Mastering the exit: Best practice for selling your accounting business
Article by: Chris Sheedy OF The Hard Word
The sale of an accounting firm requires careful planning and strategy. Transaction advisor Kev Ryan shares his insight into the essential ingredients for sale success.
While every journey to a successful accounting firm sale, merger or joint venture is unique, each must follow a specific pathway to find success, says transaction advisor Kev Ryan.
Having guided countless vendors through a process that results in a win for the seller, buyer, staff and clients, Ryan shares his insight into the key steps along that pathway.
Recognise your ‘why’
Before a client even decides on whether they should sell or stay, merge or form a joint venture, it’s essential that they develop a powerful understanding of their “why”, Ryan says.
“That has to be the starting point for any transaction,” he says. “Why are you thinking of selling? What is driving this decision? It’s a critical question, because not every sale is in the owner’s best interest.”
For instance, when Maurice Sucevic wanted to begin the process of selling his accounting firm BuildGrowth, Ryan’s counsel helped him realise his issue was with the administrative demands of running such a business, and not the business itself.
Instead of selling, Ryan recommended, it would be wiser for Sucevic to trade a percentage of the business to form a joint venture with a larger firm that had the resources to manage the administration function. A joint venture was formed with Guild Group, with Sucevic still working within, and holding a percentage of, his business.
“Understanding your reason for selling sets the tone for the entire process and influences how the sale will be structured,” Ryan says.
“My role as an advisor is not that of a broker. I’m not just looking to facilitate a sale. I’m here to ensure the transaction aligns with the owner’s broader goals, even if the client doesn’t originally realise what they are.”
“I drag it out of them, question them and get to the bottom of the situation to find the real why.”
Conduct a deep assessment of your business
Once the why is understood, it’s time to conduct a deep dive into the business itself.
Under Ryan’s guidance, the owner goes through a detailed fact-finding process to gather data around such topics as revenue, client types, client concentration, profitability, organisational structure and more.
“We take a granular look at what the business is made up of, how many clients they have, their average revenue per client, what sectors they specialise in and more,” he says.
Key financial metrics are vital in the development of a clear idea of the business’s true value.
A scorecard system, devised by accounting management consultant Rob Nixon, helps the vendor see their business from a buyer’s perspective, Ryan says.
Identify and mitigate key risks
One of the key risks in accounting, which is ultimately a relationship-based business, is the human one.
“Some business owners don’t realise they don’t necessarily own the goodwill,” Ryan says. “There’s often a team member heavily invested in the relationships, and in that case I need to mitigate the risk.”
“It’s tricky one, because you have to work out the right time to disclose to that person that the vendor is considering a transaction. If that person decides to cut and run, it can be disastrous.”
In the best cases, that key person can be engaged in the sale and even pitched as one of the benefits of buying the business.
“In any case, we want to make sure employment contracts are up to date, and that there’s a restraint clause,” Ryan says.
“Next, if we perceive such a risk, I’ll tell the vendor to pause the sale preparation while they reintroduce themselves, over a period of time, to the top clients and other stakeholders.”
Find your buyer set
Once assessments are done and risks mitigated, it’s time to get out there and find buyers of several “flavours”, Ryan says.
“I’ll choose four or five firms that are good acquirers in their own right,” he says. “We never sell to a first-time buyer, because experience matters in the buying process.”
“Those firms will each be a different flavour, such as a particular size, specific intentions and motivations, geographics such as a Melbourne firm looking for a Gold Coast office, a firm with divisions that is looking to add another, and more.”
Meetings, over video conference or preferably over coffee, are organised. This getting-to-know-each-other part of the process is vital.
This will typically lead to the identification of one preferred buyer, a lead horse in the race. Once that buyer is identified, a Heads of Agreement is signed, and the all-important due diligence phase begins.
“Due diligence should have a defined timeline and end date, otherwise it can drag on forever,” Ryan says. “Then, it’s time for the finalisation of the sale contract.”
Where there’s a will…
A transition plan, a step-by-step outline of what should happen and when, is critical to the successful sale process. More important though, Ryan says, is the seller’s attitude.
“Willingness is everything,” he says. “Both parties must want to do the deal. They must be willing to put in the time and effort required, in each and every case, to get the deal done.”
“A good deal is never about one person making as much money as possible. It’s about both parties doing all it takes to ensure everybody is satisfied with the outcome.”
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