How Sole Practitioners Can Optimize The Sales Value of Their Firms

Though the title of today’s post includes the term “sole practitioners,” most of the tips and tactics apply equally to all firms.

During the life of the firm

The best way to avoid a problem is to prevent it from happening in the first place. In the context of our topic, this means developing a practice over time that will ultimately be attractive to a buyer. Sole practitioners tend to build their practices by doing work they want to do, which they see as one of the benefits of being their own boss.  Sometimes, however, they may opt to take on projects that could hold back the value of their practice in the eyes of buyers.

Here are suggestions for sellers interested in creating and building a practice that will be as attractive as possible to buyers:

1. Have a decent number of corporate clients. Buyers don’t like bringing in lots of low-margin work such as payroll taxes, a high volume of low-priced 1040s, and low-level write-up work. Buyers love it when the seller has 3-10 corporate clients with high annual billings.
2. Have a specialty or niche. It doesn’t need to be anywhere near 100% of your practice; 20-30% is fine. The more that a seller is a specialist than a generalist, the more saleable the practice will be.
3. Have good staff that the buyer can retain.
4. Develop a leveraged practice; delegate to staff. If the solo works 1,500-2,000 billable hours a year, consisting mostly of staff-level work, the seller seeking to work at the buyer after the sale will not have much to do because the buyer will insist that staff-level work be done by staff.
5. Have non-solicitation agreements in place with all staff to prevent them from taking clients after the sale.
6. Be reasonably profitable.
7. Have decent billing rates that will ultimately be more compatible with potential buyers’ rates. Sellers should refrain from doing practice development by being low-priced.
8. Develop good hygiene regarding practice management. Keep good timesheets. Bill and collect on time. Meet deadlines. Avoid doing work at the last minute. Keep client files neat and organized. Be fastidious in adherence to sound workpaper techniques and proper professional procedures. Be current with computers and technology.
   

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   The suggestions above are techniques that any practice can employ to make themselves viable and successful while still maintaining their independence. Next week we’ll examine specific action steps firms should take when they’re actively contemplating selling down the road. For expanded detail on navigating these waters, consult our monograph CPA Firm Mergers: Your Complete Guide.