Joel Sinkin and Terrence Putney, of Accounting Transition Advisors LLC ([email protected] and [email protected]), present a plan for small practitioners to merge their firms into a larger firm over a period of time and not lose their identity or give up control during the transition period.

In the first phase, the selling firm partner(s) retain autonomy and income levels. In the second phase, the buyout occurs at a pre-set date.

In the first phase, the selling firm is relocated to the offices of the buying firm. The selling partners continue to run their practice as before but gradually transition clients to the new firm. This increases the percentage of clients retained while offering the buying firm cross-selling opportunities.

Most, or all, payments by the buyer are not made until the pre-set date, which may be five years out.

Benefits of this plan for the seller also include:

• A CPA can make a deal prior to the time it becomes necessary. There is backup in the event of death or disability.
• During the transition period, the seller can devote time to serving clients, rather than to firm administration and management.
• The seller can reduce his or her time (with a commensurate reduction in income), without reducing the value of the firm. This can increase the value of the practice.

Benefits for the buyer:

• The buying firm makes no investment until it assumes control.
• The buyer avoids the possible decline in income that can occur immediately after a take-over.
• Transition of clients is facilitated by the seller’s continued participation.
• Replacement of the sellers’ client service capacity does not have to be immediate.
• Since small practitioners may see many of their clients only once a year, a five-year two-phase buyout ensures more contact with clients before the seller retires.

One disadvantage for the seller is that in the event the combination has to be unraveled, the seller must find a new location.

Care should be taken to agree on everything, in writing, up front. Do not rely on an agreement to agree later.

From Journal of Accountancy, March 2006. For the complete article, click on the following link: http://www.aicpa.org/pubs/jofa/mar2006/sinkin.htm.