Overcome 5 of the biggest challenges when selling your firm
WRITTEN BY: KEV RYAN
Selling or merging your business is a big, exciting, life-changing decision, but it’s also a complex process. Over the years, I’ve seen lots of great deals succeed, and a few fall apart, because of the ways the big challenges were handled. If you’re at all concerned about the future of your firm, here are the five things you’ve got to get right.
Challenge 1: Getting your data down on paper
Fact finding is where everything begins. It’s the key to everything. Every engagement we take on at KevRyan begins with discovery and does not move forward until all of the relevant data has been collected.
That sometimes surprises people, even owners of sizeable firms. Many owners have only ever reported to themselves, so some of the knowledge is in their head, and some knowledge they’ve never felt they needed.
But a buyer needs to know exactly what they’re looking at. Before they commit to their own fact-checking mission in the form of the due diligence process, they need to know the effort will be worth it.
The core details required by buyers fall into three main areas:
Client demographics: This includes revenue breakdowns, fee bands, sector concentrations, niches and the age of the client base.
Your team: Acquiring for talent used to be a risk, but in today’s environment, it’s a no-brainer.
How you work: This is around things like workflow, tech stack and even the basics, like whether you’re a MYOB firm or a Xero firm, etc.
Challenge 2: Keeping it quiet
Here’s the catch-22 with selling your firm – you can’t sell a business if its availability is the world’s best-kept secret. But you also can’t plaster ‘For Sale’ signs across the doorway, and all over the internet, without likely losing staff and clients.
That’s why every deal we’ve ever been involved in is managed carefully off market. Our skill is in exposing the firm to the largest but most relevant buyer pool whilst balancing a high level of confidentiality, to ensure the firm doesn’t lose its most valuable assets along the way.
Just as important is the timing of when you tell your team what’s going on. Some people are critical to the firm’s value. Lose them and you lose a huge amount of equity in the asset. Some could even be the reason a buyer is interested in the first place.
I’ve seen what happens when this is mishandled. I know of one vendor who had a key staff member walk out, taking clients worth around $650,000 annually to start their own business.
More often, though, when it’s managed correctly, you can identify your vital people and bring them into the tent – not necessarily with equity but typically with empowerment. You’re able to protect the buyer’s investment, and therefore your own return. That’s a win for everybody involved, including your clients.
And so, while secrecy is essential, it must be managed strategically.
Challenge 3: Ensuring cultural fit
This is the big one, the most important to get right for the sake of the sustainability of the deal. It’s also the most difficult to define.
Different firms have different approaches to how they do their work and how they represent themselves to their clients. While there’s no right or wrong in terms of specific types of approach, not all of them play nicely together.
Younger or more casual teams that wear jeans and t-shirts around the office typically won’t gel with the more formal, old-school, suit-and-tie wearers, for example. Actually, sometimes they do, but the trick is to never force it. Our role is to curate deals where human values align.
If this is rushed, or if incompatible firms are forced together, there is a risk of damage to both businesses, and to my own reputation. KevRyan is known for shaping sustainable outcomes, not quick wins. That’s because it’s easy to propose on the dance floor, but it’s difficult and expensive to get divorced.
A good cultural fit is never simply a ‘nice-to-have’. It’s the difference between a transaction that secures lasting value for all involved and one that could crash and burn within months.
Challenge 4: Getting the price right
It’s probably no surprise that when people ask me what their firm is worth, my answer always begins with, “It depends…”.
For practices up to around $1.5 to $2 million in revenue, the market often (but not always) works on a dollar for dollar multiple, regardless of profitability. So, if you do $700,000 revenue annually, that’s probably in the ballpark of what your firm is worth.
Above that level, profitability starts to drive the numbers, but value still depends on a lot of other factors. I’ve seen multiples from three to seven times EBITDA, and there’s no single formula that explains it all.
Valuation, in the end, ultimately comes down to quality. That’s quality of your team, of systems and processes, of clients and more. If you can demonstrate quality, you will consistently achieve valuations above the industry average.
Also, it’s important to understand that margins that look impressive in a smaller firm often don’t translate in a larger shop that has bigger overheads. That awesome 50% margin you’ve been making for the last few years may not mean as much to a firm that’s ten times your size.
The right price comes with the right fit, and with well-managed expectations on both sides.
Challenge 5: Focussing on the human
For all of the numbers and data involved in accounting, and in selling or merging a business, the process is a very human one. Accounting is a people business. It always has been.
So, for vendors this means they must think carefully about their role and exit. They should plan it carefully, particularly if they sense they might be reluctant to let go. Buyers need confidence that the transfer will be a smooth one.
Staff also need to feel valued and aligned, knowing how they will be placed and made to feel relevant in the new structure. If they don’t have this knowledge, there’s a good chance they’ll leave.
Finally, of course, there are the clients. They want continuity and trust. The success of the transaction, whether sale or merger, contributes enormously to the vendor’s legacy through the way the clients feel.
Final thoughts
The best outcomes are the ones where everyone wins, when vendor, buyer, staff and clients all feel they’ve landed in a better place. That’s only possible when the process is managed well.
If you can get the documentation right, manage confidentiality well, find a good cultural fit, get the price right and focus on the human side of the deal, you’ll not only secure the value you’ve built, you’ll also create an outcome that feels good for everyone involved.
MORE ISSUES
