Starting a business with the end in mind is sound advice, and something all accounting practitioners should seriously consider. Read on for three keys to a successful transition.
Meticulous planning and preparation are essential to maximising the chances of long-term success for any new business. It seems common sense, yet when it eventually comes time to exit the business, a well-defined strategy is often lacking.
“When you go into business you should always start with the end in mind, but most people don’t do that,” says Jan Barned, director of business consulting firm Financial Management Trainer.
Barned says reasons for exiting a practice can be many and varied but having a plan and knowing how to achieve it is the vital first step.
This could depend on whether it is likely to be an external sale, a succession plan passing the business to one or more family members while retaining partial ownership, or selling all or part of it to managers and employees.
A thorough understanding of every option and then taking the necessary steps to reach an exit point that meets all intended objectives is imperative.
“You really need to look at where your business is at on all levels, what systems you have in place, and what needs to be done to improve the business to maximise its sale value,” Barned adds.
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Three keys to successful transition
Greg Johnson, managing partner of business exit specialist Ascend Business Partners, uses the analogy of a three-legged stool to explain the ins and outs of selling a business.
He says practitioners need to ensure they are personally ready on an emotional level, that their business is operationally ready, and that their finances are in good order.
“I talk about these three legs to the stool because if you don’t have one of the legs, it falls over,” Johnson says.
“Every owner needs to have clear personal goals – what it is they want to achieve for themselves [when] planning their lifestyle.
“Secondly, there are business goals. What do they need to do to get it transition ready? Thirdly, how is the business going to contribute to their future financial goals?”
Johnson says rather than selling a practice outright, many owners should consider keeping it and restructuring so that it can run without them while still providing ongoing, passive income.
“It’s actually a really good exit strategy, and one that a lot of people follow through with because they’ve got good people in the business who can run it for them,” he says.
Another option is transitioning ownership to existing managers or staff and putting a framework in place that will allow people within the practice to assume ownership after a certain period.
“That’s a win-win, because the owner gets to step away, take value out of the business, and the people in the business are rewarded with access to equity,” Johnson says.
Get external advice before exiting your practice
Before exiting, accounting practitioners should ensure all the firm’s financial records are up to date, including tax returns and other relevant reports and information. Barned and Johnson agree that once a practitioner has decided to sell or transition ownership, it’s a good time to bring in trusted external business specialists who can guide them and facilitate formal processes.
An accredited business valuer is recommended once the company is deemed ready for sale, and a business broker will be able to assist with sourcing external buyers.
In addition, the seller will need to contract a legal firm to draw up and finalise contracts of sale and other documentation, while a financial planner may be required to advise and assist with options for investing proceeds.
“Definitely do bring in advisers, but before you do that you need to understand exactly what your objectives are,” Barned emphasises.
“You have to look at how profitable the business is, the systems in place and how easy it is going to be to sell.”
Learn more about succession planning with these CPA Australia succession planning resources for public practitioners.
Your Practice Sale Checklist
Financial Management Trainer’s Jan Barned offers the following to-do list for owners planning to exit their business:
- Ensure all business and financial records are up to date
- Review current financials and compare them to industry benchmarks to understand how your business sits within the broader market
- Obtain a current valuation on all business assets, including stock
- Determine if the sale of your business is to be with or without staff
- Will the lease and other key contracts remain with the sale?
- Will current suppliers continue with a new owner?
- Will existing clients remain loyal?
- Prepare a business summary for a business broker or real estate company
- Provide the broker with a list of non-negotiable items.
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Selling an accounting practice checklist
Getting your public practice ready for succession or sale