5 Common Misconceptions about Handing Over the Reins of Your Practice

IMGCAP(1)]You’ve got yet another tax season under your belt, your grandkids are getting older and your golf game could use a little tweaking. Your thoughts of retirement have been on your mind but you have been putting off pursuing this path for various reasons, some of which may be based on some common misconceptions.

In order to clarify the process and perhaps put you in a better position to make decisions regarding your future, let’s look at five of the most common concerns.

1. “After a brief period of transition, defined by the buyer, my professional working life will screech to a halt before I am ready to fully retire.”

The underlying premise that contradicts this assumption is that acquiring firms have a much different appreciation for the selling CPA today than in years past. They recognize and accept the fact that in today’s environment achieving organic growth is quite difficult. By acquiring a practice such as yours, they are investing in their firm’s future. There is nothing more critical during the first few years of the transition than to protect and leverage their investment by keeping the original CPA involved with his or her clients.

The sale of your practice and the terms of the “deal” are in no way dictated unilaterally by the buyer. Every critical aspect is part of the overall negotiating process, including the time you would want to keep practicing and a range of guaranteed hours at a specified rate. In effect, you may carve out a working scenario (within reason) that is agreeable to both parties. It is not unusual in today’s marketplace for sole practioners who sell their practice to continue working, albeit on a reduced schedule, for two to four years.

2. “The acquiring firm does not really care about my clients, many of whom are older or have become personal friends over the years. Because of this, some of these clients will leave unnecessarily. Collections will drop and as a result I will ultimately be paid less for my practice.”

It is true that not every client involved in a transition to another firm will remain with the new firm. However, it is a clear misconception that the buyer doesn’t care about “your” clients. In fact, the opposite is true.

The buyer has everything to gain by developing good relationships with newly acquired clients. These clients have been “obtained” in order for the buyer to increase total revenue, become more attractive to potential hires and be more competitive in the market. As a result, firms have become much savvier in managing and staffing new clients obtained via merger.

The buyer views the newly acquired client base as a platform for expansion. He sees the current billings from your client base increasing over the course of time... all the more reason to nurture your clients.

3. “My clients will have their fees increased quite dramatically, creating unnecessary fallout.”

In most deals this is not the case. As noted earlier, your clients represent an investment in the future to the buyer. Client expansion will be achieved in large part by delivering additional services, not by raising rates. Buyers can’t afford to “write off’ new clients as they are a fundamental part of the investment equation. Most firms make it a point to maintain existing billing rates for at least an initial period.

Since fee structure is an important element in client retention, and in turn to your ultimate payout, it should be discussed openly prior to any deal being struck. Worth noting here is that billing rates are usually relatively similar, making this less of a concern in most cases.

4. “I have some very difficult or complex clients that no one else but I can handle.”

It is certainly valid that you may indeed have some difficult clients, in terms of their personalities and/or the sophistication and skills required to service their account properly. Given that the seller will still be managing the client post-transition, there may be time for a new partner to develop a relationship here. Still, you may be right and after your phase-out period ends that client may be lost.

5. “I will not have an opportunity to benefit from any upside in the deal moving forward.”

It is to everyone’s benefit in a new “merger” situation for the buyer to incentivize the seller to leverage their established referral base to bring new or additional business into the newly merged firm.
The buyer should be quite comfortable rewarding you for new business and will typically do so in accordance with their existing incentive program.

Bob Shapiro, CPA, works with the Ventura Group of Florida, Inc., which provides merger and acquisition services for CPA firms and other businesses.

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