The Benefits of Using a Practice Broker Part I

We are sometimes asked to explain the benefits we contribute to a deal.Indeed, someone once asked, “Why should I pay you for an introduction?”. Others call and ask us for details on a “typical deal”. Yet, there is no such thing as a typical deal – all are special and unique, as are their particular […]

We are sometimes asked to explain the benefits we contribute to a deal.Indeed, someone once asked, “Why should I pay you for an introduction?”. Others call and ask us for details on a “typical deal”. Yet, there is no such thing as a typical deal – all are special and unique, as are their particular principals and situations.

It is this opportunity to bring together such diversity that makes broking Accountancy Practices a really fascinating business.

Introduction
I tell accountants “what we do is manage a relationship”, very important relationships. It maybe only for the short-term, but absolutely crucial to the successful outcome. That being said, we still have many clients on our books from my late father’s days.
“We are catalysts and diffusers”. Reminding accountants that, “each deal is different” and we are not merely an “introduction service”.
Our role is very necessary, as I explain “the sale of a practice it is a tough and complex game” requiring both insight and detachment in equal amounts. It can be useful to review the four stages in the sale of an accounting practice.

1. Take the listing, gather the details, and understand the practice
When a practice is for sale it is necessary to obtain as much background information as possible. There are confidentiality agreements to be signed and the listing agreement.
Naturally, we utilise an Information Finder document, which requests various financial and non-financial information on the practice. At times, we need to carefully review the information given and at other times, help clients to come to a more realistic prediction of future work.

2. Identifying potential buyers and the selection of those most suited
It can take some time to Identify and select possible buyers. We look for a “cultural fit”. Not all deals should proceed with the originally identified purchaser. If a possible purchaser is not an appropriate person to take over that particular practice or parcel of fees, it is important to recognise this early and source someone more suitable to effectively work with the clients and maintain the continuity.
Given there are more potential buyers than vendors; it is possible to operate a filtering process so as to qualify potential buyers. Clearly the ability to raise finance, the willingness to do so and the existence of assets to use as security, can be part of the filtering process.
My relationships with the various banks and their specialist professional practice lenders; can help with the finance. Possible buyers must sign a well drafted confidentiality agreement, so as to protect the identity of the practice, this is especially important in regional areas. It is also important to determine when and how existing staff will be told.

3. The negotiations
There are usually multiple negotiations operating simultaneously, as the deal develops. A practice broker knows how to structure the deal and how to achieve the simplest and best possible outcome.
Difficulties often arise where participants are busy within their own practices or absent for any reason and cannot devote all their energies to the negotiation. It is then that the broker can keep the deal warm and moving along.
Emotional attachment to their practice can leave both buyers and sellers in poor negotiating positions. We have been told, “Accountants are often not good negotiators, they decide on a price and won’t flex”, to the extent of turning away a good purchaser.
Staying flexible to the deal and understanding the other complexities such as differentiating between asset classes, payment terms, etc. is where we explain about other deals and suggest ways to share the risk, so that a higher price may be achieved.
Disputes do occasionally occur during the negotiations. Emotional reactions can spoil the deal altogether. We find, both parties use us as a release and a buffer. Therefore emotional reactions are not transferred, allowing for maintenance of future relationships.
We try to crystallise the needs of both sides to avoid any annoying changes in the “goal posts”.
Apart from ineffective negotiations, areas that should be avoided are unnecessary haggling over minutiae, right down to specific equipment prices and the details of the calculations of staff leave. Unfortunately it shows, and after a while, this behaviour could put off the other party and thus ruin the deal.

Practice broking is demanding but incredibly rewarding when the deal is done.

End of Part I, this article will continue in “For Accountants” next month’s ebulletin.