Who Should Bear the Risk of Client Retention?

By Howard Holmes, CPA

In my experience, I have come across many horror stories regarding client retention. There are so many disaster rumors running rampant, it is a wonder that any practices are transferred at all. I'm here to set the record straight as a 20-year veteran of accounting practice sales brokering.

Client Retention: The Real Story:

The truth is that under circumstances involving an average amount of care and common sense, client retention for a new owner can be close to what would been experienced by the previous owner. I have come to expect, after having purchased eight or nine practices of my own, that clients will transfer nearly 100% to the new owner.

Why is this?

It's a simple matter of looking at the deal from the client's perspective. Sure, he loved working with his prior CPA and is stunned that he must continue without his trusted advisor and friend. But once he gets over his initial shock, what are his options?

He still needs accounting services, and he still needs an accountant. Those who have planned ahead may have an alternative in their back pocket. Others may have a neighbor who for years has been trying to convince him that they can "do his books" for him. These cases, however, are rare.

Even if existing clients do know someone who has accounting skills, this does not necessarily spell doom for the new owner. After all, the new owner already has their files and can be found at the same phone number and often the same address as the old owner. Searching for a new accountant and conducting multiple interviews can be a very exhausting and time-consuming venture.

When it comes down to it, convenience is often a top priority for clients, and staying with the new owner is the easiest choice for them to make, especially if the buyer makes it a priority to reach out to them as soon as possible after the sale is final.

In other words, potential buyers have little to worry about.

As a practice owner, you should stop feeling the necessity to guarantee client retention. In reality, the buyer has all of the control over client retention.

The buyer makes the decisions regarding quality of services and pricing decisions. He gets an initial honeymoon period with the new client, and whether or not he retains the clients is up to him.

The seller can do his part to assist the buyer with a few key introductions, endorsement letters, occasional problem solving, and words of encouragement. However, the seller's ultimate contribution to the deal is to bring the goodwill of his clients to the closing table, to provide a list of persons with the need for accounting services, and to have the willingness to use his firm to provide these services as well as existing employee and business systems. He simply owes the buyer his loyalty and good faith support.

Protection For The Buyer!

The buyer does, however, need to be protected from unscrupulous practice owners by non-competition agreements, due diligence and other investigations, and legal protections. But, when two honest parties are involved, the sale can be completed on the day of closing; it does not have to drag out for an extended amount of time.

At "Accounting Practice Sales", we close sales on the day of closing. Practice owners either receive all cash at closing or a substantial down payment and a note receivable at a fair rate of interest—never contingent on client retention.

A Win-Win Situation

Given good faith on the part of the seller, clients will usually transfer nearly 100% in sales trans-actions. This is good news for buyers and practice owners alike. Practice owners can sell their practices through Accounting Practice Sales for a fixed price with no contingent sales that will carry on for years. After all, if you wanted to stay in practice, why sell out? Buyers can look forward to owning the business full and complete from day one and to making all of their own decisions regarding client retention. They will fully bear the risk and the reward of the decisions they make, not the old owners.

8851 Cross Timbers Rd Flower Mound, TX 75022
800 397 0249

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