Last year we had quite a few sellers who engaged us after October 15th and quite a few buyers who made their initial inquiry about a practice we represent after October 15th, even though we had sent them multiple alerts about the practice months prior.

The impact to a seller who waits this late into the year to initiate their sale is two-fold.  First, the amount of cash paid down at closing is likely going to be far less.  This is due to the limited time remaining to get the transaction closed and the typical time required to secure bank financing.  From the date a complete loan application is submitted, most banks require 30-45 days to approve and fund the loan.  Considering the time required to package a sale, promote a sale, engage buyers, receive an offer, negotiate the offer, accept the offer, and pull together all the documents the loan package requires, it is unreasonable to expect this all to happen in less than 30 days.  The quickest reasonable expectation from listing your practice for sale to funding is 60 to 75 days.  Looking at 0ctober 16th as a start date this seems viable to close by end of year, except we lose a few days to a week in late November for a holiday and at least a week in December because of multiple holidays, and most banks freeze new loan activity toward the end of the year. Bank financing is not as likely after October 15th, so sellers that wait this late into the year to put their practice on the market should be prepared to seller finance.  Also our 60-75 days assume that both the buyer’s and seller’s attorneys are available, responsive and quick to move forward with their role in finalizing a contract, which isn’t always the case (see our lesson on Managing Your Advisors).

The second impact for the seller is the size of the buyer market.  Their options begin to shrink after October 15.  Buyers who were very active earlier in the year have decided to shift their focus away from acquisitions toward client needs for year-end planning, and toward gearing up for the upcoming busy season.  As the pool of prospective buyers shrinks, the likelihood of a seller finding the best buyer at the best price and terms also diminishes.

For the buyer, the impact of waiting until the last minute to acquire is also two-fold.  First, to be successful there needs to be sufficient time to get up to speed and, at a minimum, develop and implement a plan to transition the business and clients.  The second impact to a buyer is that as the year-end approaches and the next busy season looms, efforts on a transaction can be a distraction from other priorities and a potential detriment to providing service to clients and getting prepared for all of the upcoming work to be provided.

Our recommendation always has and always will be to move forward as soon as you have made the determination you are going to sell or acquire.  Get your practice into the market earlier than you perhaps think you should to improve your prospects and likelihood of selling, or pursue an acquisition once you have found one of interest and get it wrapped up so there is ample time to assimilate it to your existing business and make it a success.

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ProHorizons is a West Coast brokerage and consulting company focused on tax and accounting practice sales and acquisition services.

If you are planning to sell your practice and would like more information about our service, please visit our Sell Your Practice page and/or Request a Sales Information Page.  If you are looking to acquire a practice, please visit our Buy an Accounting Practice page, see if there is a practice of interest in our Current Listings in the Pacific Region, and/or Register with us as a Buyer.

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