The Only Place Where Success Comes Before Work Is In The Dictionary…

Depending on your source, that quote (above) is attributed to either legendary football coach, Vince Lombardi or hairstyle guru, Vidaal Sassoon. Either way, it makes no difference where it came from, the only important aspect of it is that we heed it with the good intent which came with it.

And so it is with most practitioners when it comes to planning an exit strategy. It seems my columns of recent months on this topic have hit a nerve and I have been asked by many readers to expand upon the topic of exit strategies, so here is an important lesson from my work in the merger and acquisition of public accounting firms in Ontario…

Many practitioners seek a successful transition when it comes to retirement – for the sole practitioner this usually means the sale of their practice – but often so little work is put into planning this event that it defies logic.

It’s the old story of the Cobbler’s daughter who wears worn shoes.

If a client came to us with a five-year plan to sell his or her business, what would we usually do?

I’m sure many readers would meet with their client, help them to devise a strategy, prepare a business plan and maybe even some cash-flow forecasts.

We would probably look at what the client can do to maximise the value of the business during the next five years, locking customers into the company, building market share, maximizing profits for the next few years, reducing debt, assessing various ratios and so on.

We would look at the value of properties (leased or freehold) and that old intangible, goodwill.

We might even do some possible price/earnings ratios and make some estimates of what the client should achieve in the next few years.

Then, when a strategy is agreed upon, we might be engaged to monitor progress against the plan and to help the client keep on track.

Key-people within the business might be reassessed with a view to ‘locking them in’. Should the client register patents for some of their products? What about trademarks?

These are all key issues, and day-in, day-out we see these situations with our clients, often being a critical part of a team to help them become very wealthy upon closing a deal.

Arrangements are often made for the vendor to ‘stick around awhile’ and be available for advice on certain key clients, product development, staff retention issues and much more.

Sounds like a lot of work, doesn’t it.

The truth is we, as public accounting firms, are often the critical part of the puzzle in helping our clients to achieve a successful sale. The work we do is of tremendously high value to the client, yet the lawyers and bankers in the deal are often compensated at far higher levels, for less work, than ourselves. We’re going off track for a moment, but it is a related and important point, so bare with me…

This discrepancy in value versus fee is sometimes due to the ‘contingent’ nature of some fee structures other professionals are able to negotiate, that we are restricted from benefiting from by our professional bodies.

In other cases it’s because we have the wrong mindset. We limit ourselves by the almighty chargeable hour and an hourly rate that is totally inappropriate (way too low) for the value of the work we conduct.

And maybe therein lies the problem.

You see, planning these things for our clients is second nature to us.

We get ‘the big picture’ from the vast amount of professional experience we accumulate over our careers, and as a result we fail to see the value from the client’s perspective. We fail to capture the value that the client places on these services, and we often reflect that attitude in the way we handle the sale of our own practice. Ah-ha – back on track…

Many a CGA or CA in public practice builds an asset of substantial value over their career, and they expect to find the right blend of personality, experience and service from a classified advert in a professional magazine.

It isn’t that simple. Keep in mind the fact that almost all public accounting firms are sold on an earn-out basis, and it can be seen that the choice of buyer is absolutely critical to the success of the deal from the outgoing party’s perspective.

Sophisticated and educated professionals are not exempt from naivety, and these situations are often prime examples of too little thought, too late in the day.

I have one client who has a very successful practice, and who is 57 years old.

We discussed his exit strategy a few months ago. He was quite certain that ‘Harry down the road’ (another CA) would buy his practice from him when the time came. Case closed.

But the irony is that dear old ‘Harry down the road’ is 59 years old himself!

So now my client and I are steadily working on a realistic exit strategy for him in about 3 years time. That’s when we will start to actively seek a buyer and allow a year to do so, but still allowing my client to be available for the following four years after closing a deal.

Vidaal or Vince, you were ‘bang-on the money’ when you said that ‘The Only Place Where Success Comes Before Work Is In The Dictionary’.

When it comes to succession planning for practitioners, I have a confession to make: I’m no ‘guru’.

I just believe in taking an objective and realistic view of your situation and helping you to ‘connect the dots’ in order to maximize the value that you realize from the sale of your firm, by ‘bringing the right people to the party’ and have been in the privileged position of helping a number of deals reach a successful conclusion. And yes, it is a lot of work!

© 2004, MFA Group Inc