Common Misconceptions in Selling a Practice

Selling an accounting practice is a once-in-a-lifetime experience for most practice owners.  Because it is such a rare event, sellers need to be aware of the key misconceptions about the process.

Misconception #1 – The seller needs to stay around for months or years to assist the buyer in the transition.

Experience with countless practice sales has shown us that a shorter transition, typically no longer than two or three weeks, is much more effective for both parties.  One reason for this is that the seller is not needed nearly as much to help as intuition tells us.  In fact, the seller can even be a hindrance to the transition if he or she is around for long after the buyer takes over the practice.  Another reason it does not work to have the seller stay on for an extended transition is that there is not sufficient work or money to go around.  Money which had gone solely to the seller in the past now must be used to pay the seller, pay the buyer AND service the debt.

Misconception #2 – The best buyer for an accounting practice is another accounting firm.

In many instances, an existing firm is not the ideal buyer of a practice.  Firstly, existing firms often do not have the “time” to take on another practice.  This lack of time ties into the second reason why firms are sometimes not the best buyers for practices.  Firms are often only marginally motivated to buy a practice.  Compare this to a potential buyer who is an individual with several years of experience who has dreamed of owning a practice.  Such an individual is much more motivated than the typical firm buyer.

Misconception #3 – The average selling price for practices determines the value of a specific practice.

Practice owners often ask, “What are practices selling for?”  But knowing the average selling price for accounting practices nationwide can be misleading.  While accountants might have the perception that practices sell for around one times annual gross, the reality is that in some locations such a price would be too high and in other locations too low.  When considering the value of a practice realize it has many unique characteristics including location, client mix, staffing, profitability and others.  These specific qualities of a practice must be addressed to determine value, not averages.

Misconception #4 – Accounting practices have some intrinsic “value” which all potential buyers recognize and with which all agree.

Suppose there are one hundred interested, potential buyers for a specific practice.  Would all these buyers agree as to what it was worth?  Of course not!  They would not come close to agreement.  If a practice is offered at a certain price, all potential buyers might step up to the plate with check in hand.  On the other hand, it could be priced where only one or two would agree to purchase.  This is because buyers have quite different ideas as to value and possess different degrees of motivation and interest.  This same misconception comes into play when sellers think that the only trick is finding “a” buyer.  Practice owners routinely say, “Oh, I have a buyer” or “I have someone interested in buying my practice.”  If an owner has “a” buyer it is possible he or she has the one willing to pay the best price and terms, but that is highly improbable.  Just as likely he or she might have found the one willing to pay the least.