All posts by Ken Berry, CBI

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

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 (1) • 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

The Accounting Client Experience, Part 2:  Your Office Environment

by Ken Berry, CBI

In a typical year, I may walk into more than 100 accounting offices.  After five years of doing this, I can share some great and not so great examples of an accounting office environment.

First, how is the front room presentation in your office?  After the exterior of the building this is the first impression a client or prospective client will experience.  A well styled and comfortable reception area plays a vital role in the experience a client has when they visit your office.  In fact, it can even overcome a rundown exterior.  I had a client that had converted an old house into a quaint little office.  The outside was not too impressive, but when you walked in the front door you were literally blown away by how nice the interior was.  Every appointment I sent to that office had exactly the same impression.  It was almost like we were in on a secret or had found a diamond in the rough and my client confirmed that her clients always commented on how much they enjoyed visiting the office.

On the other extreme was an office I visited that was an office share for three different CPA practices.  The reception area was a central room and the CPAs, each a solo practitioner, occupied three of the four private offices around this reception hub.  The fourth private office was shared for storage.  However, the storage office was not large enough to hold everything, so most of their file cabinets were placed in the middle of the reception area.  Around these file cabinets they had a dozen mismatched chairs for clients to sit in while waiting.  There were two carved throne chairs next to a few folding chairs next to a desk chair next to a kitchen chair.  When I entered the reception room, I stepped outside to be sure I had entered the correct suite and then re-entered and tried to figure out where the owner I was meeting was located.  He actually stood up in his office on the opposite side of the filing cabinets, got up on his tip toes and waved me over.  It was a cluttered and uncomfortable introduction to his practice.

You do not need to be in Class A space or even Class B, but you do need to do the best you can with what you have.  The best offices I have visited were impressive in their presentation and gave me the immediate impression of organization and competence, two things all accounting offices should aspire to imprint on their clients.  So, review all areas a client may visit in your office, from the reception room and private offices to bathrooms, and be sure they are tidy, organized and comfortable.

The reception area may not require much time or money.  A few pieces of comfortable furniture (that match!) and a table with some reading material (be sure to remove personal addresses).  It may need a fresh coat of paint.  Maybe round it out with a few plants and some nice warm pictures on the wall.  Do not let this be a processing or storage area with files and documents strewn about.  Keep it clean, organized and welcoming.  Same goes for your conference room if you meet with clients in one.

In your private offices, it is understandable to have some files on your desk and about.  But avoid big stacks of files as it may make the client feel they are just one of many or, even worse, you are so busy that they should not refer anyone to you.  Also, do not put any paperwork on the floor, it does not belong there and will give a client nothing other than a negative impression.  Ideally, you want to appear hard working, but very organized.

In general you should aim for a nice, comfortable, warm environment that will put clients and prospective clients at ease.  The side benefit is this will also result in an environment that the staff is more comfortable working within and that they take more pride in.  I would enjoy hearing about other treatments of your office environment you have found critical to the client experience.

Comments (0) • Posted February 17th, 2011 at 12:12pm

The Accounting Client Experience, Part 1: How Responsive Are You to Your Clients?

by Ken Berry, CBI

I want to follow up on my last blog post and explore the Client Experience portion over the next few posts.  As with any topic of this nature, there are enough ideas, theories and proven practices to fill dozens of books.  So, my posts will by comparison be brief in content with the goal of identifying a few core areas you can focus on to get the most return for the time you spend.

To start our deeper exploration of the client experience, let’s look at how responsive your practice is to client inquiries:

1. Do you have an “Answer/Ignore Calls and Emails” policy in your practice?  This may seem silly in concept, but in practice it is important to be clear on when it is appropriate for you and your staff to answer calls you receive and when it is appropriate to let a call go to voicemail.

For example, a staff accountant in a meeting with a client may need to follow the policy of putting the phone on mute so even the ring does not interrupt the meeting.  However, when not in a meeting, this same accountant may be expected to answer the phone when at their desk between certain hours.  In a different example, the receptionist at the front desk may be expected to answer every call within four rings.

The same type of policy should also be established for email.  Have you ever arrived in the office in the morning with two or three pressing priorities on your mind and then spent half an hour going through email.  If you haven’t, I will wager that some of your staff has.  As much as its convenience is an asset, the ability of email to distract from more urgent matters is a very real liability in today’s business world.  Consider when in the day email should be reviewed?  Perhaps a surface review first thing in the morning to be sure there is nothing requiring an urgent response and then a more detailed review of everything after the morning priorities have been met?  A starting point in most email systems is to implement rules and macros that will route the email to specific folders and help you weed out the urgent from the less urgent.

2. What is your policy for returning phone calls?  Two hours, fours hours, maybe 24 hours?  And, what about responding to email messages?  Policies for responding to phone and email messages will go a long way in defining your practice to clients that contact your office regularly via these avenues.  Be sure these response policies are understood by your staff and followed.  Then communicate these policies to clients.  Doing so will help manage their expectations and keep the clients in alignment with your practice.

One rule you might consider implementing is returning the toughest calls early in the day.  It may seem counter-intuitive, after all who wants to start their day calling demanding clients?  Well, the truth is the anticipation of making the tough calls can be demoralizing and weigh down everything else.  So, get that weight off your back early, take a deep breath and enjoy the rest of your work day.  Your responsiveness to other client needs and your work production will both improve.

3. How do you communicate your turnaround times to your clients and do you meet or exceed your estimates?  I have always referred to this as the Chili’s principle, since I grew up near the second Chili’s in the nation and they always told us it would be a longer wait for our table than it ever turned out to be.  In short, you should under promise and over deliver whenever possible.  If you are sure you will have a tax return done in 48 hours, inform the client it will take four days and then call them on day three to communicate it is done.  It may seem like a bit of a game, but the resulting perception is that you prioritized the client and got it done early.  How’s that for responsiveness?

So, there are three areas that can quickly and easily be addressed and significantly improve your clients’ experience in regard to how your firm responds to them and their needs.  These policies are going to be defined by a mix of client needs, firm culture and type of service being provided.  There is no set rule of how these policies should be structured, but you should develop them and put them into practice…even if you are the sole operator in your business. I would enjoy hearing about other areas of responsiveness that you have found critical to the client experience.

Comments (0) • Posted February 7th, 2011 at 10:55am

Three Keys to Successful Accounting Practice Development

by Ken Berry, CBI

I received an email from a practitioner in the Northwest today that I found interesting.  It was simply the question, “how would you suggest a CPA grow his practice?”  I found this question interesting because, from my perspective, it is so broad in its vagueness that it expresses a profound uncertainty. An uncertainty many practitioners express to us on a regular basis.

My response contained two questions that every practitioner should consider:

  • Are you contemplating organic growth?  This is internal growth through practice development processes one client at a time.
  • Are you contemplating acquisition or merger growth?  This is growth through the purchase of a practice or a merger with another firm.

These are not exclusive avenues and every practitioner should put significant focus on practice development systems and processes for long term success.  An acquisition will give you a boost, but without new client development you are going to see decline unless you acquire again…and again…and again.  By the way, this is an option that many practitioners find to be acceptable and in some cases it has been very successful.

In response to this email, I also offered my overview of three key elements of any successful practice development plan:

  1. Client Experience.  How do your clients experience your business?  From taking calls or returning them to visiting your office, what is the client experience?  What is the level and quality of service provided? I list this first, because it can and should be addressed first.  If systems and process are not developed to make the client experience both satisfying and consistent, you will be wasting your money with the next two elements.
  2. Lead Generation.  How will you find new prospective clients?  Develop a strong referral network (client experience is the basis of this approach), telemarketing, direct mail, advertising, etc.  What are the avenues and components you use or need to develop to generate leads?
  3. Lead Conversion.  In my experience, I have always found generating leads to be relatively easy.  It is qualifying and then converting the leads to clients that require the most effort and focus.  Do you have a process to engage a lead and convert it to a client?  How do you interact with a prospect, present your service and ask for the business?  In my conversations during the past seven years I have been surprised how often a practitioner does not have a process and just “wings” the initial meeting.

Each one of these requires thoughtful planning, development of systems and processes, and diligent execution if your organic growth efforts are to be successful.

I would love to hear your thoughts and experience with your own growth efforts and will post more on this during the next few months.

Comments (10) • Posted January 21st, 2011 at 10:15am

Creative Financing for Accounting Practice Acquisitions

by Ken Berry, CBI

What are your funding options when buying an accounting practice?  You have your own cash (in assets or liquid), if you own a practice you have its cash reserves and cash flow, there is bank financing, there is seller financing, and there is outside financing from investors.  The state of the economy during the past two years has required some adjustments in funding accounting practice sales and acquisitions.

Two years ago, we saw a heavy mix of buyer financing and bank financing with a smaller portion in seller financing.  In the past 24 months, we have seen a substantial decline in buyer capability to finance, tighter lending policies from banks and, therefore, an increase in the portion of an accounting practice sale that is financed by the seller.  But what if you cannot fund any of the acquisition, you cannot secure a loan and the seller is not willing to finance more than 50 or 60 percent?

I worked with a buyer this past Fall in exactly this situation.  He was young, very capable and a great fit with the seller and the selling practice, but he wasn’t financially capable and was not able to secure a loan.  So, he worked with friends, family and associates to set up a small investment group to support his acquisition effort.  Not an easy proposition to achieve, but he was motivated to buy this accounting practice and saw the value of the acquisition.

The good news was he achieved his goal by receiving initial pledges equal to 33% of the purchase price.

The bad news was his primary two investors became skittish when he discussed the details of his offer with them.  The problem here was they were both from a different professional service industry; both had bought and sold practices in that industry which like most industries has its own unique valuation criteria, and neither understood that they were comparing apples and oranges.  A further point of contention was that the standard in their industry is 10 year seller financing, not the three to five years we typically see in the accounting industry.

So, the buyer’s offer, which was not the seller’s ideal but met his needs (a bit above one times gross, seller carrying over 60% of financing on a seven year term), was seen as too risky by these two investors.

My point.  If two parties want to get a deal done, there are always creative ways to finance the deal.  However, the more people that are added to the decision process the more difficult it will become.

Comments (1) • Posted December 17th, 2010 at 1:18pm

Plan to Sell Your Accounting Practice in 2011?

by Ken Berry, CBI

‘Tis the season for celebration and ‘tis also the season for planning and organizing.  If you intend to exit or sell your accounting practice in 2011, you should be planning and organizing it prior to the end of January.  The most significant part of the planning is deciding that you are going to take this step and then determining what assistance you need.  Whether you work with an intermediary or not, the next part is critical.

Put your plan together right away.  Why?  Because you are headed into tax season and, in our experience, no one wants to work on their sale during or even right after tax season.  Why does this matter?  We see two highly active periods during which practitioners invest time and energy in the exploration and evaluation of acquisition opportunities.  The first of these periods begins around May 1 and ends around June 15.  So, if you are not organized prior to tax season and do not have the energy or interest in getting organized during the two weeks immediately after tax season, you will miss an important window of opportunity with potential buyers/merger partners.

You have many options in the market from selling your accounting practice on your own to listing with a brokerage firm.  In my business process, I discuss the following as I help clients plan for their sale next year:

  • We set up the listing in December or January.  The client sends in financial and other information so I can draft my 9-page report on their accounting practice sale.  We have our conversations to address questions and finalize the report prior to the client getting too busy with tax season.
  • The client focuses on tax season and I do not disturb or interrupt them during this busy time since my report and promotion are now working for them.
  • On March 16th, I begin the promotion of the accounting practice for sale.  I field inquiries and begin to develop a pool of potential candidates. All of this is done without bothering my client, the seller.
  • Around April 1st, I check in with the client to remind him that I will need updated financials soon.
  • Around May 1st, when the market picks up considerably, awareness of the sale is pretty high (based on six weeks of promotion) and we have serious candidates.

The key to all of this is that my client (the seller of the accounting practice) does not spend valuable tax season time with me or prospective buyers and they do not miss the first peak in market activity that occurs in May.

So, if you have decided you are going to exit or sell your accounting practice in 2011, get it set up prior to tax season to maximize your opportunity to build the largest pool of prospects and, as a result, find the best buyer for your business.

Comments (0) • Posted December 9th, 2010 at 10:19am