Accounting Practice Value and Payment Process

How much will I pay?
What is the expected down payment?
How long will I have to pay it off?
What is the interest rate on the unpaid balance?
What is my assurance the clients will stay?
The answers to these questions are very important to the prospective buyer as well as the seller. Fortunately the answers are available in a number of publications. One such book, "Handbook of Business Valuation" published by John Wiley & Sons, Inc. The authors are Thomas L. West and Jeffery D. Jones. This is a great book for any professional to own because it does a great job of covering various businesses and the methods of evaluating them. It is especially valuable to the perspective accounting practice buyer because it has a chapter on the unique way accounting practices are sold nationwide. Obviously there are some exceptions such as the death of the practitioner, but this publication does cover the above questions.

As a sales agent for accounting practices we would be expected to adhere to the normally accepted sales practices. In California the following in the normal accounting practice sale.
1. The sale price will be between 1.1 to 1.25 the practice's last year's or last twelve months gross collections.
2. The buyer will put 30% to 50% down on the close of the sale.
3. The buyer will pay off the remaining balance in thirty six to sixty months.
4. The typical interest rate on the unpaid balance will be between 6 to 8 percent.
5. There will be a one year guarantee of the gross collections.
6. There will be a 5 year covenant not to compete and client repurchase clause.
7. The normal transition time with the buyer is 30 days with the seller doing client and employee introductions, reviews of client files, office operations and software training but no production work.

Our standard practice purchase agreement will cover this as well as other concerns of the buyer and the seller.
There is a real exception to this process in the case of the practitioner's death where there is no normal transition period of clients to buyer possible. One way of handling this situation is the buyer paying the estate a percentage of the yearly collections over a period of years. An example would be the buyer paying the estate one third of the collections each month for a period of three years. Although this might work in this circumstance it is not an acceptable normal practice sale. If this process is what you are looking for in a normal practice purchase, please save yourself and the sales agent the time and bother. If a sales agent would engage in such a sale with a normal practice and the seller realized how small the payout was going to be, the seller would sue the sales agent for dereliction of fiduciary duty. This sale would be a multiple year agreement on only the returning clients knowing that in a normal practice the client turnover is 10% a year and this would be a no win for the seller.

OAK TREE ASSOCIATES Phone (800) 233-0659 FAX (949) 855-9648