MAINTAINING A THRIVING ACCOUNTING or tax practice hinges on effective client retention. While that is certainly true after the purchase of a practice, it applies to established practices as well. All firm owners must be able to retain clients to survive and thrive. In the day-to-day operation of a practice, there is no guarantee clients will keep returning for services. No person owns the clients; therefore, no one can force them to stay. In theory, an owner could lose every single client tomorrow! Yet, owners typically don’t worry too much about this because they realize clients can be retained successfully for years and even decades. Studies and experience confirm that clients remain loyal when owners treat them with respect, solve their problems, and meet their needs. This holds true for both new and long-time owners. Why then is client retention the No. 1 concern of all buyers and most sellers? The widespread perception is that the bond between clients and the professional will be broken in a sale and will be difficult for a new owner to reestablish. Apprehension arises from the belief that a change in ownership will cause clients to leave the firm for a competitor or consider handling tasks themselves. Everyone has a horror story about someone who bought a practice and lost two-thirds of the clients. However, under circumstances involving a reasonable amount of care and common sense, client retention for a new owner often can be close to what would have been experienced by the previous owner. Why is this? The answer lies in viewing the deal from the client’s perspective. Many clients will not be happy about the change in ownership. This reaction stems from the understood relationship that has been built over time, although in many cases the connection with the professional is more perceived than real. Moreover, it is human nature to resist change. Paradoxically, this resistance to change can work to the benefit of the new owner. Of course the client loved working with her former accountant or CPA and is stunned she must continue without her trusted advisor and friend. But once the initial shock fades, what are her options? She still needs accounting and tax services, and she still needs an accountant. Some well-prepared clients might have an alternative plan in place. For most people, though, the only real option is to go to the Yellow Pages and start from scratch. 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 often may be found at the same phone number and same address as the previous owner. Often the same employees remain, and hopefully the prices are about the same. The client usually assumes that the professional she has trusted for years has properly vetted the new owner. When it comes down to it, convenience is routinely a top priority for the client. The prospect of embarking on a time-consuming journey to find a new accountant and undergo multiple interviews is usually far less appealing. If the buyer makes it a priority to reach out to the client as soon as possible, then the simplest choice for the client is to stay with the new owner. How can buyers ensure clients will stay with them? The answer is simple really. An accountant retains new clients in the same way he or she retains any client. Again, if a buyer treats both new and existing clients fairly and addresses their needs, then most clients can be retained. It’s inevitable that some client attrition will occur as a natural part of doing business. Everyone understands 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 need not 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 has been sold? Most people would give the new dentist a try. That is really all that can be asked. This leads us to the crux of the matter: Who should bear the risk of client retention? In reality, the buyer has almost all control over client retention! The buyer makes the decisions regarding quality of services and pricing decisions that affect clients. 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’s the buyer’s actions that ultimately determine the clients’ happiness in the years to come. The buyer does, though, need to be safeguarded 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. It is generally preferable to close sales on the day of closing. Then practice owners 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 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 hard work of the buyer, the transfer of an accounting or tax practice often becomes a win-win situation. WHO SHOULD BEAR THE RISK OF CLIENT RETENTION? BY ACCOUNTING PRACTICE SALES 10 Nebraska CPA
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