market at large.  He asked, “Is it possible to buy part of a practice or must we be willing to purchase all of it?”

My response:

First, let’s separate the market between the single owner practices and the multiple partner practices. In the later, buy-ins occur particularly when the practice has a gross over $2 million and several partners of varying ages.  It is not uncommon in a firm of this nature for an outside practitioner to buy in to replace a retiring partner.

However, for a majority of the market, which grosses less than $1 million in annual gross the situation is quite different.

Partial buy-ins, buy-outs and carve outs are possible.  It obviously depends on the goals and plans of both the seller and buyer.  For example, if the seller has health issues, plans to relocate or wants to retire immediately or even in the next year or two, then a partial buy probably would not work.  It might be possible if their plans are a year or two out to structure a two phased purchase*, buy a portion today and buy the rest in a year or two.

From the buyer’s perspective, most acquire with the goal of gaining control and autonomy, which probably will not be the case in a partial buy. It takes a lot for most sellers to let go in the best scenarios, but it is certainly not a realistic expectation if they are still a working owner in the business.

Another concern for a buyer, if they separate some of the clients into a separate business (a carve out) should be retention.  The strongest point of retention is going to be the combination of an endorsement of the buyer by the seller and the fact that the seller is no longer available to the clients.  If the seller is still practicing, some clients may try to return to the seller instead of transferring to the buyer.

A partial buy also depends on the economic needs of the seller and the buying ability of the buyer.  Unlike a full purchase, a bank will not get involved with a partial buy, so any down payment will rely entirely on a buyer’s cash and terms will rely on how much of a note the seller is willing to carry.  This is usually the largest stumbling block in a partial buy.

So, yes buy-ins, buy-outs and carve outs occur and can be successful.  The key to a successful outcome, as in any endeavor of this nature, is being aware of what you are getting into and what the acceptable and unacceptable risks may be.

Let us know if you have any additional questions.

* A note on two-phased purchases: even with an "airtight" agreement, we have seen buyers change their mind and decide to not buy the rest of the practice at the appointed time.  This is particularly true when the buyer “acquired” the first portion with zero or little money down.  The result of this failed second half of the acquisition is huge mess for both parties.

Comments (0) • Posted August 10th, 2011 at 11:57am

Lead Generation, Part 1: Your Foundation

by Ken Berry, CBI

It’s time I developed the next portion of a blog I posted back on January 21st.  The blog, Three Keys to Successful Accounting Practice Development, outlined that three key elements of any successful practice development plan are: client experience; lead generation; and lead conversion.  In February and March, I posted blogs on client experience and now would like to revisit this series with thoughts on lead generation.

Lead Generation.  How will you find new prospective clients?  Develop a strong referral network, telemarketing, direct mail, advertising, etc?  What are the avenues and components you use or need to develop to generate leads?

For the sake of digestible, short blogs, I will break my thoughts into four blogs:

  • Your lead generation foundation (today’s blog)
  • Passive Marketing
  • Active Marketing
  • Referrals

Let’s talk about your lead generation foundation.  What are the basic underlying components to support all of your lead generation efforts?

Understand the Value You Provide.  If you do not, the customer never will.  You need to able to communicate it effectively and concisely.  I will give you a hint, if you compete on price and are always trying to stay below the competition’s price, you do not understand your value.  What do you do for clients better than anyone else in your market?  Why should they come to you instead of a competitor?  Get away from price and try to express your value in the eyes of the prospective client.  If you don’t do anything better, start today and communicate it.

Communicate What You Stand For.  This is both the personal “you” as a practitioner and the collective “you” of your practice.  Can you make any guarantees to your clients?  What pledges or promises can you make?  For reference, you may look at the Our Commitment to You page on our website.

Remember, Benefits Instead of Features.  Okay, welcome to marketing 101.  Can you communicate your value from the client’s perspective? The difference is often platitudes, “We’re #1”, versus resonating with the client, “We understand what you are struggling with and can solve your problem.”  Instead of talking about whom you are or what you do, can you speak of the benefits a client will receive by working with you.

For example, “Our clients come to us because they are frustrated with monthly, quarterly and annual tax filings.  We take their headache away by…”

As you define these components, can you document them? Again, try to write these from a perspective of how the client will experience them rather than how you deliver them.  If you can document your value to clients and what you stand for, then developing your lead generation initiatives is going to be a piece of cake.

Comments (1) • Posted August 3rd, 2011 at 10:36am