All business owners need to consider their exit strategy at some point. Whether this exit strategy is to leave the company to family members, whether it is to sell their business stake to a partner, or whether it is to position their organization as a strong acquisition target, this exit is inevitable and needs to be carefully considered and planned for.
In recent months, WealthCo’s Innovative Accountant podcast has featured, not one but two, business valuation subject matter experts:
- Melanie Russell, President of Toronto-based Kalex Valuations, who joined podcast host Tim Coakwell in January for the episode on “Understanding the Value of Your Business”; and
- Brannon Poe, Founder of Poe Group Advisors and Accounting Practice Academy, who discussed “How to Best Prepare to Sell Your CPA Firm” with Coakwell in late 2020.
Both podcasts are definitely worth a listen. Here we’ve pulled together a few of the key insights from both guests, insights that will be valuable to any CPA firm partner with an exit intention on the horizon.
Build a Business for Sale
While succession planning may be a far way off in the future, it’s never too early for partners to build their business with an eventual sale in mind. Not unlike when selling a property, a homeowner will go to great lengths to ensure it is in the best shape possible in order to maximize return on sale, the same principles apply in business. And part of this means active marketing with a view to growing the business, in turn making it highly attractive to prospective buyers.
“As accountants, we like satisfying our existing clients, but many of us are not marketing ourselves or our firms,” Russell points out. “We tend to approach it as more of a profession than a business. Whereas we should be thinking of it as both a profession and a business that should be seeking to grow.”
Our recent blog, Strategies for Growing Your Accounting Client Base, gives some great direction on ways that firms can better market themselves.
How to Differentiate Your Firm?
Finding innovative ways of differentiating your firm from the competition is another key component of the valuation and sales game. So, how exactly can an accounting firm best stand out from the crowd?
“Acceleration of technology is a surefire strategy, for starters,” Poe advises. “Accountants are often really resistant to change. As a profession we’re fairly conservative and probably more change-resistant than other sectors. And change can be hard. However, the change doesn’t all need to come at once. There is no need to have each and every client immediately make that transition, say to the cloud, once you do so. Furthermore, there are the curb appeal factors, Poe continues. “The look of the practice. The quality of the clients. The types of industries your firm serves. The size of the practice.”
In addition to being proactive in the adoption of technology, other strategies for differentiating your firm in a competitive marketplace include:
- Becoming a thought leader in your space through speaking, volunteering, and writing contributions;
- Understanding your market and which industries are best contributing to your firms’ bottom line; and
- Elevating the client experience and growing revenue through the Integrated Advisory model.
The Right Timing for Getting a Valuation
There are multiple reasons why a firm owner may consider getting a valuation, even if selling isn’t in their near future.
“Sometimes a firm just needs a bit of a check-in,” Russell explains. “They started the business many years ago, and they may be asking themselves, ‘have we done a good job?’ Or in the case of an estate plan, the Income Tax Act may dictate that one is required. Or when an organization is bringing in new partners or shareholder employees. Or maybe even in a marriage or cohabitation contract situation.”
Poe is an advocate of getting a valuation sooner rather than later once an exit strategy is on the horizon.
“I worked with one managing partner who was planning to exit his business in ten years,” Poe recalls. “We did some one-on-one coaching, and this really gave us time to help position their firm and build it to a place where it is as marketable as possible.”
The Accountant as the Trusted Advisor
In addition to the personal motivations that partners face around the valuation of their firms, there is the broader client value considerations to having a deepened understanding around business valuations.
“Accountants are a wealth of knowledge,” Russell states. “I get very excited when a client tells me that they have been with their accountant for a long time. The accountant can be a great translator and a fantastic resource in terms of collecting information and talking to the client.”
Leveraging the accountant’s trusted advisor status is at the core of WealthCo’s Integrated Advisory approach. This approach is helping CPA firms to transform, not only their businesses, but also the lives of their clients. Learn more about how the Integrated Advisory approach can increase and diversify your firm’s revenue today.