{"id":98126,"date":"2023-02-14t11:58:06","date_gmt":"2023-02-14t16:58:06","guid":{"rendered":"\/\/www.g005e.com\/?p=98126"},"modified":"2024-08-07t23:09:45","modified_gmt":"2024-08-08t03:09:45","slug":"business-owners-face-one-of-three-exits","status":"publish","type":"post","link":"\/\/www.g005e.com\/2023\/02\/14\/business-owners-face-one-of-three-exits\/","title":{"rendered":"business owners face one of three exits"},"content":{"rendered":"
expect to sell your practice? not if you resist change.<\/strong><\/p>\n by frank stitely<\/em> in talking to firms from around the country, i realized there are three types of firms out there:<\/p>\n more: <\/b>don\u2019t let clients dictate tax workflow<\/a> | make fewer mistakes, increase revenue and capacity<\/a> | how small firms can win the talent wars<\/a> | easy ways to avoid \u2018done but\u2019 tax returns<\/a> | six ways to create a millennial-friendly firm<\/a> | do you know your turnaround time?<\/a> since publishing my first book and launching my firm\u2019s workflow and collaboration application, i have talked to practitioners from firms of all types and sizes. my cpa firm pursued a few acquisition opportunities. during the process, i learned there are a lot of practitioners who are either incapable of adapting to our profession\u2019s 21st-century changes or unwilling to adapt. that\u2019s okay, if you are making an informed choice to retire and don\u2019t care about realizing much in value by selling your firm.<\/p>\n <\/p>\n however, i see firms that haven\u2019t evolved, whose owners believe their firms still have significant value. their clients are old and dying. their practices are hemorrhaging revenue or just barely treading water. as anyone who is involved in mergers and acquisitions knows, a desperate seller is, well \u2026 a desperate seller.<\/p>\n we looked at buying one firm that lost 15 percent of their clients in a year. they wanted us to pay them a fixed price for their aging firm at an asking price of 1.2 times collections. while they became educated about the multiples that firms with primarily 1040 clients are getting, they never did get the concept that we weren\u2019t going to pay them for resurrecting their client base.<\/p>\n our effort, our profits. buyers pay for what is, not what might be.<\/p>\n another firm owner told me that he hadn\u2019t accepted referrals for five years, but he was certain he could just turn on the spigot from his referral sources. after five years, don\u2019t you think his referral sources had moved on?<\/p>\n these firms aren\u2019t adapting and growing. their practices are becoming empty gardens. a couple of small practices in our area just folded up and sent their clients to us. great for us, but sad.<\/p>\n let\u2019s analyze why a practice full of 65-year-old clients isn\u2019t very valuable. is a practice full of 55-year-old clients more valuable than a practice full of 65-year-old clients? of course, the practice with 55-year-old clients is more valuable. you know this almost by instinct. but why?<\/p>\n practice acquisitions mostly work as follows:<\/p>\n will a 65-year-old client likely be around until age 75 for the next buyer in line? even if yes, will a then-75-year-old client have any value to the next buyer? the chain of selling these clients ends somewhere, hopefully not with you.<\/p>\n if a 75-year-old client has little value, the same client at 65 has diminished value. why would you pay full value for a 65-year-old client you won\u2019t be able to realize full value from when you sell? it\u2019s like buying a bond that doesn\u2019t repay your principal.<\/p>\n financially, you can rate all clients very simply \u2013 by the cash flow each produces over the life of the relationship. that cash flow is produced by two factors:<\/p>\n this is also called lifetime value of a client. if you follow tech companies, they live and die on this metric.<\/p>\n obviously, 55-year-old clients are more valuable than 65-year-old clients just on that math alone. they have more potential years to produce profits for your firm. you may be thinking you get a bump in revenue when a client dies. however, you are unlikely to get that bump. sometime before your elderly client dies, the next generation is likely to take over the financial affairs. the next generation is likely between 40 and 55 years old. if you don\u2019t have them as clients before the transfer of financial affairs happens, they likely already have a relationship with another firm. you\u2019ll never get that revenue bump, and you\u2019ll likely lose your client five years or more before your client dies. guess who does get that revenue bump? the firm with the relationship with the 40- to 55-year-old next generation. that firm wins twice. the younger clients are even more valuable than they would at first appear. they control more than one relationship.<\/p>\n over 30 years, i have been on both sides of this. having the next generation is the more pleasurable financial experience. if you\u2019re on the wrong side of this enough, your practice declines.<\/p>\n if you\u2019re thinking, \u201cwhat about all the referrals the elderly client will provide?\u201d think again. whom do elderly clients likely refer? other elderly clients. whom do younger clients likely refer? more younger clients. and they have more years to refer clients. this is like compound interest.<\/p>\n the math works exactly the same way for business clients, only worse \u2013 for the cpa with the older clients. there are only three possible exits for business owners at retirement.<\/p>\n behind door number one, the business just closes and you lose the client. this is far and away the most likely outcome. most businesses never see a second generation of owners. there are lots of businesses, such as real estate agents, that never sell because they are so personal in nature.<\/p>\n this is also mostly true of very small cpa firms and sole proprietors. clients are loyal to the proprietor and not the firm. when a sole proprietor retires, the clients are changing relationships one way or the other. they might as well control the process.<\/p>\n behind door number two, there is a transition to a younger generation within the family. however, it\u2019s the same story as with tax clients. if you don\u2019t have the relationship with the younger generation, you lose the client.<\/p>\n finally, behind door number three, there is a sale to a third party. that third party likely has a relationship with another cpa firm coming into the transaction. not always, but mostly. again, you likely lose the client.<\/p>\n if you\u2019re reading this, you understand that major changes are necessary, but you may not know exactly where to start.<\/p>\n let\u2019s start with where not to start \u2013 practice management consultants who spent a few years in the profession and then decided that they knew everything there is to know about running a firm. most of them never even made it through a full business cycle. after 30+ years, i still don\u2019t know much, and most of the things that i know won\u2019t be true in another five years. at least i know what i don\u2019t know.<\/p>\n stay away from the people with easy answers. nothing about our business is easy, from marketing to serving clients to practice management. but we can do this \u2013 together. we can make more money, have happier clients and lead saner lives.<\/p>\n","protected":false},"excerpt":{"rendered":" expect to sell your practice? not if you resist change.<\/strong>
\nthe relentless cpa<\/i><\/a><\/p>\n\n
\nexclusively for pro members. <\/span><\/strong>log in here<\/a> or 2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n\n
\n
\n<\/a>
\nby frank stitely<\/em>
\nthe relentless cpa<\/i><\/a><\/p>\n","protected":false},"author":1362,"featured_media":56466,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[1908,3120,2298],"tags":[1148],"class_list":["post-98126","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management","category-pro-member-exclusive","category-succession","tag-change"],"acf":[],"yoast_head":"\n