Increasing Below Market Billing Rates Will Increase the Value of an Accounting Practice
We talk daily with accountants who are nearing retirement age and contemplating selling their practice in the next several years. Almost every one of them asks what practices are selling for these days. Their intent is to ascertain a value. Sometimes, the value the seller has in mind is more than the actual price the firm will fetch in the market.
Quite a few practice owners compete and sell on price rather than on other value propositions. One example that comes to mind was a practitioner wishing to sell his tax practice in Arizona. This owner had not increased fees in five years for fear that clients would leave and go to the H&R Block office nearby. Of course, he wanted to receive a premium price for a premium practice, but what he had was a discount tax service. Potential buyers were only willing to purchase the practice at the same type of discount.
The value you receive as price when you sell your practice is going to be determined by the market. To create a higher price for your practice, you need to create more value within the practice, typically by creating more value around each individual client. This is done by providing more value to each client.
There are three core values a practice can provide to a client: high service, high quality and low price. The catch is that a practice can only survive and stay in business when it provides two of the three. A practice cannot afford the cost and overhead of providing high service and high quality while also providing low price. So to provide low price, either the standard of service or the standard of quality has to be lowered. Guess which of these three a buyer will find of least value? Low price equals low revenue per client or at best a huge volume of work to generate revenue per client and buyers care about revenue margin and profitability to insure debt service and future income.
Buyers are looking for valuable practices. If you spend the quality time and effort building that practice, it should pay off handsomely during the rest of your ownership journey and when it comes time to sell.
ProHorizons is a national brokerage and consulting company focusing on accounting practice sales, acquisitions, and business development services since 1995.Our blog is focused on three aspects of our experience: our first hand knowledge of the various layers to completing a successful transaction; the trends, changes and shifts in timing in the M&A market; and, our goal of assisting practitioners in developing long-term value so they realize maximum return when it is time to exit their practice.