An Exit Plan for the Small Firm Owner

Source: Partner Insights

The following includes excerpts, reproduced with permission, from an article by August Aquila

Here are nine steps to a successful succession plan for small CPA firm owners:

1. How do I know it's time to sell or merge? Ask yourself these simple questions:
   • Am I having more or less fun building the practice?
   • Am I still excited about getting up in the morning and going to the office?
   • Am I complaining more about clients, employees, and the practice in general?
   • Would I mortgage the house to grow the practice?
   If you said no to two or more of the above questions, then it's time to start thinking about your succession plan.
2. Develop a plan. There are only so many things you can do with your practice. Sell it to someone internally, sell it to someone externally, merge with another firm or simply decide to shut the lights some day by letting the practice gradually dwindle down. Only you can determine which one is the best course for your practice.
3. Get your personal finances together. You will never be able to retire until you have a solid retirement plan.
4. Form an advisory team. Look to your client base. Is there a business owner you admire and respect? Perhaps one of your clients has already gone through a succession event. A local attorney, financial advisor, or M&A consultant can also help.
5. Determine the value of your practice. As a rule of thumb, your practice may be worth from 80 percent to more than 100 percent of revenue, depending on the market and geographic location. Few buyers will pay cash up front. Most transactions are structured as an earnout paid over three to five years. The more the practice is dependent on you, the less it's worth.
6. Implement the plan. Once you've decided what to do with the practice, you can begin the implementation process. This could take as long as three years. If you think it will be an internal sale, then you need to speak with your successor and start developing the transition plan.
7. Transfer skills and clients. Make a list of your skills, top clients, and referral sources. Start the process of transferring this knowledge to your successor.
8. Don't wait until the practice or your health declines. It's best to sell your practice when you are at the top of your game. Too many sole practitioners wait until something drastic happens. I often say that a practice is like an ice cube on the sidewalk on a hot summer day. It not only melts, but it evaporates very quickly. There are many examples of practices that have lost 70 percent or more of their value in only a few months.

For the complete article, read “No heir apparent – What does the small firm do?”

From Partner Insights, Aquila Global Advisors, LLC, October 2012, www.aquilaadvisors.com.