Selecting a Brokerage & Consulting Vendor

How to Select a Business Broker

The decision to buy or sell a practice marks the next step on your professional horizon—and the transaction process can be greatly impacted depending on the quality of the guidance you receive. Therefore, we want to help ensure that your personal and business goals are met, and that your experience is a positive one.

To that end, we’ve prepared a list of questions you can use to evaluate business brokers when you are looking to sell or buy a firm. Use them to guide your conversation with the vendors of your choice. Their responses will help you determine the best fit given your particular situation and goals, and may help you avoid firms that consistently overpromise and under deliver.

Broker Evaluation Checklist – Selling

1. Industry qualification

Specialty brokers focusing on tax or accounting practices with a record of success will have the most knowledge of current market trends and experience working with professionals like you.

When we say record of success, we believe the firm should have consistently sold a significant number of practices annually over the past five years to prove their ability to manage the transaction on your behalf and represent your practice in an experienced manner. This experience will lend credibility in all areas of their work, such as identifying and addressing both parties concerns; negotiating price and terms; assisting the buyer with financing; providing due diligence guidance; advising on transition; and bringing the transaction to a successful close.

In addition, you may want to check what associations the firm participates in and what licenses and certifications they carry.  Associations may include NAEA, AICPA, state societies, IBBA, IBA, and CPA Leadership Group, among others.  Licenses and certifications may include real estate brokerage license, MBA, CPA, Certified Valuation Analyst (CVA), Certified Business Intermediary (CBI), and Certified Exit Planning Advisor (CEPA), among others.

• Do you specialize in selling tax or accounting practices? If not the sole focus, do you have one or more people specializing in this industry?
• How many practices have you or your firm sold in the past five years?
• What types of industry certifications do you have?

2. Business longevity

Brokerage firms that have been in business for at least five to 10 years will typically have foundational experience and some measure of success.  That said, many new brokers fail within their first few years of business. For those that make it past this natural attrition period, many still can only afford to work part-time as a broker while they continue to build their business. This can result in a split focus that may be successful, but more often than not, undermines the quality and depth of service provided.  In some cases it has even been known to create a conflict of interest, such as when the broker also operates an accounting practice in the same market as a client being represented for sale.

• How long have you been in business?
• Is this your sole focus, or do you have other businesses?

3. Company resources

Business brokers are highly skilled professionals who provide infrastructure and transaction support for the sale and purchase of companies. Successful brokers have access to a vast collection of talent in order to provide specialized services to their clients throughout the transaction process.

• Do you have accountants, salespeople, marketers, and finance professionals on your team?
• What type of services or support will they provide to me during the sale of my practice?
• Do you have regional offices with staff that understand my local market?

4. Firm pricing

Engage the broker in an honest discussion about the worth of your practice and how to determine a realistic figure. Note that if your price is too high, buyers will not be attracted. Beware of brokers overvaluing your price to secure your listing.

• How do you determine the price of my firm?
• State what you believe your firm is worth and ask, “Is this realistic?”  The broker should not provide you with a definitive conclusion at this point, but if you provide at least the following basic information for them to assess, they should be able to provide a reality check:
  • Location
  • Size (annual gross, number of clients, staff and partner/owners)
  • Type of practice and services provided

5. The process

Good brokers will be able to summarize precisely what experience you will have with them.  In short, what are they going to do for you?  They should have a clear and defined process from your initial conversation through to the close of your sale.  This should include how they will to interact with you, promote your practice for sale, identify and qualify buyer candidates, move the buyer and you from initial dialog to close, outline what your involvement will be at each and every step.  Beware the broker that is going to charge you a significant fee but expect you to handle all dialogue with buyer candidates on your own.

• • What is your process?
  • What can I expect from your process?
  • How will you communicate with me throughout the process?
  • How many buyers do you currently have in your system?

Note: All brokers should have a database of “buyers”.  ProHorizons has a database of 144,000 practice owners that we could claim are buyers, but they are not as we are not in dialog with all of them.  Try to find out how many active buyers they have in their system.  These should be candidates that have expressed an interest in buying through dialog with the firm in the past two years.  For reference, ours hovers around 10,000 active buyers.

• What methods do you use to locate qualified buyers for my practice?
• How much involvement is required from me at each step of your process?

6. Confidentiality

Maintaining confidentiality is essential to retaining employees and preventing clients from looking for another practitioner prior to your sale. Any potential buyers should sign non-disclosure agreements before receiving detailed confidential or proprietary information about your practice (including your specific location and identity), and before meeting with you or entering serious discussions / negotiations with you.

• How do you protect my confidentiality?
• How will you identify / promote my sale and maintain my confidentiality?
• What amount of information will be given to prospective buyers through the stages of the sale?

7. Qualifying buyers

Brokers should take responsibility to thoroughly assess how serious a prospect is about buying your practice, as well as consider how the prospect will fit within your existing structure and environment.

• How do you qualify buyer prospects?
• How do you address the following when qualifying buyers?
  • Is the prospect really interested in buying at this time?
  • Does the prospect have the financial ability to purchase this business?
  • Will clients and staff interact successfully with the prospect?
  • Does the prospect have the professional competence to service your clients?

8. Process duration

Many owners are concerned with how long it will take to sell their firm. Factors involved can include location, size and type of practice, and terms. Duration can be as short as 60 days, or, depending on the complexity, up to a year or more. To sell before the next tax season, consider beginning the process soon after the current season ends. This provides an adequate amount of time to evaluate your goals, identify the best possible buyer, secure favorable terms and complete the transition process.<

• How long do you think it will take to sell my firm? While the broker will only be able to estimate at this point, provide at least the following basic information for them to make the estimate:
  • Location
  • Size (annual gross and number of staff, clients, partner/owners)
  • Type of practice and services provided
  • Desired price
  • Desired terms

9. Broker terms

An agreement to engage a broker’s services should cover the length of the engagement and general terms and conditions, such as the fee being charged, when payment is due and whether the representation is exclusive or not. Discuss all required fees and what they cover in advance in order that you and the broker can focus on selling the business.

• What are the terms of your contract if I choose to have you represent my practice for sale?

10. References

Selling a practice can be a strenuous process with challenges occurring throughout. Brokers with good references have developed a solid approach for managing these challenges and have handled them professionally enough to provide their clients with a good experience.  Testimonials are of value, but you should request to speak with recent clients. When checking references, inquire about the complete experience and any details that concern you based on responses to the above questions.

• Can you provide me with at least two references from past clients with practices similar to mine?

Broker Evaluation Checklist – Buying

1. Brokerage experience

Experience is the best teacher. This holds true when hiring an advisor to represent you on the purchase of an accounting firm. Consider hiring someone who has been through this process at least a couple dozen times. With that type of experience, they should be able to help you avoid making mistakes others have made on this type of acquisition. An advisor should know the accounting and tax market, how to put financing together, how to assist with due diligence and how to put a transition plan together that will ensure a solid transfer of client relationships.

• Tell me about your experience that makes you valuable as a consultant for buying accounting firms.
• Do you specialize in selling tax or accounting practices? If not the sole focus, do you have one or more people specializing in this industry?
• What types of industry certifications do you have?
• How many practices have you or your firm facilitated the purchase of in the past five years?

2.  Services provided

A buyer may choose to hire a broker for help with specific areas of the acquisition. The broker should be able to assist with everything from the initial evaluation of the practice, pricing and deal structure recommendations, drafting a Letter of Intent, performing due diligence, assistance with the purchase agreement, negotiating third party financing, and putting a transition plan together.

• What services and assistance will you provide?
• What is your process?
• How much involvement is required from me at each step of your process?
• How will you communicate with me throughout the process?
• How many sellers do you currently have in your system?
• What methods do you use to locate practices for sale that meet my qualifications?

3.  Honest evaluation of purchasing opportunities

Brokers consulting with buyers should focus on making the buyer aware of any and all risk through their experiences in working on these types of deals. They should be willing to tell the buyer when the risk is higher than it should be for a particular acquisition, and when the buyer should walk away.

• What are your goals in consulting / brokering a purchase for me? Will you advise me to walk away from a deal that does not meet my qualifications or is too risky given my circumstances?
• Explain to me how you evaluate and communicate the risk that may arise in the opportunities you will present to me.
• Can you provide examples of the risk assessments you have provided other clients that have helped them determine whether or not to forge ahead with the purchase?

4.  Fees

Brokers will often charge a flat fee dependent on the size of the practice being acquired, often with a minimum fee stated, or can be hired on an hourly basis.

• Do you charge a flat fee? If so, how is it calculated? And what is the minimum, if any?
• If hourly, what is your rate?

5.   Financing

Purchasing an accounting firm requires unique loan needs on behalf of the buyer. It’s important for a broker to understand and communicate that to third party lenders. They should be continually investigating the current lending environment for the unique deals required of these transactions—especially in the current lending climate.

• What is your experience with third party lenders?
• Do you have long-term relationships with key lenders? How long?
• Can you describe to me some of the creative financing packages you have arranged for a buyer in my situation?

6.  Pricing

Location, profitability, average fees, billing rates, transferability of clients, proposed deal structure, etc. are all factors taken into consideration when placing a price on a particular firm. In addition, a firm may be a better fit for a particular buyer versus another with regard to personality, business focus, etc. The broker should have a defined set of factors—both hard / calculable and “soft”—that comprise their pricing strategy.

• How do you determine value for a particular accounting firm?

7.  Finding a practice

All brokers are working to find practices they can represent for sale. As a buyer you need to identify whether the value in a broker relationship is in the search or in the service and advice provided. Perhaps it is both. As a first step, a broker should be receptive to having a confidential conversation about your current practice, your financial situation, your goals and your plans and the broker should be able to provide you valuable feedback on the type of practice you might pursue.

• Would you recommend I hire you to help me find a practice or would it be better for me to find a practice of interest and then hire you to represent me?
• Can you provide me with some feedback on the type and size of practice to pursue if I provide you with information about my current situation and finances?

8.  Confidentiality

Maintaining confidentiality is essential to facilitating a purchase (the seller requires this  to retain their employees and prevent clients from looking for another practitioner prior to your purchase). As the buyer, you should sign non-disclosure agreements before you will be able to receive detailed, confidential or proprietary information about the practice for sale, and before meeting or entering serious discussions / negotiations with the seller.

• How do you protect my confidentiality and that of the seller?
• What amount of information can I expect to receive on the firm for sale and the seller through the stages of the sale?

9.  Case examples—when deals go bad

Anyone who tells you they have worked on business acquisitions for any period of time and have not seen deals go bad is either not paying attention or is not telling the truth. A small percentage of these deals are going to have problems. Some will result in personal bankruptcy for the buyer, the seller, or both. This is why it is important to seek assistance buying your first accounting practice. We recommend working with a broker who has the experience to help you with the process from start to finish.

• Are you aware of any purchase deals similar to my situation that have gone bad?
• Can you explain the pitfalls so I know what to expect in my transaction?

10.  References

Buying a practice can be a strenuous process with challenges occurring throughout. Brokers with good references have developed a solid approach for managing these challenges and have handled them professionally enough to provide their clients with a good experience.  Testimonials are of value, but you should request to speak with recent clients. When checking references, inquire about the complete experience and any details that concern you based on responses to the above questions.

• Can you provide me with at least two references from past clients with situations similar to mine?