Whether due to new prospects,
other commitments or final retirement, the majority of owners and entrepreneurs will proceed from the businesses they produce. But, if you’re an owner and you’re anything like me, you do not want all those years of blood, sweat, and tears to amount to absolutely nothing, which implies that one day you may consider offering your service.
Now, I’m not a specialist in mergers and acquisitions. However, my objective is to construct my outsourced accounting services firm, Tradition Benefit, into an international brand name, and the only method to do that is to grow. One of our strategies has been to make acquisitions in tactical markets to expand our presence, and in December of 2016, we completed the addition of an accounting firm from a girl who was retiring.
Based on that experience, I can confidently state that the secret to attracting a buyer, and selling your company for a terrific rate, is to PLAN. Typically, an accounting company’s worth is estimated at $1 appraisal/$ 1 revenues. But, for accounting firms, and any service-based businesses, that revenue essentially represents clients. You are, successfully, offering your customers. As such, when you sell your business, there will likely be a three- to five-year retention clause in the agreement.
This means that the final amount of money you receive for your service at the end of the retention duration will depend on how many of your previous customers stay with the brand-new owner. For that reason, increasing your client base and enhancing your client retention will result in a much better outcome. How do you do that?
Let’s have a look at the five crucial things you can do now to enhance your opportunities of offering your business in the future.
1. Construct an Appealing Company Culture
As a prospective purchaser, I’m searching for business cultures that fit with our own. If there’s no fit, it only causes clash down the road. As a seller, you can’t always manage what I’m trying to find. However, you can focus your energies on buyers that you understand will be interested. In this regard, your employees will make or break it for you. Why? Since they embody the culture, you’ve created.
Do you mean anything, and do your individuals buy into what you represent highly sufficient to stick it out? Or, are your staff members directly hired to do a job and are so mercenary that they’ll leave at any sign of trouble? Which do you think is more valuable to a buyer? Consider this: If your staff members don’t buy into your organization, your customers might not either. This might doom your offer or your retention.
2. Make Employees a Possession, Not a Liability
No matter how comparable two businesses remain in culture, they will always do things differently. Change of owners typically includes the introduction of new processes, brand-new software application and a new method of doing things. Will your staff members accept the difference, or resist it? You might think this isn’t indeed your problem, but it is, and let me tell you why.
When we acquired the accounting company I mentioned, most of its workers stated they were open to altering. When the time came, they weren’t, and we needed to let all of them go. How do you believe our recently acquired customers took it when their “go-to gal” was fired? I can inform you: A number of them left.
This loss will straight translate into a lower money payment to the previous owner at the end of the three-year retention stipulation. What’s more, it acted as a lesson for us. Next time, we’ll perform more extensive due diligence, and you can wager we won’t get a business that isn’t continuously improving, adapting, innovating and training their staff in the latest innovations and practices.
3. Make a Service That’s Independent of You
The more independent the business is from you, the better your organization will be. Why? Well, once again, it comes down to customer retention. I would not consider purchasing a firm with no staff members because of the threat of your customers leaving when you leave is expensive. By comparison, trained personnel that can construct relationships with customers and resolve problems themselves is a property.
At Legacy Advantage, I am generally the first point of contact since I am still in charge of sales. As soon as possible, I introduce among my senior managers, and the partner in charge of the file, so that the customer can get familiarized with more individuals from our team.
The more you involve other people in client relationships, the comfier the client ends up being in handling, and trusting, the firm, rather than a specific individual. This level of trust and self-reliance relies on excellent paperwork. If a client needs to be serviced by someone aside from his/her regular liaison, will this new person be able to get where the other person left off? Are the logins, subtleties, relevant contacts and previous interactions related to each file recorded? If the answers to these questions are negatives, start training your workers and constructing self-reliance into your procedures now.
4. Worth Price Your Providers
We choose businesses that worth price their customers, as opposed to charging hourly rates, and we search for companies that do the same. Now, I can’t determine how you handle your earnings. However, I can inform you that we pertained to this conclusion after acquiring a business that charged per hour. Here’s what happened.
When it came time
for us to do year-end wrap-ups for our newly gotten clients, the review and familiarization needed for each file led to additional billing hours. It’s not that we weren’t effective; we merely had to do more work to get up to speed. Did the customers comprehend that? No other way. What they saw was a shift of owners and a higher bill. Some clients left, lowering the previous owner’s retention.
If these gotten customers had been on a flat month-to-month charge, they wouldn’t have discovered a distinction in their billing, and the additional hours we put in would have been made up down the line. Now, let’s take it an action beyond handling client expectations. If you bill your clients on the very first of monthly, it’s worth more to me as a potential buyer. Why? Because you’ve established a system that collects the cash up front before the work is done, which implies you’re improving my cash flow. The predictability of this technique also functions as proof of repeating revenue, and purchasers will search for this.
The one caution here is that your worth or fixed charge pricing must ensure that each client is profitable. In other words, if you ignore how much time it requires to carry out a client’s bookkeeping or tax filing, you’re undercharging. If it’s not lucrative for you, it won’t pay for us, and if it’s not rewarding for us, we will let the client go. This will decrease your retention.
5. Embrace Technology
Modern companies have modern-day practices. We touched on this a bit concerning staff member liability, however, let’s go into a bit more information. You want to sell your company. We’re interested in purchasing your service, but is your innovation suitable with our firm? Just how much will we, or another potential purchaser, need to spend on equipment and personnel training if it’s not?
You can’t plan for every possible contingent here, but a watchful eye on industry developments can assist you to make some informed guesses. For example, if you own an accounting company, you most likely wish to guarantee that your staff is trained on Caseware. If you run a bookkeeping firm and you are mainly using Sage, then just other Sage companies will purchase your practice. Case in point, Legacy Benefit has devoted to the Intuit ® environment, so we’re only looking at other QuickBooks ® or Quickbooks
A few other nice-to-haves are an up-to-date CRM (if you do not know what a CRM is, or what it does, consider it a research project!) and a paperless document management system that counts on digital filing and scanned files, rather than paper files. These make it a lot easier to combine business databases and help to guarantee that client details is not lost during the transition of ownership. And, a smoother transition most likely ways … you thought it– greater client retention.