FAQ

General Questions

1. How are practices valued?

Factors that affect value include:
Large metropolitan areas like the DFW Metroplex are in higher demand than rural areas, due to the size of the potential client pool, and as a result can often produce a higher sales price.

Profitability of the practice is also very important. The net Seller’s discretionary income, before taxes, will range from 20% of gross to as high as 60%. The typical practice tends to fall between 35% and 45%.

Client base can also affect the value of a practice. Compilation and tax work are usually the most desirable client mix because they are recurring in nature. Also, practices serving businesses rather than individual clients tend to demand higher prices.

2. How are deals typically structured?

Deal structuring is usually in one of three typical formats, depending on the experience and financial qualifications of the Buyer and the Seller’s needs at closing and after the closing.

The first option, the simplest and most common structure, is an all-cash closing. This is usually funded through one of our loan resources, utilizing SBA guarantees and/or conventional financing.

The second structure is part cash and part Seller financing. In these cases the Buyer will normally provide equity money of approximately one-third of the price and the Seller will carry a note with a balloon payment due in 3 to 5 years. This structure is used when there is a high sales price that prevents a Buyer from getting all of the financing needed to fully fund the transaction at closing. It can also provide the seller with a higher return on their money than typical investments.

The third structure is a unique arrangement that is becoming increasingly popular … the 2-part deal. The purchase price and terms are first agreed to in writing between the Buyer and Seller. The closing is set in the future … usually two years. Then the Seller immediately merges into the firm of the Buyer and retains autonomy over his clients for the first two years while he helps transition the Client relationships to the Buyer. After the two years, the purchase agreement is executed and the Seller walks away without any contingencies. This structure works extremely well for Sellers who are not ready to exit “cold-turkey.”

3. Should I worry about client retention?

Absolutely. We have found that without proper structuring, client relationships can and do drop off after the sale. This is one of the most important areas that need to be addressed prior to closing. With a good transition plan in place in advance of the sale, we have found that the client relationships will transfer much more easily to the buyer.

Buying a Practice

1. What are the risks of buying a practice?

In an acquisition, one of the most valuable and important assets the Buyer is purchasing can be the employees. It is crucial to understand all of the relationships that are important to the client and not just assume it’s only the owner. Employee relationships can be very integral to the value of the practice, since they can have as much established contact and knowledge about the clients as the owner of the firm.

2. Is it better to buy an existing practice or start a new practice?

Certainly there are pros and cons to each option. If you do a careful analysis, you’ll learn what many seasoned entrepreneurs have discovered … the risk-to-reward ratio is tipped in your favor when you purchase an existing business. Depending on your business acumen and marketing skills, it is almost always better to buy a practice vs. build one from a cold startup. There are many advantages to acquiring an existing practice, but the reduced risk of failure is usually the most persuasive. An existing practice has an established reputation and client base and provides instant cash flow.

3. Is there financing available?

The majority of the practices that we list qualify for SBA loans. A Buyer can often finance a large portion of the sales price, with the loan being amortized 7–10 years. The practice itself must exhibit strong cash flow and the Buyer must qualify based on experience, credit history and other factors.

4. When should due diligence be performed?

Due diligence is rarely performed before negotiating the purchase of a practice. When structured properly, the process involves disclosure of confidential information. The Buyer and Seller should at least have the deal structure finalized, and the financial resources confirmed, prior to spending time in due diligence.

Selling a Practice

1. Why do owners sell their practices?

The reasons vary but they usually involve retirement, relocation, career change, burnout, work/life balance, or health issues.

2. How are practices priced?

Even though practice pricing is almost always expressed in “rule of thumb” formulas based on annual gross billings, the strategic value of a practice depends on how the Buyer plans to utilize those resources purchased. Within limits, there is no simple formula or rule that applies.

Consequently, at PK Connect our job is to spend the time to determine a prospect’s needs, match those needs to the suitable practice, and then achieve the highest value for your practice in the shortest amount of time. We would be very happy to discuss your practice with you to determine what type of strategic buyer would be right for your practice, and provide you a realistic estimate of the price and terms you could expect from the sale of your practice.

3. Is it better to merge or sell my practice?

The answer really depends on your individual situation. It’s best to discuss this important decision so that you can better weigh all your options.
Call us today at 214-393-4292.

4. How long will it take to sell my practice?

The time varies depending on market conditions, practice value, and location and type of practice.

5. How do you protect the confidentiality of my practice listing?

Confidentiality is our goal, and we go to extreme lengths to assure that the fact that your practice is for sale is protected from your employees, competitors and clients.

When a prospect makes a first inquiry, they are required to submit a profile about themselves and sign an agreement with us that if we ever reveal the name of a practice offered, they will protect the identity. We contact you with the name of the prospect to make sure you would agree to pursue a transaction with them.

Most communications with you during the selling process are transacted via secure email. Should a telephone contact be required, we call you directly, circumventing your receptionist or other employees. Initial visits can be held at our office since it is neutral ground for both parties. Visits to your practice by prospects can be scheduled after hours at your convenience, and we never reveal your name or contact information until it is appropriate.