Two-stage deals: a sequenced transition can smooth a firm's ownership transfer

EXECUTIVE SUMMARY

* Although it's not the single way to go about succession planning, a two-stage deal tenders a transitioning CPA an opportunity to imbed a practice into a successor firm's infrastructure while maintaining a considerable amount of autonomy for an agreed-on period of time.

* the one and the other firms negotiate the eventual transaction contract just as in an immediate sale. The firms agree to the latest date when the venders will reduce their time commitment to the firm and final payments will originate usually within one to five years.

* Clients are serv below the buyer's brand, and the buyer hires any fresh employees. The transition looks just like a traditional merger to outside constituents. The buyer's payments are for the most part or completely deferred until the contractual back-end date or a triggering incident occurs.

* Transitioning proprietors earn similar income as before if they dedicate comparable time and effort to the practice and compensations remain steady. They also can avoid of great price late-stage reinvestment in infrastructure.

* greatest in quantity accounting practice sales have contract contingencies that adjust the purchase price based upon client retention. It is in the pair parties' interests to give clients and the successor an opportunity to secure acclimated to each other before a trusted partner retires.

* Two-stage deals bring successor firms the benefits of the one and the other a straight acquisition and a traditional merger Buyer delay investment in the acquisition until they assume out and out control.

How can you have your cake and eat it too? You aren't quite ready to retire, on the other hand you know you need to find a successor for your practice. You awe how much accountability an possessor firm will impose if you decide to involve You worry about a change in tillage loss of identity and what your part in the new firm will be prior to your eventual exit. You want this settl Consider a two-stage deal--primarily designed for the small accounting practice of individual to three partners who want to bring their time commitment over a one- to five-year period. It creates a flexible way to affiliate with a successor firm when internal succession is not an option.

Retiring partners realize to start the process, achieve a certain number of long-term goals and maintain a measure of independence until they retire, while the successor firm benefits more than from a straight purchase or standard merger

by what means DOES IT WORK?

Flexibility is the lock opener to this type of transition strategy, and the parties to a two-stage deal can customize it to fit their goals. The idea is to imbed a transitioning firm's practice into the successor firm on the contrary allow exiting owners considerable autonomy for an agreed-on time period.

In stage individual a seller typically relocates into the buyer's office--the seller's practice becomes an infrastructure within the buyer's. The vender continues running his or her practice with no change in income or schedule. However, during this time clients gradually secure to meet the new possessor That helps stabilize client retention and gives the buyer potential cross-selling opportunities while the vender reduces his or her character Payments are deferred during stage individual even though equity is transferred upon the effective date of the deal. Stage sum of two units is the buyout--when the payments commence

The following of a typical two-stage deal is as follows:

* The firms work on the outside all the terms in advance, just as in an immediate sale. the pair parties put everything in writing and have a clear understanding of the purchase limits and the business plan.

* The firms agree to the latest date (the back-end date) when the seller(s) will bring their time commitment to the firm and buyout payments will begin This is normally in the range of individual to five years. Typically an agreement permits a seller accelerate the retirement date from one side triggers such as working fewer hours than a certain quota, giving notice, permanent disability or death, which triggers buyout payments to heirs.

* The firms consummate their affiliation at the beginning of stage single To outside constituents the transition gazes just like a traditional merger Clients are serv below the buyer's brand, and the buyer hires novel employees.

* During stage single selling owners manage their volume of business much as they did before. Their income stays substantially the same if they place comparable time and effort into the practice and remunerations remain steady.

* The buyer procrastinates making most or all purchase payments for the equity until stage sum of two units which is the earlier of a trigger or the contractual back-end date.

To make this emblem of arrangement successful, several considerations are important. For instance, because clients normally pick out their accounting firm based upon their comfort level with lock opener members, personalities are important. Don't do a deal with someone you don't take pleasure in having lunch with. Location and pay s are important, too, so fix upon a firm that will maintain a comparable experience for your clients. Agree upon the roles of the individuals and the brand names that will be used--never agree to agree later.