All posts by Ken Berry, CBI

What Should You Expect from a Broker?

by Ken Berry, CBI

Let’s be clear that if you are a practitioner considering the sale of your practice and you call all the brokers in the market, some brokers will state platitudes, false promises, and you will be set up for an “over promise/under deliver” level of service.  This is because most would-be-sellers do not know the right questions to ask and are more concerned about risk than they are about service…and the brokers know it.

So, what should you be asking?  Risk is a huge concern and not knowing who the eventual buyer is creates anxiety.  The simple answer: get all cash because this takes care of all concerns.  So, some brokers tell everyone they can sell for all cash…literally EVERYONE.  But does “all cash” minimize risk?  No, not really.  What it does is minimize the pool of would-be-buyers and as caveat emptor (buyer beware) has faded in legitimacy over the years it opens you up to a future lawsuit if things do not go well for the buyer.  The best way to minimize your risk is to find the buyer that is the best fit for you, your staff, and your clients.  A quality fit is going to improve retention, buyer success, and everyone’s post sale comfort.  To do this you need a broker that is diligent in finding, developing, and presenting quality candidates.

The questions you should be asking a broker are how do they find buyers, do they have a process for evaluating buyers, how do they evaluate buyers, are they the main point of contact for buyers (or do they just send buyers to you for you to qualify), and how involved are they with you and the buyer throughout the process?

Which leads me to the second, and most important, thing to understand about brokers.  Many of the firms in the market that present themselves as brokers do not actually function as brokers.  Several are simply marketing companies that convince you to hire them (often with statements of all-cash), market the sale of your practice, send every single buyer lead to you (whether the buyer is qualified or not)… oh, there goes your confidential sale by the way…, and then disappear from the process only to reappear and collect their fee after you have done all the qualifying, negotiating, disclosures, documenting, due diligence, and on and on.

A true broker is an intermediary, a go between, who works with both the seller and buyer to package the sale, develop buyers, evaluate buyers, maintain your confidentiality, inform, educate, verify disclosures, negotiate, advise you on offers and next steps, document, assist with due diligence, assist with financing, draft counter offers, draft purchase agreements, provide transition advice, and guide the parties to closing.  It is a lot of work and requires a lot of time to provide this level of service, but it is the value you should be receiving for the fee you will be paying. (Note: a broker can only provide this level of service to about 20 clients at a time before it gets watered down.  Brokers with 30, 40, or more listings are likely just marketing companies).

So what should you be asking to uncover whether you are talking to a true broker or a marketing company?  Ask about their process and how they market your sale, in response they should mention developing and sending out a report on your practice to buyers.  When they do, ask one question:  In the report whose contact information is provided for buyers to follow up with?  If they put your contact information in the report, you are talking with a marketing company.  A true broker will be the point of contact, field all the follow-up to the report from buyers, maintain your confidentiality, and remain front and center with the buyers as they work for you.

Sadly, these questions are not the focus.  Instead many would-be-sellers continue to engage "brokers" who offer platitudes, false promises, and provide a level of service that is over promised and under delivered.  Do not fall into this same trap by being baited with statements of “all cash,” “simple to sell,” “you don’t need to be involved with transition.”  Selling is a big step and you owe it to yourself to ask the important questions and find out what level of service the broker is going to provide to earn the fee you will be paying.

ProHorizons is a full-service broker with a sole focus on the sale and acquisition of practices in the tax and accounting industry.  We take pride in providing a high level of intermediary service in the market, which we have continued to hone and perfect over the 20 years since our firm was founded.  Call Ken Berry, CBI (Certified Business Intermediary) at 408-598-3009 to find out more.  If you are not ready to talk yet, you can simply request our Standards of Service document which outlines the service we provide and compares it with some of our competitors.

Comments (0) • Posted August 27th, 2014 at 10:28am

Evaluating Fit Should be Your Priority

by Ken Berry, CBI

It is easy when looking to acquire an accounting practice to get hung up on the numbers of your target acquisition: annual gross, billing rates, average fees for different tax returns, price and terms, etc.  However, the most important element of an acquisition is only partially related to all this analysis.

Most prospective acquirers would agree that client retention is the greatest concern in an acquisition.  While the financials of a practice describe its overall health and profitability, they say little about your ability to retain clients.  To determine ability to retain clients, the most important point of analysis should be how do you, as a buyer, fit with the practitioner who is selling and how does your existing business fit with the business it would be acquiring.  Ask questions like:

•    Are you and the seller similar in personality and business philosophy?
•    Do you and the seller have similar interactions with clients (i.e. use of organizers, interviews with clients, etc.)?
•    Does the selling practice have similar processes and procedures to your office?
•    Are you in the immediate vicinity of the seller or are you willing to operate from the seller’s location for a period of time?
•    Are your fee averages similar or can you accommodate the seller’s fee averages for an extended period?
•    Does the seller think you are a good fit with the clients?

Analysis of personalities, procedures, processes, types of clients, client interface and related questions of fit are all critical factors in predicting client retention.

The same is true on the selling side of the transaction as most practitioners are concerned about the care of their staff and quality of service provided to their clients after the point of sale.  I have worked with many sellers that decline an offer with the highest price and best terms and accept a lesser offer from a buyer that was a better fit for their staff and clients.

Without a doubt the financials and profitability of a target acquisition are very important to determining whether it makes sense to move forward with the purchase.  But the acquisition will be problematic despite strong financials if you and/or your existing business are not a good fit with the seller, clients, and staff of the acquired practice.

Comments (0) • Posted August 21st, 2014 at 11:00am

Two-Stage Deal Structures: What is Wrong with Them?

by Ken Berry, CBI

Two-stage deal structures can work in certain circumstances.  Basically, a two-stage deal structure is when you have an initial period (stage one) where the firm’s cohabitate together, typically into the buyer’s existing office, and then close the transaction and the have the seller retire at some future date (stage two).  

There seem to be some initial advantages.  It allows for a longer transition period.  It also allows for the buyer to not start paying the seller for the ownership of the practice right away because the seller will continue to earn the same amount of money that he has been earning.

But there are some problems in two-stage deal structures.  First, there’s no money upfront and therefore there is not enough commitment by the buyer.  The seller is taking a big risk when they move in with the buyer.  The seller will lose his business identity when he merges in with another firm.  The identity that is developed over the next year or two will be the buyer’s business identity.  So if it doesn’t work out and the seller has to withdraw, he has to start his business identity all over again.  

Goodwill can diminish over time and sometimes it does not take for the value to decrease, especially when things are not going well.  In addition, while the seller may be the accountant of record for the client, there will be other staff and other partners involved with that client.  Let’s say the buyer decides they don’t want to execute on the second stage.  Or the buyer and the seller decide they no longer like each other.  The seller will need to leave and recreate an entirely new office.  When that happens he may lose some of his clients and his staff to the buying firm.  

Some of this can be settled in contract issues, but it can get complicated real fast.  So beware of the two stage deal and make sure you do it right.

Comments (1) • Posted September 30th, 2011 at 2:16pm

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

Don’t Let a Lack of Succession Planning Ruin Your Future

by Ken Berry, CBI

No one lives forever.  A day will come when it is time for you to retire, or to begin a new chapter in your life.  When that time comes, if you have not planned for a successful transition of your practice and your clients, you will find that many options have been lost to you.  Whether you are considering a merger or sale or planning for an internal succession, Succession Planning begins with your decision to take responsibility for your future.

For single owner firms without the professional staff to develop, selling your firm becomes the main option.  Other firms might consider either and Internal or External Succession plan.
Several years ago we were engaged to consult with a firm where the senior partner (and founder) was negotiating with four (4) “junior’ partners.  These other partners each owned 1% of the equity of the firm.  One of the partners owned 2%.  These partners were clearly competent and they had enjoyed long and successful relationships with the firm and the senior partner.

Our initial consultation consisted of a couple of days in meeting and discussions with each of the partners individually, and the senior partner and a representative of the other partners together.  During these discussions it became clear that they had already been in negotiations for more than a year and that their previous long term relationship had soured and deep animosity had built up.  The senior partner’s succession plan had failed.

In addition to the meetings and discussions, ProHorizons performed an analysis of the firm so we could understand the fair market value of the firm and the relationships of the partners.  Over the course of several weeks of negotiations it became apparent we might be at a stand still.  The senior partner would not budge on some of his financial demands and the other partners were adamant they had developed some goodwill they felt were not being given proper credit (probably true).  Unfortunately ProHorizons had been called in too late.

The end result was that the “junior” partners “defected to a competing firm.  They were able to retain approximately 1/3 of the clients.  The senior partner, who had transferred many of his relationships, was able to associate with another firm and retain approximately 1/3 of the clients.  The remaining 1/3 just dissipated and went away.  Litigation ensued and no one came away happy.

Don’t let lack of planning ruin your retirement.

Comments (1) • Posted June 9th, 2011 at 7:37am

We Have a Buyer that Wants to Buy Your Specific Accounting Practice, Today!

by Ken Berry, CBI

Beware of the headline above!  It is likely you will receive a letter or email to this affect in the coming weeks.  Don’t fall for it.

Why?  Because it probably isn’t true.

The truth is that all brokers and consultants that specialize in accounting practice sales have a database of potential buyers they have spoken with or that have registered with their firm.  We are in constant contact with these “buyers” and typically only receive serious inquiries from them when a practice of interest comes on the market.

You need to ask yourself, why would a buyer request a broker get involved and represent the seller? Answer, they don’t contact brokers to do this because they do not see a direct benefit, in price and terms, when they increase the knowledge and expertise on the seller side of the negotiating table.

You might be thinking, “but they asked specifically about my practice.”

One of the main concerns any seller has is “who is going to take over my practice, take care of my clients and look after my staff?” If this is your concern, be wary of rushing to the easy answer this headline proposes.  We had dialog with several owners that jumped last year at the hope this message provides and there was no specific buyer, for many this was true through the entire three to six month term of the contract they signed.

When an owner lists their practice for sale with ProHorizons, we create a market by building a large pool of potential buyers around the listing.  The buyer pool is interviewed and whittled down until we feel we have selected the best candidates based on the priorities and concerns the seller has shared with us through our thorough consultations with the seller.

Bottomline: if it seems too good to be true, it probably is!

If you are interested in having a conversation about selling your practice, and want to work through a successful, proven methodology to find a good buyer, we would be happy to talk with you.  You can reach us at 800-729-3242.

Comments (2) • Posted March 31st, 2011 at 7:03am

The Accounting Client Experience, Part 3:  The Office Visit

by Ken Berry, CBI

Continuing with our third and final part of The Accounting Client Experience, let’s put ourselves in your clients’ shoes.  How are clients treated when they visit your office?

The Front Desk
First, what is the demeanor of the person manning your front desk?  Is the person naturally engaging and welcoming or is he/she naturally confrontational and off putting?  Putting the right person in this role should be the first part of your policy.

Once you have the right person, what should the welcoming procedure be? This may differ depending on whether you have drop offs or appointments.  Perhaps drop offs are warmly greeted, asked if they have any questions, asked if all the paperwork is in order and then they are informed they will be contacted with follow up questions.  Finally, they are thanked by name and wished a good day.

An appointment client might be asked to have a seat and asked whether they would like coffee, tea or water.  The accountant they are meeting is notified the client has arrived and the client is informed how long the wait will be if any.  Upon leaving the office the appointment client is thanked (by name if possible) and wished a good day by the front desk staff.

A pleasant, well structured, and consistent front desk procedure will provide the clients with comfort and familiarity every time they visit the office and will go a long way to creating a great first impression and setting up a productive meeting.  The opposite is true as well and I will confess that I no longer am a client of a very nice optometrist, who was highly referred and highly regarded, because I grew tired of how rude her front desk staff was to me and everybody else.

Greeting Clients
How does your staff greet clients?  Is there a smile, a hello and a handshake?  Is it a policy in your firm?  It should be.  Again, consistency assures that the clients expectations are in alignment with the experience.  If I work for you and I have a great, warm greeting with the clients for six years and then leave the firm, what happens with those clients when they come in the next time and are given an indifferent greeting? It may not happen right away, but in time the relationship will deteriorate.

On a few occasions, I have been in firms where every person I passed in the hallway would offer me a hello or at least a smile.  They didn't know me or why I was even in the office, but that made no difference. Talk about a welcoming environment.

Meeting with Clients
This is a substantial topic and there are many resources in the market for how to have a successful meeting, so I will again keep it very short and simple.  I am always surprised when a practitioner complains that their meetings go too long because the client talks too much about personal stuff.  This indicates one of two things to me, either the practitioner doesn’t value the relationship with their clients enough or they do not manage the meeting well.  So, two fixes:

1) Control the meeting.  Have an agenda for your meeting.  I use a simple bullet pointed list of five items we are going to go over with the first being “Why am I here?”  Your list should start with “Why are you here?” for new clients and “What has happened since our last meeting?” with returning clients.  This is where you will catch up on the personal stuff.

2) Remember, the personal stuff is critical and listening to it tells the client you care.  First, some of it will direct your work with them and, second, without it you are likely no different to them than any other practitioner they have worked with in the past.  The use of an agenda will help you manage the time spent on personal stuff and empower you to move to other items without risking any offense.

Clarifying Next Steps
Every meeting or important conversation should end with discussing next steps.  We call this providing a clear future.  If it is a tax appointment, is anything else needed and if so when, when will the return be complete and filed, what else is required of the client and when will the next appointment take place.  Finally, what will the next communication be (email, phone, appointment) and when will it occur?

Some of these might seem obvious, but policies and procedures for your front desk, for how to greet clients, for how to meet with them, and for how to determine next steps are critical in defining how your firm treats clients. Remember, how much a client likes your firm may have as much influence on them as the level of competence your firm demonstrates.  It is often the difference in client retention and client referrals and can turn a short term client (2-3 years) that worked with a single preparer into a client with a 20 year relationship with several different preparers in your firm.

Comments (0) • Posted March 10th, 2011 at 9:15am

Tax Season is the Easiest Time to Increase the Value of Your Accounting Practice

by Ken Berry, CBI

Even though its tax season, it is still very important that you consider ways that you can increase the value of your firm.

Fee Increases are Important

The number one way you can increase the value of your business is to increase your income.  A little increase can go a long way.  A 3 to 4% increase seems like a very small amount and it is hardly noticeable to your clients, but it compounds to you every year and over time.

If you consider a 3 to 4% increase over a 10-year period, it takes what was a $300 tax return and makes it a $400 to $420 tax return.  The value of practices is primarily based on the gross income, so in this 10-year model you would increase the value of your practice by approximately 35%.  Not a bad return on your investment.

Another way to look at this is based on a single year; a $300 tax return from last year now becomes $312 with a 4% increase.  Not a lot of money.  But let’s say you have 500 tax returns you just increased by $12.  That becomes $6,000 in your pocket every year, now we are starting to talk real money, particularly since its going to go straight to the bottom line.

Look for New Clients when You are Busy

Another often overlooked area of increasing the value of your practice is client acquisition.  CPAs are very busy during tax season and tend to focus their efforts on providing services to the clients they already have.  A laudable goal.

But remember, the tax season is an ideal time of the year to reach out to new clients because it’s the one time a year that taxes are on people’s minds.  Not everyone’s but the collective mind of the society.  Consider all of the advertising that takes effect during tax season, whether it is advertising for H&R or Jackson Hewitt, or advertising for some tax resolution service on TV, radio, or the Internet.  Advertising for tax services is at its peak during tax season.

That is when your prospects, your future clients’, think about taxes.  Not during the summer when you are slow and have time to market to them.  They are going to be much more responsive to your message now than at any other time of year.

Reaching out to them could take the form of a variety of different methods.  It could be meeting them at the Chamber of Commerce.  And who does not need a little break from the office to attend a chamber mixer.  It could be doing a direct mail piece to small business clientele.  It could be appointment setting telemarketing for small business clientele and taking that opportunity to try to meet with them.

I realize that during tax season you are all very busy but you would serve yourself well to spend a little bit of time and resources on marketing.  Extend a few extra tax returns this year and spend just a few hours a week on marketing your services.  It will help increase the value of your practice dramatically over the years and it will put more money in your pocket this year.

Comments (2) • Posted March 3rd, 2011 at 12:55pm