How to prepare your business for sale

Selling an accountancy practice requires careful consideration and preparation.

It's crucial to understand your motivations, evaluate your systems, consider the impact on key people, optimise cash flow in the practice, and minimise work in progress and debtors.

Sometimes, examining these issues can even bring a fresh lens to the business and help smooth out processes or systems, says licensed business broker John McCulloch of Quinn & Associates.

“I have seen cases where clients are going through the process of preparing to sell and what they need to do, and it is almost like a revamp of the business,” he says.

McCulloch has seen this particularly among younger accountants who hadn;t been planning to retire but to move on.

“Once they make the processes less cumbersome, and join forces with a slightly larger practice with the modern resources, infrastructure and additional staff resources, they are quite happy to continue in the practice with the purchaser.”

For those committed to selling, however, McCulloch advises considering far more than price.

“A sale is not only about finding the purchaser with the biggest cheque. It’s about finding the right fit,” he says.

“That means someone who gets along with your clients and staff, and who shares essentially the same values as you.”

Here are the four questions McCulloch most frequently asks practitioners who want to sell their accountancy practice.

1 Why are you selling?

“Many practitioners start their business with the intention of looking after clients but, over time, realise that they are not running the business, the business is running them,” McCulloch says.
“If they intend selling but staying on with the purchaser even on a part time basis, passing the ownership of the business on can allow them to refocus on their core mission of client care.”

They may initially offer their services full-time, eventually transitioning to a part-time role before retiring, he says, especially if they are older.

For accountants who intend to fully retire immediately, selling can be an emotional decision and one they need to be certain they are ready to make.

This can involve contemplating personal commitments, goals and achievements.

2 What systems does your business use to operate?

In preparation for selling, understanding and creating detailed records of the hardware and software you use, website hosting, and upgrades and updates can be helpful for both your own optimisation of the practice and in handover.

While the technology you use is not necessarily a factor in a successful sale, it may also be worth considering an upgrade.

“It’s a big investment, financially and time-wise, so if your sales period is the immediate future, you may decide against modernising your systems,” McCulloch says.

“However, if you are not planning to sell for two to three years, upgrading, especially from a server-based to a cloud-based system, makes good sense.”

3 What does your client base look like?

A potential buyer wants to see a stable base of clients who, based on their age groups, are likely to remain in business for several more years. A client base close to retirement age will deter a purchaser.

McCulloch suggests that keeping clients happy and addressing succession plans with clients who are close to or over 65 is key to a healthy business that appeals to a buyer.

“Making sure client engagement letters are up-to-date is also important.”

He adds that practitioners should also move clients to quarterly billing – after each Business Activity Statement, for example – rather than annual billing.

“This is better for the cash flow of both the practice and the client.”

Accountants can analyse their businesses’ client base by grouping clients within value bands, types of engagement, or even services currently being utilised. This is also a helpful way to communicate the value of the client base.

Maintaining your charge rate at a current market price is also key – a purchaser will not want to immediately alienate clients with a rapid rate hike, nor operate with suboptimal margins.

4 Who are the key people in your practice?

From a purchaser's perspective, having the existing staff and their knowledge stay on can be advantageous.

McCulloch suggests making a record of qualifications or areas of expertise, as well as charge out rates, average hours worked, total remuneration, and liabilities and entitlements such as long service leave.

McCulloch adds that staff should be on employment agreements with restrictive clauses that state they cannot leave and take clients with them.

Finally, McCulloch advises playing your cards close to your chest – news of a potential sale can cause job security concerns and risk key staff attrition.

“They are busy looking after clients; they don’t need to be worrying about a business sale,” he says.

See more of John McCulloch’s practical tips in the IPA on-demand webinar: Tips on Getting Your Accounting Practice Sale Ready.