How to Sell a Partial Interest in an Accounting Firm
Traditionally, accounting firms offer partnership as a promotion for their most talented and successful professionals. This involves the existing partners selling part of their respective interests in the accounting firm to the incoming partner. If an existing partner wishes to exit the accounting firm due to retirement or for any other reason, often the partnership agreement will give the remaining partners the right to purchase the partial interest from the outgoing partner according to a pre-agreed valuation formula. In the merger of two practices, the partnership itself is selling a partnership interest in the surviving firm to the newly acquired firm. Regardless of the circumstances motivating the deal, basic steps exist for negotiating and structuring a transaction for the sale of a minority interest in an accounting practice.
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Instructions
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Incorporate seller financing into partnership agreements to facilitate the buying and selling of partnerships. Seller financing allows the incoming partner to pay for the stake in the firm over time. Seller financing can also provide earn-out provisions that base payments on future performance.
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Hire a professional valuation consultant to prepare a business valuation report. Due to the complexities of valuing a business, it is important to retain an independent CPA or an investment banker that can render a professional valuation opinion. A professional valuation report can sustain negotiation scrutiny and help support the proposed transaction price. Independent professional advisers such as these may focus their practices on transaction consulting and business valuation matters.
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Interview the prospective buyer of the partial interest in the firm. The existing partners should carefully interview partnership candidates or the management of an acquisition target, to ensure a good fit into the organization. This can include holding a series of meetings, obtaining letters of reference, and conducting a background check on the incoming partner.
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Document the partnership agreement in writing. It is important for all partners to agree on the procedures for internal governance of the partnership. Thus, all parties to the agreement should negotiate the terms and conditions of the partnership agreement, and formally document this in writing for future reference.
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