So, You’re Interested In This Practice?

By Steven E. Sacks, CPA, CGMA, ABC

People are interviewed for positions; the process has historically been known as buying a pig in a poke — for both the applicant and the employer. How the match will gel, or not, remains the great unknown. Determining if there is a fit will take time. Performance will not be the only metric. It will also involve interpersonal skills, the ability to collaborate and cooperate and knowing when to take appropriate action or refrain from one. These elements are considered by the employer. But what about the employee? The employee will determine if the culture and leadership reflect what was represented during the course of the hiring process.

Now consider the acquisition of a sizable non-human asset, such as a car or home. You’ll want to see that either one gives you a sense of confidence and excitement as part of your first impression. Practically speaking, a home will play a larger role in your life than a car. Home sellers know there is an emotional attachment. They know the home should be presented in the best possible light; everything after “curb appeal” is placed under greater scrutiny. If the buyer opens the front door and it falls off the hinges, this should be a warning sign. Maybe give pause before walking up those flight of stairs. Just a  thought.

Think Before You Sell. Think Before You Buy.

The acquisition of human and capital assets requires careful planning and deliberation. The transaction involving a CPA practice is like any type of business writ large. The markets served, the competition, business development efforts, law changes, partner compensation, succession planning and culture, among other elements, make the process of a merger or acquisition more difficult and time consuming than a transaction to buy any other capital asset. One obvious difference is that a piece of machinery depreciates; a human asset on the other hand can increase in value based on how it is cared for.

For the firm whose leadership wants to sell the practice, you have to have an “out of body existence.” This means putting yourself in the shoes of a buyer and consider what makes the firm attractive, as well as what will reduce its appeal.

The idea of having a “buyer mindset” when selling a firm will help you position your firm in the most favorable light to a potential suitor. This means being self-critical when you think about the current status of your firm. No one ever says, “Look what I was sold.” They say, “Look what I bought.” This means that the final arbiter of the transaction is the buyer and understanding what a buyer is looking for is fundamental to creating a relationship that enables a transaction to be conducted successfully.

Taking Inventory

There are those elements that you can see, touch and evaluate and then there are those require a sixth sense.

Starting with the tangibles, consider your client base. Is it top quality or are there clients that you were thinking about firing but just did not have the necessary impetus (e.g., late-paying, lousy recordkeeping, lack of responsiveness) to do so? Will the buyer view this book of business as having less value, and in fact, weighing down the potential ROI from the transaction?

Are your own billing processes lacking efficiency and your realization rates continuing to decline?

What about the office décor? Is the reception area reminiscent of the 1980s? Is there a group of operators and a switchboard? Can the walls do with a new paint job? Or maybe there is cinderblock and the effort expended to paint it is like putting lipstick on a pig. Like with a home, first impressions count and presentation matters.

Have you assessed your technology platform and tools? Are they the most-up-to-date? Has staff complained that it cannot work with dial-up connection? Yes, there are still those plodding through 90s technology.  Maybe the firm is unaware that cable, digital or satellite connectivity will exponentially increase productivity? If leadership’s response is that these are just the gimmicks of the day, well, then, you have a bigger problem on your hands.

Is the partner group in sync with the firm’s direction or are there constant factional disputes and yelling where the subjects are recognized by name in what was supposed to be a soundproof room?

What about the training you provide staff? Is it just to meet state accountancy board and AICPA requirements or do you offer your professionals the opportunity to gain new skills and knowledge to increase the value of the firm? In a conference session sitting at the back of the room, might they be more adept to report what they learned from USA Today rather than from the instructor?

Now consider the intangibles. What about the culture of the firm and prevailing attitude of the staff — at all levels? There may be an undercurrent of dissension that is one seam short of busting open. This can be a deal killer. If people walk around as if they are wearing racehorse blinders, you’ll realize there is crimp on team spirit.

What Red Flags Will Tell You

These are but a few of the many concerns a buyer would consider as it conducts a due diligence on your firm. This is why it is important that you as the seller look at it from the buyer’s perspective.

The buyer may ascertain that it will end up paying much more than the selling price after all the necessary changes are made to ensure continuity and growth of the firm, improved efficiencies, upgrades and necessary education. This is not to mention a comprehensive marketing and communications plan to refresh the “look and feel” of the combined practice.

Like selling a house, you want to make sure that its “curb appeal” is readily apparent and that its “repairs” will not cost more than the value it will generate. This will enable you to continue to work through the transaction until the deal is finally sealed.

Step Back into Your Own Shoes

Now that you have done what was necessary to get your practice into shape for a sale, transition back to a “seller’s mindset.” Your goal is to find the right solution, the right purchaser for your firm. What are the most important considerations? Your staff, partners and clients? Your image and reputation? The culture you have created? You should answer “all of the above.”

Just like when selling a home you in which you lived and raised your family. You’d like to know that you have sold it to people you know can afford it, will preserve and enhance it, and that reflect well on your efforts. With a CPA practice, you want to know that the successor owner shares your values regarding people (staff and clients), quality work, development of staff skills and a culture of commitment and image.

If your intention is to ensure a solid retirement package and maintain the legacy of what you built, then you must go beyond the purchase price offered. There is no numerical formula for building trust, and as CPAs, we should approach a relationship the same way when we decide to take on a new client.

What is unspoken, like body language, is as important as what is verbalized. Perhaps, think of the potential acquirer as you would a candidate for hire. Can you see this individual as the new managing partner? Will he or she strengthen the partnership group? Will this person manage the clients with the professionalism and courtesy they deserve? Will the staff respond well? Will there be open communications? After all, you still should have some emotional attachment rather than a “see ya’” as you hustle out the front door.

There is no crystal ball to give you the answers, and you will need to go beyond the numbers. A careful and deliberate non-numerical evaluation is critical, because at the end of the day you reap what you sow as a seller; and for the purchaser, it’s caveat emptor.


About Steve

Steven Sacks is the CEO of Solutions to Results, LLC, a consultancy that specializes in helping individuals, firms and organizations meet the challenges of communicating with clarity and purpose. Visit his website at