Frequently Asked Questions…

Analyzing the Opportunity

  1.  How does one value the practice in terms of services, rates, realization, infrastructure and client base?
  2. What specific economies of scale might be achieved by combining the practices?
  3. Who in the buyer’s firm is going to replace the seller’s relationship with the clients as “rainmaker” after the seller’s exit?
  4. If the seller is staying on and builds the practice should new clients built from the seller’s practice be valued as referrals or be considered part of the multiple?
  5. Are the fundamental services of both buyer and seller compatible for growth?
  6. Does aggressive versus conservative tax preparation style affect each side?
  7. Does the way the work gets to the office affect the value of the practice?
  8. What is the buyer’s exit strategy?
  9. How do both feel about providing financial services to the client base?
  10. What should both sides be looking at during due diligence?
  11. How long should you open up your practice for due diligence and at what point?
  12. When does proof of cash to close become necessary?
  13. What matters should be covered in a Letter of Intent?

Establishing the Purchase Price

  1. What is a fair and equitable down payment?
  2. What is a fair multiple of revenue for establishing the purchase price?
  3. How many years should the purchase price be adjusted based collections?
  4. Should there be a minimum and maximum to the adjustments to the purchase price?
  5. Should the seller get paid more if the collections go up?
  6. Should the tangible assets (FF&E) of the practice be included in the purchase price?
  7. What is a fair method of allocating the purchase price within IRS rules?
  8. How much of the purchase price should be allocated to capital gains versus ordinary income?
  9. How long should the term of payout be for Seller financing? 3 years? 5 years? 7 years?
  10. How should accounts receivable and work in process be handled?
  11. With an adjustable purchase price financed by the seller based on collections, should there also be interest on the note?
  12. When is non-recurring revenue considered recurring?
  13. Should the payout be matched with cash flow?
  14. How does the cash flow affect the payout?
  15. Does the cash flow support the debt service, the salaries of the sellers, and the overhead? Does the return on investment sufficiently support the purchase price?
  16. What is the relationship of the billings versus collections to the realization rate over the last 12 months and previous years?
  17. How should the real profit/owner’s income be quantified as part of the value being sold?
  18. What if real estate is involved in the transaction? How does it affect the value?

Obtaining Financing

  1. Can the purchase be financed through a lending institution?
  2. What would be reasonable terms & conditions of the loan?
  3.  Can the down payment be financed?
  4. What information and documents will be required by the lending institution?

Negotiating the Contract

  1. In what areas should the buyer indemnify the seller?
  2. Which side should create the purchase and sale agreement?
  3. What other instruments should the buyer provide beyond a personal guarantee to secure the note?
  4. What are the normal exhibits and attachments to the purchase and sale agreement?
  5. What language should the purchase and sale agreements have to be fair?
  6. What specific issues belong in the letter of intent?
  7. Should the seller’s name of the firm be included with the buyer’s on the name of the new entity? (Even in a full acquisition?)
  8. What representations and warrantees should be considered in the purchase and sale agreement?
  9. How long should the non-compete be for and in what geographical area?
  10. What assets of the seller can be protected by a Form UCC-1 filing?

Transitioning the Practice

  1. What is the most effective method for transitioning all the clients and maximizing the payout?
  2. How long after the closing should monthly payments start for the buyer?
  3. What is a fair compensation for the seller?
  4.  Should the seller be paid as an employee or independent contractor?
  5. How long should the employment agreement be for?
  6. What should the seller’s liabilities be after the closing?
  7. How long should the seller be required to stay?
  8. How many non-billable hours should the seller donate to the buyer for the transition?
  9. How much training should the seller provide for introductions and review of files?
  10.  What is the best way to handle the lease; sub-lease, assign it, or create a new one?
  11. When is the best time to disclose to the employees the plans of the company?
  12. What role can the consultant/broker play after the closing?
  13. How much are closing costs and who pays these costs?