READY TO SELL: HOW ACCOUNTING PRACTICES ARE SOLD SO, YOU ARE READY TO SELL YOUR PRACTICE, BUT HOW ARE practices sold? This is one of many questions our prospective sellers have on their mind as they approach the daunting idea of putting their firm on the market. Today, accounting and tax practices are sold in multiple ways and, with the help of APS, you have options to help you find the most value for your business. As you will learn in this article, the premium offered to the seller lies within the deal terms themselves. The first method that can be offered in a deal is “Collection Pricing.” When a seller receives payments based on collections or billings over a period of time, this is referred to as “percentage of collections,” or “percentage of billings.” The down payment, percentages, and payout terms vary widely. Traditionally, however, the buyer pays a down payment of 20% of the estimated price and then 20% of collections each year for the first four years. This scenario is so common that many accountants think it is the only way practices can be sold! Understandably, buyers like these terms because payments are manageable and almost all the risk of client retention is transferred to the seller. Buyers will explain there is an “upside” to the seller if the gross revenue increases year after year. However, most sellers are not comfortable assuming retention risk while having little control over the client’s experience with the new owner. Sellers also dislike the accounting and due diligence involved in calculating the collections year after year. If such a method is used, both the buyer and seller need to be sure everything is spelled out clearly from the beginning, addressing such issues as whether new clients or referrals will be included in the collections, and how “collections” will be applied and accounted for. 23 nebraska society of cpas W W W . N E S C P A . O R G
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