Practice Purchase

[thomtax]

Again, I suspect Accounting Practice Sales (APS) is a franchise-type situation so the sales broker's probably vary substantially in quality and professionalism.

I can confirm that these are franchise operations. Mrs. Brents told me about how she got into the business. She has a practice that is her main business.

[JohnH]

The Broker's Next Job

With an attitude like that, I'm guessing that broker's next job will be flipping burgers at a fast-food franchise once he fails in the sales business. He needs to be working somewhere that keeps him from coming into direct contact with the people who provide his income.

My other occupation is in sales of capital equipment and it amazes me how some really stupid people with warped egos manage to get into all types of sales at all levels. When you informed the broker that you had contacted the seller directly, his ONLY response should have been "That's great - I'm glad you two got together & I appreciate your initiative. Now let's get the paperwork done so we can all get on the same page & avoid any misunderstandings going forward." If he has a better proposal in the works, he would now have a good backup deal just in case the other one fell through, and he would have you and the seller on his side with everbody committed to pay him his commission. Rather than do the smart thing & solidify his position, he put his innner 3-year-old in charge of his paycheck and burned at least one bridge - maybe more than one.

[Zee]

With an attitude like that, I'm guessing that broker's next job will be flipping burgers at a fast-food franchise once he fails in the sales business. He needs to be working somewhere that keeps him from coming into direct contact with the people who provide his income.

My other occupation is in sales of capital equipment and it amazes me how some really stupid people with warped egos manage to get into all types of sales at al levels. When you informed the broker that you had contacted the seller directly, his ONLY response should have been "That's great - I'm glad you two got together & I appreciate your initiative. Now let's get the paperwork done so we can all get on the same page & avoid any misunderstandings going forward." If he has a better proposal in the works, he would now have a good backup deal just in case the other one fell through, and he would have you and the seller on his side. Rather than do the smart thing & solidify his position, he put his innner 3-year-old in charge of his paycheck and burned at least one bridge - maybe more than one.

That's my thought also. But, now I'm wondering...how on earth can a deal ever be completed if the buyer isn't able to talk directly to the seller and review the accounting records, tax records, P&L's, etc? As others have suggested, due diligence is required for a $100,000 decision. That's a substantial part of our savings. Or, does protocol simply suggest the broker should do the introduction. On another website, the role of the broker seems much broader and an offer is expected to be developed without even meeting with the seller personally. I would never do business that way.

[thomtax]

Or, does protocol simply suggest the broker should do the introduction. On another website, the role of the broker seems much broader and an offer is expected to be developed without even meeting with the seller personally. I would never do business that way.

The way it works with the ones I know, after you sign the paperwork with the broker, the broker then sets up a visit between the parties. Usually, you won't know who is selling until after signing. This is the only way that a broker has to protect himself/herself without having to sue the seller after the fact to get his commission. You can ask anything or everything of the seller at that time.

LT

[Zee]

The way it works with the ones I know, after you sign the paperwork with the broker, the broker then sets up a visit between the parties. Usually, you won't know who is selling until after signing. This is the only way that a broker has to protect himself/herself without having to sue the seller after the fact to get his commission. You can ask anything or everything of the seller at that time.

LT

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I faxed the broker a signed, buyer agreement with an email indicating I had talked to the seller and would keep him advised of any progress. He didn't provide the seller's address, telephone number, or email. However, the practice summary sheet he attached to my inquiry (after receiving his first email) contained the name of the seller. I simply searched the name on the internet. So, the broker was protected and I promised to keep him appraised of progress. Accounting Practice Sales (APM) does seem to have the most internet presence for the sale of small to mid-size accounting practices. I did learn the broker's last name, he's strongly credentialed (PHD, CPA, MBA) and his bio indicates he also has an accounting practice. I guess credentials don't prevent one from being a jerk.

[JohnH]

On being a jerk

A jerk with credentials is nothing more than a certified jerk.
The credentials don't alter his basic character.

[RLymanC]

Scam Alert?????

Run, Don't Walk To The Nearest Exit

[taxmandan]

I have had contact with a broker from that company also and the attitude was much the same, he was overly protective of his commission and did not want me to know who the seller was at all. I deduced who it was from the sketchy info the broker provided (this is a small town and everyone knows everyone's business) and when I named the seller he became very hostile. I won't do business with them in the future either.

Daniel

[MAMalody]

While this seems to be a dead deal, I just wanted to indicate my last purchase deal if that would be of any help to you in the future. I purchased the practice for a maximum value of one years receipts. This was paid out at 50%, 30% and 20% of the actual first, second and third year of receipts from the accounts purchased. In my case there was no down payment, although if there had I would have tried for the above percentages for the remaining balance due. The seller contacted each client (I composed the letter used) about the sale of the business and encouraging them to go with me. I followed this with a letter of introduction of myself with a subsequent letter to set up an appointment for their tax return prep. The practice purchased was similar to mine with a similar fee schedule so that part was easy. I made sure that my fee did not exceed by over 5% their prior year fee (I could explain that easily as inflation) unless there was a significant difference (25% or more). I paid the seller the agreed upon amounts on a monthly basis as the fees were received. This practice was located in the same city as I was. I had about 75% of the clients stick the first year. There was about 15% or so attrition the next couple of years so I ended up with about 50% of the clients and my actual payout was somewheres in the area of 65% of the maximum payout for the clients. No broker was involved.

It worked for me.

Mike

[Zee]

While this seems to be a dead deal, I just wanted to indicate my last purchase deal if that would be of any help to you in the future. I purchased the practice for a maximum value of one years receipts. This was paid out at 50%, 30% and 20% of the actual first, second and third year of receipts from the accounts purchased. In my case there was no down payment, although if there had I would have tried for the above percentages for the remaining balance due. The seller contacted each client (I composed the letter used) about the sale of the business and encouraging them to go with me. I followed this with a letter of introduction of myself with a subsequent letter to set up an appointment for their tax return prep. The practice purchased was similar to mine with a similar fee schedule so that part was easy. I made sure that my fee did not exceed by over 5% their prior year fee (I could explain that easily as inflation) unless there was a significant difference (25% or more). I paid the seller the agreed upon amounts on a monthly basis as the fees were received. This practice was located in the same city as I was. I had about 75% of the clients stick the first year. There was about 15% or so attrition the next couple of years so I ended up with about 50% of the clients and my actual payout was somewheres in the area of 65% of the maximum payout for the clients. No broker was involved.

It worked for me.

Mike

Most helpful. Thank you so much! My guess on average retention would have been about the same, which means a 70/30 deal based on the average of the past three years is very risky.

[JohnH]

You may hear from the seller

If the deal was legitimate, don't be surprised if you hear fom the seller again. Give the goofy ways the broker is acting, I'm guessing there are a hundred ways the broker could manage to kill any other deal that might be in the works before it actually closes. If that happens you coud find yourself dealng with a desperate seller and able to strike a deal very much to your advantage, assuming you were still interested.

[joanmcq]

I approached buying a practice

I was interested in a practice listed by one of the brokers in my area. The way it worked, I contacted him to let him know I was interested. I had to fill out some forms with income, experience, a resume, and net worth to show I was a serious buyer, able to buy, and might fit the practice (to let the buyer know something about me). I then got additional information about the practice, including the details of the sale to review, specifices about income, expenses and assets. He then set up a meeting at the seller's office where I met with the seller (with him present) and I could look over the operation and get detailed financial info, and we could talk about the client base, etc. to help me make my decision. I didn't buy the practice because since the broker required a specific payment broken into 5 year's payments, I realized that after all the extra work (500+ clients) after the payments I wouldn't net enough to live on, and would have to give up my day job that was paying my bills.

[BOB W]

If the deal was legitimate, don't be surprised if you hear fom the seller again. Give the goofy ways the broker is acting, I'm guessing there are a hundred ways the broker could manage to kill any other deal that might be in the works before it actually closes. If that happens you coud find yourself dealng with a desperate seller and able to strike a deal very much to your advantage, assuming you were still interested.

Remember, once you signed the contract the broker gets his commission 6 months, 1 year or 2 years down the road. Be carefull...................

[Zee]

I was interested in a practice listed by one of the brokers in my area. The way it worked, I contacted him to let him know I was interested. I had to fill out some forms with income, experience, a resume, and net worth to show I was a serious buyer, able to buy, and might fit the practice (to let the buyer know something about me). I then got additional information about the practice, including the details of the sale to review, specifices about income, expenses and assets. He then set up a meeting at the seller's office where I met with the seller (with him present) and I could look over the operation and get detailed financial info, and we could talk about the client base, etc. to help me make my decision. I didn't buy the practice because since the broker required a specific payment broken into 5 year's payments, I realized that after all the extra work (500+ clients) after the payments I wouldn't net enough to live on, and would have to give up my day job that was paying my bills.

Yes, that is a description of the way I read it works in some broker situations. APS most likely follows that procedure. However, the broker didn't ask me anything before sending the two page practice summary which had the sellers name only on the top. At that time, he asked that I return a buyer's confidentiality agreement. It ended there. We never got to the point where he asked for a resume, balance sheet, or asset summary. Frankly, I would not provide it at that point even if asked. That'd be kind of one-sided without seeing certified statements on the practice, wouldn't it? But, I'm certain you're more than correct...that's just the way it's often done. It creates the impression the broker is earning their 10-20% fee. After this brief exposure, I probably won't talk to a broker again. I'll find a seller advertised practice and save both the seller & I the fee. It should be noted this broker screwed-up. I was under no obligation whatsoever to him after receiving the practice summary. I didn't need to sign the buyer's confidentiality statement, but I wouldn't do it any other way. He was the contact (even though it was just an auto email to probably hundreds of others). The seller pays his fee...so what's the difference, except I could have told others about the practice. Why would I bother?

I have learned a lot here about how practices are bought & sold. Dealing with a broker is far too one-sided. The only way I might consider a broker is one representing me as the buyer only.

[Zee]

Remember, once you signed the contract the broker gets his commission 6 months, 1 year or 2 years down the road. Be carefull...................

I didn't sign a contract. The document was simply a buyer's disclosure indicating I agreed not to tell others about the availability of the practice. I am sure, however, the seller's contract does include such a provision. And, since he was the procuring source, he would be entitled to his commission for the terms of the contract. So, he had nothing to lose if we closed a deal without his input except maybe a smaller commission if I negotiated a lower price than he would advise the seller to accept.