Seller Response (aka “Deal Motivation”)
Most accounting practice buyers have been burnt in the past by “wannabe” business sellers. Telltale signs for such sellers include a hesitation to accept an offer even after several legitimate practice buyers have been introduced, referring all matters to the buyer’s attorney, or being unable or unwilling to provide the latest financial information. In other words, consciously or unconsciously, the seller is doing everything to delay the deal or make it impossible. Those looking to buy a practice are very sensitive to such behavior and they do not want to spend up to $5,000 in legal fees for due diligence, and months of their own time, with a seller who ultimately does not want to move forward with a transaction. Thus, it’s imperative for the seller to be responsive and react immediately to buyer requests.
Professional Business Presentation
To keep interest levels high the seller needs to include tax-return-based financial information, a detailed asset listing, growth projections, along with current and projected EBITDA and true Sellers Discretionary Cash Flow (SDCF) – including all the personal expenses that an owner runs through the business (owner perks) as well as an outline on how the business operates.
For example, what is the company’s competitive advantage? How does the company attract clients? Are revenue streams recurring? Which contractual arrangements exist? What kinds of personnel are in place? These are just a few topics that needs to be addressed if you’re entering the process of buying a practice or selling one.
Without exception, all buyers want to see that a practice has potential for growth. Therefore a seller needs to outline what growth paths exist, what plan needs to be implemented, and what capital infusion such a plan requires. The current business owner, being intimately familiar with the business, is the most qualified individual to provide guidance for this growth especially if you’re an NCI client that has utilized one of our marketing program.
Without a credible company growth plan, a successful sale is very unlikely. Buyers are motivated by a positive cash flow and good company growth projections, and they need to see them documented.
Almost all buyers want to see continuity in how a practice is managed. The very first question typically is: who will stay and who will go?
Buyers seek continuity, and studies have shown that in less than five percent of mid-market transactions will a buyer make any significant personnel changes in the first 12 months of ownership. The management team is an important part of the “goodwill” for which the buyer paid at the closing table. It would not be smart to destroy such goodwill.
Improper Legal Representation or Over Lawyering
Another major concern for practice buyers and sellers is for the seller to have proper legal representation. Most attorneys do not have experience in the sale of an accounting practice. This situation nearly always results in delaying the process or killing a deal outright. Try and work with legal counsel that’s has experience in this area of law. Or ask NCI about certain aspects of the deal and what is common when structuring the legal agreement for selling or buying a practice. While we can’t offer legal advice we can offer the experience of having represented hundreds of sellers over the past 25 years. We will also offer sample agreements of sale and Letters of Intent (LOI) to help facilitate the process and lower your legal costs.
In summary, if a seller is sensitive to the five major concerns outlined above and addresses them accordingly, a seller’s offer will attract more buyers to their practice, generate appropriate dialogue, and lead to a successful sale.
Interested in buying or selling a practice? Call 1-888-New Clients, (639-2543) for a no obligation evaluation of your firms worth.