Essentially there are two most common way that this will appear in a Sales Contract
Firstly the “Client Retention” method
This method is the one most often used by Accounting Practice Sales. It is a fair way to impose a condition to the final payment of sale. As it holds both the seller and the buyer responsible for a smooth and successful transition after sale. Essentially rather than a fiscal turnover of the practice being a measure of the final payment. The final payment is made based on the level of clients being retained over a defined period……….. The buyer will obviously want to retain the clients in order to pay for and grow the practice. Few clients may move, retire, or leave for a variety of different reasons but a most will trust their current CPA’s or accountant’s decision making and give the new buyer a chance to earn their business. Assuming the same professional service is provided by the new buyer, clients should stay with the new owner and thus the transition will be successful.
Percentage of Collections over Time:
Advantage: Buyer
This method of selling price used to be the standard measure of how accounting firms were sold historically until the emergence of accounting business brokers and an increasing public demand for accounting practices for sale. There is no real reasoning behind the percentage of collections method as to why it was used to sell accounting practices. Our only guess is it was similar to the ways other service type businesses were sold. This method involves a percentage of the purchase price due at closing or sometimes after the initial year in business. The same percentage to be paid over the years until the initial purchase price is achieved.
Fixed Price:
Advantage: None
This method involves selling the practice for a predetermined amount of money. The purchase price on fixed price deals tend to be far less than practices sold based on a retention clause. The reasoning is simple, the buyer is at risk for 100% of the client retention once the practice is sold. Basically, if the client decides to leave for any reason, the buyer has paid for nothing. We would not recommend selling or buying a practice this way, there is too much risk for the buyer and the seller will never receive fair market value for his or her firm.
