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accountant because they were com-
fortable with you and remain loyal
because they feel you are trustworthy
and competent.
Here's a good rule of thumb: if you
don't want to have lunch with some-
one, don't do a deal with them!
Next up is assessing how the suc-
cessor firm operates vs. how you
operate. Are there noticeable gaps
in client service philosophy? Are the
billing rates compatible? What about
the IT systems?
Remember, no one goes into a deal to
lose money, so any successor firm will
be looking at and objectively evaluat-
ing your staff and compensation. If
there are long-time employees who
for one reason or another are under-
worked or over-compensated, this
should be disclosed very early on in
the process. You can't realistically ex-
pect a successor firm to inherit an un-
profitable situation.
Critical to any smooth transition is a
thorough due diligence process by
both parties. Both the buyer and the
seller need to be open and honest re-
garding any potential negative issues
(debt, liabilities, litigation, etc.). If there
are potential negative issues, they
need to be brought up early in the pro-
cess to avoid investing significant time
and energy into a deal only to have it
fall apart at the 11th hour due to some
previously undisclosed situation. This
includes any "must-haves" such as
leases or similar issues.
It's also critical for both firms to agree
on an integration plan. Remember that
key components to any successful
transition are client retention and sat-
isfaction. Both parties must share in
that responsibility. The way you pres-
ent your external or internal succes-
sors to your clients will contribute sig-
nificantly to the success or failure of
the deal. If done correctly, client attri-
tion should be at a minimum.
If the successor firm intends to make
significant changes that the clients will
see, such as staffing levels, office re-
location, or increased billing rates, the
chances of poor client retention or, in a
worst-case scenario, a mass exodus,
increase dramatically.
Ideally, transitioning client relationships
is best accomplished over a multi-year
period by a successor firm that doesn't
need to institute significant changes
"in front of the door," where they will
be apparent to clients.
Two-Stage Deals
One of the most common types of ex-
ternal succession strategies we help
facilitate is what is known as the "two-
stage deal." Under a two-stage deal,
you work alongside and as a part of
your successor firm for a specified pe-
riod of time what we call "stage one."
The seller continues managing his
or her book of business in his or her
usual manner, but the successor firm
assumes most, if not all, of the back-
office operations and overhead.
This structure has been effective for
owners seeking succession because
they retain control over their autonomy
and income and the successor firm en-
joys the synergies. Clients can become
accustomed to and, most importantly,
comfortable with the newly combined
practice. The successor firm can take
the time necessary to become famil-
iar with the newly acquired client base
while you are still working full-time and
remaining visible to your clients.
The seller's compensation is most often
based on historic profit margin applied
to the collections from his or her client
base as long as the staff and resourc-
es necessary to provide services to the
clients don't increase. If the need for
those resources does increase, an ad-
justment is made in compensation.
When the transitioning practitioner
reaches the agreed-upon date for
"stage two," the buyout payments be-
gin. The terms are usually determined
in a similar fashion as if the deal had
been structured as a sale at the be-
ginning of stage one. But by now, the
paid advertisement