Essentially that’s a question that can only be answered by the Buyer.
I have spoken to many Buyers over the last 12 months and the common theme from my discussions is their preference to have the Principal remain in the business post sale. The Buyers reasoning is pretty obvious – they want to retain as many clients post sale as possible.
In delving a little deeper, there are a few more reasons why Buyers are typically asking the Principal to stay in for up to 12+ months. These are:
Retain the client/fee base
Retain good staff as good staff are hard to replace
Maintain confidence and culture of the team
Smooth over any transition issues
Potentially win more work off the back of existing client base.
For Buyers, its imperative they retain as many clients as they can. However, you as the Seller need to consider the implications of cutting all ties with the Practice. Your Retention is the biggest factor.
Retention Period 101: In Short, the Retention on any sale of an Accounting Practice is both a percentage and a time period that monies from the overall purchase price is withheld from you. Typically, Retention is between 10%-20% of the final Purchase price withheld for 12 months.
EXAMPLE - Purchase Price is $1M, therefore Retention is $100K held in Trust for 12 months – You are paid $900K on Settlement of your Practice. If the Turn Over of your Practice is $1M for the 12 months prior to Purchase, than the agreed Turn Over for the Practice in the 12 months Post Sale should be $1M also. However, if the Practice only earns $950K in the 12 months Post Sale, the Buyer will keep the difference – In this instance, Buyer RETAINS $50K, you receive the remaining $50K and your true Purchase Price ends up being $950K.
So why is the Retention important? If you have left the Practice on Settlement, how do you influence the Turn Over of the business Post Settlement (Retention Period) ????? The truth is, you Cant!! The Buyer may have disastrous results in that following 12 months and multitudes of Clients may leave. This will greatly influence how much of your Retention you actually receive 12 months after you have sold the business.
If you take a long term approach to a sale and look past the nest egg payout on settlement, you should consider remaining in the practice. This may be as a consultant, or even a part time staff member.