Top tips for selling a NZ accounting practice

This article was current at the time of publication.

Waiting until the last moment to initiate the sales process could cost you, says Riki Sila, Director of premier New Zealand brokering agency Accounting Practices Limited.

“We advise accountants to contact us at least six months before they are anticipating a sale if they want the best price,” he says. 

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. Paperwork usually requested ranges from licences, permits and payroll summaries, to outstanding accounts payable and receivable, and profit and loss and cash flow statements for the last five years. 

Information offered to the vendor should also include details of the business premises, services and suppliers, a financial and client analysis (shared in a way that respects the confidentiality of the client), human resources details, technology applications and any industry memberships or recognitions.

You can also offer a snapshot of projected future growth, reports for the KPIs in your accounting practice, and information on prepaid expenses and any finance leases or contracts, advises Andrew Dickeson FCPA, Chairman of Baker Tilly Staples Rodway, one of NZ’s largest business advisory and accounting firms.

Ensure a smooth transition 

Sila suggests vendors write off all debts that are unlikely to be paid, get rid of old plant or assets that are no longer in use and create an updated list of all fixed assets.

Software used or premises owned or rented are other issues that need to be discussed with the buyer. “Firms will generally have their own software preference, but offering the premises can be attractive if it ensures continuance with staff and clients,” he says. 

As well as other general information on the firm, including its competitive advantages, a summary of the practice for sale should also include any handover support being offered.

“It’s very important to think about what you are going to do when your business is sold,” says Sila. 

“Many accountants haven’t given this any thought at all.”

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

“Making sure staff are looked after is also very important,” he says. “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.”

Dickeson says ensuring clients don’t panic and leave the business is also crucial.

“Talk to them upfront about how you might be stepping down or away,” he says. “You may have provided a warranty and/or indemnity in the purchase agreement about whether clients will stay, and you need to be comfortable doing so.”

Client privacy should also be considered.

When you are ready to reveal your plans, 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. 

Make sure your values align

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

A critical area which tends to get overlooked 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. 

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 may 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 to.”

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.”