Mark Wickersham shows accountants how to make their practice worth buying in five years. Focus on profit, not just revenue. Build recurring income through monthly billing, systematize operations so the business runs without you, and grow through marketing systems. He sold his own firm via management buyout after reaching 200+ clients and £200,000 in fees.
How do you build up your accounting firm? Ready for sale in 5 years time? It's a question I got from one of my students and in this video I thought I'd share with you five ways that you can start to plan and build your practice for a successful eventual sale.
Hi there, it's Mark Wickersham. And this was a great question I got from one of my students in the Value Pricing Academy. Her name is Carol Jackson and she said to me, how would I build up my practice over the next five years? I might sell it. What should I do? So here's some thoughts and the first thought for you is go and read this book by my friend from Canada, John Warlow. It's called Built to Sell. John specializes in helping businesses become more sellable to sell. This is one of my favourite books I've read. It's a story and it illustrates some really powerful points about helping you build a sellable business, whether it's your accounting firm or whether you're helping your clients with the same issue. In fact, I suggest to you very strongly that you follow everything you can that John does. He's got a couple of other books as well. But start with Built to Sell. It's awesome. So here's five quick points for you to consider. Number one, if you want to sell your firm and sell it successfully, number one, make sure profitable. See, here's a mistake I made. I started my accounting firm back in May 1996 and I wanted to build up a big firm because at some point I wanted to sell it and make a lot of money. That was my plan and so I grew it fast. I focused on winning clients. I hope I focused on what we call in the UK on gross recurring fees, grf, which is basically top line sales, recurring sales. Because in many countries, and Certainly in the UK, accounting firms are valued at a multiple, typically 1 to 1.2 times top line fees. And so I was obsessed with gross recurring fees. I was obsessed with winning new clients. And what I found was that that obsession with taking on any client created so many problems for me. Three years in my life was a mess. I had a big practice, I thought I was very successful. I had over 200 clients. I had over £200,000 in fees in just a few years. Top line was great, bottom line was awful and I was struggling for cash. I was constantly going back to the bank with the begging bowl out, please sir, can I have some more money. I was in debt. And I realized years later I was unfortunately a slow learner, that I Did it all wrong. We need to make sure that whilst we want to grow our firms, we have to grow profitably. We have to make sure that we make money. And there are too many accounting firms out there that are struggling to get by because of the wrong focus, doing the wrong things. So that's the first tip for you. You need to make sure that you have a real focus on profitability more than simply top line sales. Secondly, if you want to sell your firm very successfully and get a lot of money is it also wants to be growing, it wants to be growing business. You will get a higher price for a growing business than one that's declining. And so that means you need to have some systems, some processes for marketing. How do you grow your firm? What systems do you have in place in the firm? So it is continually growing. That's number two. Number three is if you want to build a successful accounting firm, then you want recurring revenue. It's one of the things that John talks a lot about. It's probably the most important factor in making your business sellable. To what extent is the revenue recurring? Now, in our profession we're very fortunate because the very nature of what we do very often is recurring tax returns. We do the tax terms every single year, the payroll we run every single month, bookkeeping we do every single month, the annual financial statements every single year. Many of the compliance services in an accounting firm are recurring by their nature. Yes, sometimes we do one off projects, clean up work, one off consulting assignments and so on. But much of what we do is nevertheless recurring. But we can still take that to another level, for example, by making sure that we are making use of monthly recurring payments. So whilst that's common with things like payroll, because payroll tends to be done every single month, so clients would pay for payroll once a month. There are other services that we might run, particularly if you're a firm of accountants, CPAs, where it's annually recurring work like the annual tax returns, the annual financial statements that traditionally we may have billed the client once a year and got paid once a year, but we can shift that and we should shift that. We should shift it to a monthly payment process for everything that we do. Because when you create a monthly payment, it's better for the clients, they can manage payments, it's better for you because you get paid earlier and you also turn your cash flows into something that are predictable. So when you're trying to sell a business, a firm, if it's profitable, if it's growing and if it's got predictable.
Inflows of cash, then that's something that people are going to want to buy. You'll sell it much easier and you'll also sell it for a higher price. Now, the next two, the final two items are both related. What we also need to do if you want to make it easy to sell your practice, and this is sometimes difficult for an accounting firm, in fact for many businesses, is the more the business is reliant on you, the harder it is to sell. The trouble is with many accounting firms, and I think about my own, I tried to sell my firm. I sold it eventually to my client managers. I did a management buyout, but I tried to sell it before that. And I wasn't doing any of these things. It wasn't profitable. Cash flow was terrible. But most important, my biggest problem for my accounting firm when I tried to sell it was I was a sole practitioner and I dealt with almost every client. And so if you took me out of the business, somebody else would have to step in and run that business. And that's a big issue for somebody buying, because somebody buying an accounting firm is probably already busy themselves and what they don't want is a second job to manage your clients. So you need to make sure that your client is. Your practice is less reliant on you. And so you want to do that with two ways. Number one, systems. You want to have a real focus on systemizing your business. And I would certainly recommend another book you should read is the E Myth Revisited by Michael Gerber. The more you systemize your business, the more it becomes less reliant on you. The more it just works and therefore the more valuable it will be, the easier to sell. And the second one is replace yourself with people. Whether it's outsourcing or a great team of people, if you've got a great team of people, if you've got great systems, then it's less reliant on you. Somebody else can buy your business and it'll just work. There's five ideas for how you build a more sellable business. If you like the video, give it a thumbs up, please. Please feel free to share it and leave a comment in the comments below. Bye for now.
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