Who Should Bear the Risk of Client Retention?

When all is said and done, the key to a successful operation of an accounting or tax practice is client retention.  That is true after a sale or transfer of a practice but, in fact, that is true even before a sale is ever considered.  All firm owners must be able to retain clients in order to survive and thrive.  We know that.  And we know that in the day-to-day operation of a practice there is no absolute guarantee that clients will stay.  No one owns the clients and no one can force them to stay.  In theory, any owner could lose every single client tomorrow!   Yet we don’t worry too much about it because we also realize that clients can be retained successfully for years and decades.  All the studies show, and experience confirms, that clients stay when we treat them right, solve their problems and, thereby, meet their needs.
 
So why do we have such a fear of losing clients in the purchase of a practice?  Why is client retention the number one concern of all buyers and most sellers?   There is the wide-spread perception that a “bond” exists between clients and professionals that will be broken in a sale and may be difficult to reestablish between those clients and the new owner.  The fear is that just the change of ownership itself will cause clients to leave the firm for a competitor or start doing the work themselves.  This is certainly a real concern because everyone has a horror story about someone who bought a practice and lost two-thirds of the clients.  However, the truth is that under circumstances involving an average amount of care and common sense, client retention for a new owner can often be close to what would been experienced by the previous owner!

Why is this? The answer can be found in looking at the deal from the client's perspective.  The client will not be happy about the change.  That is because there probably has been some kind of understood relationship built up between her and the professional although in many cases that relationship is more perceived than real.  But probably more important is the fact that people just do not like change.  However, that dislike of change can work for the new owner. 
 
Sure, the client loved working with her former accountant or CPA and is stunned that she must continue without her trusted advisor and friend. But once she gets over her initial shock, what are her options?  She still needs accounting and tax services and she still needs an accountant. Those who have planned ahead may have an alternative in their back pocket. Others may have a cousin who for years has been trying to convince them that they can "do the books cheaper". These cases, however, are rare.  For most people the only real option is to go to the Yellow Pages and that, of course, can be a nightmare. 
 
The best option for the client is almost always to give the new owner a try.  After all, the new owner already has her files and can be found at the same phone number and often the same address as the old owner. Usually the same employees are there and hopefully the prices are about the same.  The client usually assumes that the professional she has trusted for years has “checked out” the new owner. When it comes down to it, convenience is often a top priority for the client.  Searching for a new accountant and conducting multiple interviews can be a very exhausting and time-consuming venture.  Staying with the new owner is the easiest choice for the client to make, especially if the buyer makes it a priority to reach out to her as soon as possible after the sale is final.
 
“But how can I make sure that the clients will stay with me? the buyer asks. The answer really is simple:  An accountant retains new clients in the same way he or she retains any client.  Again, if a buyer treats (new or old) clients fairly and meets their needs then there is no reason why most clients can not be retained.  Some clients will be lost because some are lost every year.  We realize that.  And some clients may be lost just because the change gives them a chance to go to that neighbor or cousin or to find someone closer.  But the number of people who change firms just because of a change in ownership does not have to be that high.  How many people would give the new dentist a try if they received a postcard in the mail from their old dentist saying the practice had been sold?  Most people say they would give the new dentist a try.  That is really all that can be asked.
 
That helps to answer the question:  “Who should bear the risk of client retention?  In reality, the buyer has almost all of the control over client retention!  It is the buyer who makes the decisions regarding quality of services and pricing decisions that affect clients. Sure, the seller can assist the buyer with key introductions, endorsement letters, occasional problem solving and words of encouragement. However, the seller's ultimate contribution to the deal is to bring the goodwill of the clients to the closing table, to provide a list of persons with the need for accounting services and to use his or her influence to encourage clients to give the new owner a try. The seller simply owes the buyer loyalty and good faith support.  The seller helps with client retention but the bulk of the responsibility, by far, is with the buyer.  If the new owner does not treat the clients well and provide fair solutions for them they will leave no matter what the seller says or does.  It is really only the buyer who can make the clients happy 2 or 5 years down the road.

The buyer does, however, need to be protected from unscrupulous practice owners by non-compete agreements, due diligence investigations and legal protections.  But, when two honest parties are involved, the sale can be completed on the day of closing; it does not have to drag out for an extended amount of time.
 
At Accounting Practice Sales, we prefer to close sales on the day of closing.  Practice owners often either receive all cash at closing or a substantial down payment and a note receivable at a fair rate of interest rather than a payout contingent on client retention.  Buyers can look forward to owning the business full and complete from day one and to making all of their own decisions regarding client retention. They will fully bear the risk and the reward of the decisions they make, not the old owners.  That, of course, is the way most business transactions work in this world.  Given good faith on the part of the seller and the hard work of the buyer the transfer of an accounting or tax practice can often be a win-win situation.