Retiring Partners Need to Ask These Questions
For accounting practice owners nearing retirement, the question of what comes next is a pressing one. With private equity investment in the industry skyrocketing over the past five years, many are being courted with lucrative offers. However, Brett Kelly, Founder and CEO of Kelly+Partners, cautions that the details of these deals are just as important as the purchase price.
Most deals today include earn-outs or deferred payments tied to client retention and revenue targets over two to three years after close. This means the ultimate payout depends on the ongoing success of the firm. Kelly notes that even if the money weren’t a factor, no one wants to see their life’s work hollowed out by a soulless private equity firm.
Before signing, it’s essential to ask the right questions. One key consideration is what ownership will look like after the deal. Will the buyer preserve genuine ownership for the person running the firm, or will they strip them of any incentive to keep building the business?
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Kelly advocates for a Partner-Owner-Driver model, where the partner holds enough equity to align their interests with those of the firm. This could be a 49% to 51% ownership split, which may seem drastic but is ultimately good business. When the partner’s own business is at risk, the success of the business becomes their personal priority.
Private equity funds typically operate on a three-to-seven-year cycle, which can be detrimental to a relationship-based business like accounting. A good buyer thinks in decades, not quarters, and should be willing to make long-standing agreements that renew over time.
The right acquirer can offer access to a management team that takes care of functions the practice owner doesn’t want to handle, freeing them up to focus on their people and clients. However, there’s a fine line between support and centralization, and it’s essential to find out what the buyer is willing not to do to keep out of the way of the business.
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Kelly emphasizes that clients hired the people, the judgment, and the expertise built over years, not just a balance sheet.
It is about the people.
