Top tips for selling accounting practices in Australia

This article was current at the time of publication.

Let’s not sugarcoat it. Preparing a business for sale involves a considerable amount of hard work.

Genuine buyers will want to conduct extensive due diligence into every area of the business to ensure it has been accurately represented by the vendor.

Information usually requested ranges from a business plan, licences and permits, to payroll summaries, outstanding accounts payable and receivable, profit and loss and cash flow statements.

“For vendors this means ensuring your key practice information and client files are in good shape and available to be shared with the preferred buyer, obviously respecting client confidentiality,” says Daniel Jones, co-founder of DMY, specialists in selling accounting practices and bookkeeping firms.

“Before you get to formal due diligence though, a high-quality Information Memorandum to showcase your practice is key. 

“You only want one buyer – the preferred buyer – conducting formal due diligence as this can be intrusive and time consuming but you do want an Information Memorandum that clearly presents the opportunity to the market at the start of the sale process so you can attract a diverse range of interested buyers.”

Jones adds that a good quality Information Memorandum should typically include five years of financials, de-identified information on clients as well as details on the team, operations and premises.

There are other essential issues you should consider when preparing your firm for sale.

1. Consider the people factor 

A summary of the practice for sale should include specific details of handover support being offered. 

The vendor will, at a minimum, need to be involved in the transition to ensure a successful flow of business for staff and clients, and should be clear up front about the role they will play going forward.

Will they stay on in a full- or part-time role, for example, or offer themselves as a consultant?

“If you are a seller and you are planning to stay with the business the key question is how well can you work with these people?” says Mark Emney, co-founder of DMY. 

Agrees David Smith, owner of accountancy consultancy Smithink: “Details about payment and benefits if you decide to continue with the firm should be ironed out. 

“Making sure staff are looked after is also very important. A qualified team gets potential buyers excited, especially as the accounting industry is suffering from a labour shortage. 

“If you have worked on having a team who are great with technology, or specialisations, for example, you want to do the right thing by them. That can include negotiating new employment arrangements.”

Emney adds that it is best to keep your intention to sell confidential from your team in the early stages of the sale process. For example, meetings with buyers who want to see your office should be conducted after hours. 

“You don’t want a whole lot of people traipsing through the office as this can alert staff to a sale process and cause unnecessary concern,” he says.

Regarding client privacy, it’s best practice to send a written notice to clients advising them of ownership changes and requesting permission to transfer files to the new firm. 

2. Make sure your values align

Looking after clients extends beyond ensuring their details are managed with discretion.

A critical area that tends to get overlooked in due diligence – by both the buyer and seller – involves technical competence and alignment of values or standards, says Smith.

“The issue from a buyer’s perspective is that they buy a practice then realise a whole lot of clients have been given the wrong advice,” he says. “How do they fix that without making the seller look like an idiot or getting sued?

“For the vendor, it is about making sure the buyer has standards with which they are happy.

“There needs to be a meeting of minds about how the work is actually done.”

In this way, preparing a practice for sale is like preparing to get married, says Smith.

“Both parties should do a lot of dating, including lunches, dinners, and talking about future plans, so you get an idea of whether this buyer/seller relationship may work.”

While he has seen some accountants include a “rollback clause” in the sales contract, that allows parties to renege on the sale after six months, it’s difficult to pull a business apart again post-sale.

“Seeds of dispute can arise very quickly, and clients don’t like it at all.”

A rollback clause can also negatively affect the price for the vendor. 

3. Consider if your business is being succeeded to another practice

“Businesses aren’t always sold by choice,” says Stephen Jones FCPA, an adviser with Succession Plus. “A practitioner may get ill and need to sell, for example.”

This is where a succession plan is useful, although research by CPA Australia shows that fewer than 50 per cent of practices have one. 

Waiting until you are forced to leave can diminish the potential value of your business, says Jones. 

“You need to be investor-ready and have an exit strategy that means you can respond quickly to an unexpected acquisition.”

Jones suggests accountants consider what outcomes they want from the sales process.

“They might need to achieve a certain sales price to retire. Or they may have family members they want to transition [the business] to.”

Subsequently, a succession plan should include everything a new practitioner needs to know, from passwords to client background, and is useful for any accountant no matter their age or circumstances, he says. 

While you’re shoring up your paperwork, Smith cautions against handshake deals under any circumstances.

“When you’re doing any deal, including around a sale, make sure to use a lawyer and document everything.”