Brannon Poe, Founder of Poe Group Advisors and author of “Accountant’s Flightplan,” reveals how to sell your accounting firm for 7-figures. He’ll also touch on what to look for when buying a firm if you’re looking to level up.
Most of Brannon’s clients are in the latter group as firms seek to accelerate their growth.
In this episode of the Growing Your Firm Podcast, David Cristello and Brannon Poe dissect:
- How to sell your accounting firm for 7-figures
- 2 core pieces at making your firm attractive to buyers
- What an acquisition looks like from a cash receipt perspective
- The #1 critical mistake when acquiring a new firm based on Brannon’s 15+ years brokering sales
- Accountant’s Flightplan
- Poe Group Advisors
- How to add 35% more revenue to your firm – Jackie Meyer interview
- What a CPA should know about a firm merger (interview)
How to Sell Your Accounting Firm for 7-Figures:
Brannon Poe, the founder of Poe Group Advisors, came to us here at Jetpack after one of our clients was on his podcast. Brannon is a CPA. He started out in the firm brokering business in 2003. Today, with his firm, he helps in both buying and selling. Most of his clients are in Canada or in the Eastern United States.
If you hop over to his site, you’ll get some real eye candy for the type of firms selling and what they receive at close.
Recently, Brannon’s started a coaching business to help firm owners navigate the unknown world of selling and buying. Many of his clients are at the $5 million and under phase in terms of revenue. While that might not sound massive, accounting firms tend to sell for a 1X multiple.
If you make $5 million per year, as owner, assuming you own close to 100%, you could potentially leave the table with a $5 million dollar check. That’s what Brannon can help you do today.
By following what he shares today, you’re setting yourself up for a big payday. If you’re interested in how to sell your accounting firm, pay attention.
Right now, Brannon sees a massive trend coming where baby boomers are beginning their final sprint to retirement. He expects many firms to go on the market for selling in the coming few years. With his firm, he looks for high-quality firms. Those are the easiest to sell and the process goes much, much smoother.
Let’s define this.
What Makes an Accounting Firm a Good Candidate for Selling?
Before you sell, you must understand why someone buys. Perhaps you’re on this side of the table right now.
Today, acquiring a firm could be the fastest way to get a leg up. Maybe you’re struggling with growth…maybe you’re breaking into a new city or even country…
Going from $1 million to $4 million in one year is a tough stretch for anyone. But, when you acquire a firm and make that same jump, you have resources at your disposal to help with the leap.
A key thing to look for is a high-quality firm. Here’s how Brannon describes that.
- Owner hours are as low as they can be
- Cashflow to the owner is as high as it can be
First, owner hours are how much time the owner is in the business running it. To be quite frank, a good owner should be taking a lot of vacation. One of Brannon’s top-selling firms has an owner taking 6 weeks of vacation…sometimes all at once.
The second piece is cash flow to owner. This is pretty self-explanatory, but it means more money than not is making its way to a firm owner’s pocket. Not hard to see why. You open a firm to make more money while pursuing what you’re good at.
Does it make sense to see little return on that risk and effort? Of course not. According to Brannon, if you’re under $1 million in revenue, your owner should see over 50% of cash hit their pocket. Over $1 million, that number should come down naturally, but not too much. 40% is a good number.
One of Brannon’s current clients is a $2.5 million dollar firm. They have just 6-7 people. The owner takes home a whopping $1 million dollars each year. They have great pricing, and their clients reside in the $5 million – $50 million. Their multiple to sell is actually above 1X and that $1 million dollar takehome is probably to blame. (these are all good things).
You may have already realized it from this past example, but let me break down how to get to be an enticing firm to buy. If you’re not there yet, it’s okay.
The 3 Core Pieces to Become a High-Quality Accounting Firm:
You’ve probably heard of a lot of what you’re to see from listening to the Growing Your Firm Podcast. But, it’s never enough to just hear things once…it pays to hear ideas again and again.
After brokering for 15 years, Brannon identifies three core ideas to becoming a high-quality firm:
- You must be good at pricing
- You must be great at selecting the right clients
- You absolutely must have an All-Star team
The first bit on pricing has been beating to death on our show, but it goes to say how important pricing is. You must charge enough and beyond to account for your expertise…not just the hours you spent chained to your desk.
Next, you must select the right clients. Brannon’s example above showed a firm only working with 8-figure clients for the most part. Do you think these rich clients were bantering about price? Probably not.
Finally, you must have a rock-solid team. If you’re going to take 6 weeks off, you need to have peace of mind that your team will take care of everything else.
Now that you know what to do and how to sell your accounting firm for 7-figures, let’s look at what a transaction might look like.
The Actual Business Dealings of a Firm Acquisition and Selling:
About 50% of Brannon’s business get cash at close. This means the selling firm walks away with the full agreed on the amount and the cord is cut. Brannon then sees about 40% of deals are seller financed with some stipulations on earnings.
~10% of Brannon’s deals center on earn-out provisions. This means the seller gets paid based on receivables from the seller’s ex-clients they gave up.
But, here is the #1 critical mistake buying firms make during this process...they try and get the best earn-out provision deal possible. Brannon doesn’t like earn-out deals because there are too many negatives to watch.
When a seller’s payout is contingent on the buyer’s future performance, there will be some controlling issues. Sellers will start staying on, trying to do things their way to make sure they see their payouts increase.
Soon control issues appear, management problems, your new clients will still turn to their security blanket (your seller) thus causing confusion and resentment.
Lastly, earn-out provisions eat into your cash flow. While you’re trying to grow a bigger business, money is finding its way out of your account and into your seller’s pocket. It’s part of the deal, but it’s crippling.
Acquiring is a serious step to take in a business…you want to make sure all your ducks are in a row.
Here’s what to expect after an acquisition.
What to Think About BEFORE Making an Acquisition:
A major worry when going to acquire is “what if all the clients I just bought leave me?”
It’s a valid concern…what would you be buying in the end anyway? In Brannon’s experience, he sees 2-4% turnover as fairly common. You probably see that in your own business by itself anyway.
Brannon recommends handling the transition with as much care as you put into the actual compliance work. Clients don’t want to go through the hassle of finding new CPAs. But, you do need to make them feel comfortable.
Poe does coaching to help them with the transition. He also helps advise in growing the entire revamped firm afterwards with marketing without spending $1 on a budget.
See, selling firms tend to lay off the gas with internal opportunities. They’re ready to cash in so they aren’t going to put in some of the extra grunt work.
When you make the acquisition, you could find estate planning needs, advisory, spots to increase prices and more. You should have these in mind before you sign on the dotted line.
Another point to consider is what you believe the goal is of the acquisition. Buying a firm should not be a play at ‘getting better’ as a firm. Every firm you acquire will become more of what you already are now. It’s not a magic pill to prosperity. In one instance, Brannon had a client with a 60% cashflow to owner get sold to an owner with a 40% cashflow to owner. Fast forward 5 years and the new owner hasn’t seen 60% back to himself. He was seeing 40%.
DAVID’S TIP: Any busienss you acquire will only become more of what you are now. Nothing will change unless you change your midnset and your processes.
If you’re making a big play to increase your client size, make sure you factor in the marketing costs. If to acquire 1 customer costs less than acquiring clients at a higher price, you’re better of spending your money on marketing and not M&A.
These are just a few of the conversations you’ll need to have right away if you’re ready.
WHAT WAS IT LIKE TO BUY/SELL YOUR ACCOUNTING FIRM?