Index ACATS (Automated Customer Account Transfer Service), 228, 230 231 Acceleration options, 170 171, 212 Accreditation, 54, 55 Accrual method, 157 Acquisition costs, 37, 92, 231 Adjustable promissory notes, 2, 83, 144, 147, 156 Adjusted net asset value, 42, 43 Advocacy approach, 183 184 Agreement for Assignment of Accounts, 103 Alternative dispute resolution, 214 Appraisers, 32, 38, 42, 46, 51, 54, 55, 59, 79 Arbitration, 206, 212, 213 214, 215, 273 Asset-based approach, 42 43, 52 Asset-based sales and acquisitions, 144, 157 161, 218 219 Asset concentration, 68, 69 Asset purchase and sale agreements, 24, 83, 189, 190 191, 216 asset classes and, 160 business sales using, 106 collateralization and security in, 195 description of, 190 191 due diligence and, 185, 189 earn-out arrangements using, 148 example of, 216 exit planning using, 24, 190 job/book sales using, 102 list of clients with, 192 193 noncompete/nonsolicitation agreement with, 194, 271 practice sales using, 104 principal sections of, 190 revenue sharing as, 158 schedules or exhibits with, 190 191 seller s representations and warranties and, 200 201 support agreements with, 192 tax issues and, 160, 164 Assets under management (AUM), 46, 59, 108, 115, 120 Assumed business name (ABN), 218 Attrition, 11 12, 13, 14 17, 29, 82, 99 100, 118 Backup plans, 86 87 Bank financing, 164 166 as acquisition tool, 144 bank lending standards and, 55 blending seller financing with, 144 145, 168 170 business sales (level of ownership) and, 106 buyer s risk in, 210 buyer s use of, 123, 130 buyer-to-seller ratio and, 165 challenges in using, 172 173 choosing lending partner in, 165 166 continuity plans and, 27, 140 covenants and conditions on, 204 205 down payment size and, 154 impact on value of, 80 independence of appraisers in, 55 internal buyers and, 97 loan application stages in, 168 loan rejection reasons in, 168 mechanics of process of, 166 168 planning process support from, 30 portfolio/book management and, 167 COPYRIGHTED MATERIAL 283
284 Index Bank financing (continued) practice sales and, 104 reasons for increased use of, 165 relative size of buyers in, 123 SBA guarantee and guidelines in, 166 security and collateral and, 195 Sell and Stay strategy and, 81 shared-risk/shared-reward concept and, 147 148 time needed for, 168 valuation and, 54 55 ways of using to position practices, 165 Bank financing agreements, 185 Benchmarking analysis, 18, 27, 29, 67, 79, 84 85, 86, 87, 118, 124, 167 Best match, 61, 81, 92 93, 94, 95 98, 104, 108, 113, 122 Bills of sale, 185, 191 Boilerplate, 198 199 Book builders, 15, 65, 67, 71, 73, 77 78, 79, 84, 86, 93, 115, 137, 141, 148, 154, 155, 221 Books. See Jobs/books Book value, 42, 43 Bulletin boards, 95, 102, 106 Business builders, 77, 106, 134, 171, 221 Business Continuity Agreements, 103 Businesses (as a level of ownership) acquisitions by, 135 bank financing of sales of, 147 benchmarking data on, 84 85 building and preserving value in, 77 choices and options for selling, 105 compensation structures for, 69 continuity planning for, 26, 86, 106 definition of, 9 10, 77 down payments in sales of, 153 154 due diligence for sale of, 185 exit planning for, 24 firms purchases of, 122 getting a position fix on, 77 growth strategy for building, 123 income approach used for, 38 internal buyers of, 97, 161 listing process for, 107 most probable selling price with, 36 as ownership level, 7 percentage being sold, 105 percentage within industry, 10 practices purchased by, 122 preparing to sell, 105 106 profitability of, 74 recurring revenue and, 65 sales documents for, 106 stock-based sales of, 161 stock purchase agreements and, 192 succession planning for, 24, 25, 97 tax strategies for sales of, 156 transition risk for, 67 transition strategy for, 13 use of term, 10 valuation of, 52, 53 Business models, 81, 85, 92, 123, 140 Buyer acquisition profile, 107, 274 275 Buyer-to-seller ratio, 27, 65, 74, 97, 102, 117, 133, 153, 155, 165 Buy-in loans, 30, 140, 171 Buy-outs, 29, 135, 139, 170, 189 Buy-sell agreements, 10, 26, 138 139 Capital assets, 155, 158, 159 Capital gains tax rates, 9, 29, 80, 104, 155, 156, 158, 161, 163 Capitalization of earnings/cash flow method, 38, 39, 40, 52 Cash flow asset concentration and, 69 bank financing and, 166, 167 client demographics and, 68 69 clients during transition phase and, 192 Comprehensive Valuation Report on, 62 63 earn-out arrangements and, 148, 149 factors affecting, 68 issue of separate books with other advisors and, 77 78 job/book sales and, 102, 103, 155 measurement of quality of, 68 69 profitability differentiated from, 72 revenue growth and net new client growth and, 69 in revenue sharing, 152
Index 285 tax strategies and, 155 workweek trajectory and, 98 Cash flow method, 5 Cash Flow Quality Index, 63, 66, 68 Cash flow transfers, 102, 103 Cash method, 157 C corporations, 6, 26, 40, 80, 162, 192, 193 Certified valuation analyst (CVA), 46, 54 Client accounts buyer s covenants not to solicit, 204 buyer s default related to sales of transfers of, 211 cash flow quality and, 68 69 purchase agreement list of, 190, 192 193 regulation of assignment of, 225 revenue sharing and, 152 seller s covenants on, 203, 204 seller s representations with list of, 201 transfer process and, 228, 230, 231 Client base of buyers, 125 buyer s due diligence on, 115, 116 buyer s interest in, 120 closing process and, 184 Comprehensive Valuation Report evaluation of, 63 confidentiality of, 186 due diligence meetings of, 178 FP Transitions and, 119 listing process on, 108 notification process for, 224 231 potential buyers and, 92 Practice Emergency Plan and, 87 practice sales and, 104, 105 retirement planning and, 86 Client lists, 43, 158, 186, 192 193, 201 Closed market buyers success on, 121 buyer-to-seller ratio on, 122 123 description of, 21 22, 108 disadvantages of using, 21, 22 examples of inquiries sent to sellers on, 127 FP Transitions use of, 21, 107, 188 listing process for, 107, 108 110 predatory buyers on, 22 same broker-dealer/custodian for buyer and seller on, 228 sellers approach to using, 124, 175 written NDA and, 186 Closing the sale, 94, 95, 112, 154, 183 184, 215 216, 217 Collateralization, 111, 180, 185, 190, 191, 195, 271 Commission splitting, 130 Community property states, 219 Comparable sales data ( comps ), 4, 60 Comparable sales method, 41 Compensation structure, 6 7, 69, 70 71, 74, 118. See also Fracture lines Compliance officers, 152, 226, 228, 238 Comprehensive Transaction Support process, and FP Transitions, 132 Comprehensive Valuation Report (CVR) asset-based sales and, 159 base price and payment in, 63, 64 building and preserving value and, 79 buyers and, 130 cash flow quality for, 62 63 description of, 64 FP Transitions annual review and updating of, 60 61 FP Transitions creation of, 60, 61 gross revenue as basis for, 61, 63 issues resolved by, 61 market demand assessment for, 63 marketplace activity and profitability in, 73 most probable selling price in, 36 revenue treatment in, 63, 65 steps in process of, 61 64 transition risk assessment for, 62, 66 valuation indexes produced for, 63 as value calculation, 60, 130 Concentration risk, 63, 170, 179 Conditions, 202, 205. See also Covenants and conditions
286 Index Confidentiality of alternative dispute resolution, 214 on bulletin boards, 22 buyer s covenants on, 204 in communications, 179 during due diligence period, 178, 229 in listing process, 107 of LOI or term sheet, 188 mutual nondisclosure agreements for, 186 187, 251, 254 255 purchase agreements on, 190, 192, 198 Confidentiality agreements, 185 188 Conflict resolution, 213 215 alternative dispute resolution (ADR) and, 214 arbitration and, 212, 213 214, 215 boilerplate used in, 199 defaults and, 212 example of wording for, 213 214 goal of, 214 mediation and, 212, 213, 214 215 multilayered approach to, 213 primary approaches to, 213 shared-risk/shared-reward concept and, 213 Consolidators, 13 14, 92, 96, 103, 111, 123 Consulting, post-closing, 62, 147, 155, 159, 161, 193, 193 194, 204, 210, 218 Consulting agreements, 159, 106, 161, 185, 190, 193 194, 204, 210, 211, 223, 233 234 Contingent payments, 157 Contingent seller financing, 145 146, 215 Continuity agreements, 10, 26, 27, 86, 132, 139 Continuity partners, 27, 79, 121, 133, 134, 138, 139, 140, 141, 151 Continuity plans bank financing and, 165 best match plan in, 28 building and preserving value using, 86, 87 in businesses, 10 business (level of ownership) sales using, 106 buy-sell agreements and, 138, 139 death or disability of founders or owners and, 25 26, 27, 28 derived from succession plan, for multigenerational businesses, 26, 140 description of, 26 28 as a dress rehearsal for exit planning or succession planning, 26 27 financing mechanisms to support, 30 fundamental documents in, 27 28 funding mechanism for, 29 importance of creating, 27, 29, 139 internal ownership track in, 26, 29, 140 in jobs/books, 26, 27 mergers with book builders and, 79 need for sufficient time and expertise for completing, 28 of potential buyers, 92 Practice Emergency Plan and, 87 in practices, 26, 27 revenue sharing agreements and, 27, 86 87 sale triggered by, 26 Sell and Stay strategy and, 81, 140 succession plans and exit plans differentiated from, 23 triggering events for, 27 Contract, breach of, 207 Contractors, 67, 71, 77 78, 117, 233 Contracts, 26, 43, 103, 139, 150, 151, 152, 158, 179, 181, 192, 193, 198 199, 201, 203, 215, 216, 217, 220 221, 224, 269. See also specific types of contracts Contractual agreements, 21, 136, 207 Contractual rights, 138, 140 Corporations, 77 78, 138, 157, 193, 195, 218 219. See also C corporations; S corporations Covenants, 200 201, 204 205 Covenants and conditions, 199, 202 207 CPA firms, 33, 84, 92, 96, 123
Index 287 CPAs, 34, 50, 54, 55, 74, 143, 150, 157, 162, 163, 164, 181, 182, 183, 258, 263 Credit risk, 123 Credit unions, 96, 103, 123 CRM systems, 8, 115, 125, 179, 230 Cross-species mergers, 78 Custodian networks, 112, 140 Customer relationship management (CRM), 8, 115, 125, 179, 230 Death or disability, 25 26, 27, 28, 86 87, 103, 138, 139, 209 210, 220 Default provisions, 210 212 Deprecation, 104, 136, 155, 156, 158, 218 Direct market data method (DMDM), 4, 42, 50, 83, 112, 129, 132 Disability insurance, 29, 138, 139 Discounted cash flow (DCF) method, 5, 32, 38, 39 40, 52, 59, 66 Divorce, 31, 40, 52 Doing business as (DBA), 218 Down payments, 144, 145, 147, 153 154, 151, 166, 195 Due diligence process, 175 196 advocacy versus nonadvocacy approach in, 183 184 agreement between buyers and sellers on, 175 176 after buyer selection, 108 checklists for, 258 267 client base meetings during, 178 conducting, 176 181 documentation of, 184 196 goal of, 175 going from broad view to narrow focus in, 178 handling issues found in, 180 181 historical background to adoption of, 179 importance of, 175 key employees and, 117 118 need for following rules in, 195 196 payment structure and, 179, 180 performed by both buyers and sellers, 178 personnel conducting, 179, 181 primary areas considered in, 179 primary issues for sellers in, 179 180 reps and warranties and, 202 as search for red flags, 177 178 signature authority and, 218 team for, 181 183 time frame for, 178 typical documentation package in, 184 185 use of term, 178 E&O insurance, 235 236 Earnest-money deposits, 152 153, 188 Earn-out arrangements, 81, 145, 148 151 Effective closing date, 215 216 Electronic contracts, 220 Emergency continuity plans, 87 Employment agreements, 82, 83, 106, 118, 185, 193, 262, 269 Ensemble organizational structure, 6 Entity structure, 6 7 Entrepreneurs, 9, 12 13, 85, 88, 95, 105, 110, 118 Enterprise strength, 18 20 Equity interest, 137 138 Escrow, 108, 153, 188 Estates, 31, 36 Exit plans. See also Transition strategies attrition as, 29, 118 bank financing and, 166 basic question in considering, 7 business level of ownership and, 106 choices in, 93 94 client letter on, 239 240 closing the deal in, 94, 95 compensation structures and, 70 completion in on step, 1, 23 24, 175 considerations when using, 91 continuity planning as dress rehearsal for, 26 27 description of, 23 24, 175 documentation for, 24 external buyers in, 1, 23 24, 175 firms and, 106 framing the deal in, 94, 95
288 Index Exit plans (continued) importance of planning with, 27, 29 inability or failure to build a business and need for, 25 income perpetuation strategies and, 100 101 internal buyers in, 1 2, 24, 175 key aspects of process in, 94 95 key employees and, 116 117, 239 240 level of ownership and, 7 11 mergers in, 24 need for sufficient time and expertise for completing, 28 for practices, 24, 118 procrastination and, 133 revenue strength enterprise strength balance and, 18 20 sample plan in, 100 searching for best match in, 94, 95 succession plans and continuity plans differentiated from, 1 2, 23, 97 tax planning and, 164 30-hour threshold and timing of, 99, 100 working capital loans for, 171 workweek trajectory data used in, 98 99, 100 External buyers, 11, 13 14, 23 24, 93, 107, 175 176 Fair market value (FMV), 35, 43, 50, 136, 169 Fair value, 37 38 Family-controlled business, 41 Federal income tax rates, 40, 152 Fee splitting arrangements, 145, 151 152. See also Revenue sharing Financial buyers, 96, 97, 120 FINRA (Financial Industry Regulatory Authority), 21, 61, 149, 152, 182, 192, 229 230, 232, 260, 265 Firms acquisitions by, 135 benchmarking data on, 84 85 compensation structures for, 69 continuity planning for, 26, 86 definition of, 10, 77 exit planning for, 24 income approach used for, 38 options for selling, 106 107 as ownership level, 7 percentage being sold, 106 107 percentage within industry, 10 preparing to sell, 106 107 recurring revenue and, 65 stock-based sales of, 161 stock purchase agreements and, 192 succession planning for, 24, 25, 106 transition strategy for, 13 use of term, 10 First buyers, selling to, 105, 112 113, 129 FP Transitions, 11, 20, 42, 50, 52, 5 8 60, 81, 85, 87, 97 98, 107 108, 110 111, 119, 126, 132, 181, 182, 183, 184, 188, 189 190, 190 191, 214 215, 231, 247, 259, 275 Framing the deal, 94, 95 Geographical factors, 92, 97, 140, 137, 194, 234 Gifts, 31, 32, 36 Goodwill, 40, 43, 67, 158, 159, 165, 166, 218 Growth strategies, 15, 88, 123, 124, 125, 165, 120, 172 Guideline publicly traded company method, 41 Guideline transaction method (GTM), 41 42 Health issues, 68, 82, 86, 91, 133, 233 Hold harmless, 207 Hold harmless clauses, 162, 192, 199 Horizontal mergers, 137 Income approach, 4, 38 40, 52, 66 Income perpetuation strategies, 100 101 Income tax rates, 40, 152 Indemnification, 162, 192, 207 Indemnification and hold harmless clauses, 162, 190, 192, 199, 207 209
Index 289 Installment sales, 156 157 Intellectual property, 158, 250, 254 Intermediaries, 105, 106, 110, 116 117, 121, 157, 162, 164, 181, 182 183, 184, 206, 209, 216, 229 Internal buyers, 12, 13, 23, 24, 62, 86, 93, 96 97, 103 104, 106, 161, 175 176 Internal Revenue Code (IRC), 135, 136, 137, 164 Internal Revenue Service (IRS), 36, 157, 160 161 Investment advisory agreements, 192, 225 227, 228, 232, 245 Investment bankers, 5, 106, 183 Investment value, 36 37 Jobs/books. See also Book builders asset-based sales of, 158 attrition as transition strategy for, 11 12, 13 bank financing of sales of, 147 capital gains tax rates for, 80, 155 compensation structures for, 69, 70 consulting agreements with sale of, 193 continuity planning for, 26, 27, 139 140 definition of, 8, 77 down payments not used in sales of, 153, 154 due diligence for sale of, 184 185 employment agreements before sale of, 118 exit planning for, 24 first offers accepted in sales of, 153 internal buyers of, 97 listing process for, 102, 107 most probable selling price with, 36 options for selling, 102 as ownership level, 7 percentage being sold, 102 percentage within industry, 8 performance-based promissory notes for sales of, 148 practices purchase of, 122 predatory buyers and, 102, 144 preparing to sell, 102 103 profitability of, 73 recurring revenue and, 65 return on investment and, 73 revenue sharing or fee splitting arrangements in, 145, 154, 155 sale as asset-based sale or acquisition, 102 103 seller financing for buyers of, 145 short-form contracts for transfer of, 103 as strongly held, 9 succession in, 12, 25 tax strategies for sales of, 155 transition risk for, 67 use of term, 10 valuation of, 8, 53 working capital loans for purchasing, 172 Joint ventures, 135 Last-minute changes, 217 Leases, 83, 86, 97, 115, 188, 190, 201, 258, 261, 262, 264, 266, 269 Letters of intent (LOIs), 115, 153 180, 185, 187 189, 216, 267 273 Liens, 180, 181, 195, 203, 259, 265 Life insurance, 29, 114, 118, 139, 195, 209 210, 212 Limited liability companies (LLCs), 6, 8, 26, 72, 77 78, 80, 135, 138, 139, 157, 161 162, 163, 192, 193, 194, 195, 217 218, 218 219 Lines of credit (LOCs), 171, 172, 180. See also Bank financing Liquidations, 43 Liquid assets, 43 Listing process, 107 112 advantages of, 108 buyer acquisition profile used in, 107, 274 275 examples of replies in, 127 129 FP Transitions on, 110 111 guidance needed in, 107, 110 interested versus qualified buyers and, 110 information in listing in, 108 for jobs/books, 102
290 Index Listing process (continued) steps in using, 108 110 where conducted, 107 Live Oak Bank, 166, 171 Loans, 30, 140, 168, 171 173. See also Bank financing Lump-sum disability insurance, 29, 139, 210 Market approach, 40 46, 50, 53 Market demand, 63, 133 Market-extension mergers, 137 Marketplace organization, 20 23 Market Demand Index, 63, 66 Mediation, 182, 212, 213, 214 215 Merger and acquisition method, 41 Minority ownership, 86, 138 139, 140 Mission statements, 125 Most probable selling price (MPSP), 35 36, 37, 50, 52, 108, 112, 129, 132 Multigenerational businesses, 10, 15, 26, 63, 74, 140 Net cash flow to invested capital, 39, 40 Net new client growth, 69, 88 Noncompetition/nonsolicitation agreements, 67, 71, 104, 106, 117, 155, 158, 161, 185, 191, 192, 194, 211, 221, 260, 261, 265, 270, 271 Nondisclosure agreements (NDAs), 105, 186 187, 229, 249 257, 261 Nonequity alliances, 136 Nonrecurring revenue, 115 No-service agreements, 67, 71, 117, 159, 161, 185, 221 Notification of client s process, 224 231 Online valuation tools, 79 Open market, 165 advantages of using, 21 advisors confidential search on, 93 books sold on, 102 buyers preparation for using, 121 buyer-to-seller ratio on, 16, 117, 122 123 Comprehensive Valuation Report and, 61, 159 description of, 21, 107 108 examples of inquiries sent to sellers on, 127 financing options and, 154 finding best match in, 97, 102, 134, 188 FP Transitions founding of, 58, 107 108 FP Transitions post-closing mediation services for sales on, 214 FP Transitions use of, 21, 82 83, 87, 188 gross revenue multiple on, 47 level of compulsion to buy or sell on, 36 listing process for, 81, 107, 108 110, 188 multiple offers received in, 188 percentage of successful sales in, 117 Practice Emergency Plan using, 87 practices sold on, 103 reasons for using, 112 same broker-dealer/custodian for buyer and seller on, 228 Sell and Stay strategy in, 81 sellers approach to using, 124, 175 transition risk assessment in, 62 valuation by researching earlier prices in, 53 written NDA and, 186 Operating agreements, 26 Organization structure, 6 7 Ownership levels as basic foundational element, 6 7 building and preserving value and, 77 78 definition of terms in classifying, 7 11, 77 getting a position fix on, 77 78 internal ownership track in, 26, 29, 86 retirement planning and, 86 revenue strength and enterprise strength balance in, 18 19 use of term, 10
Index 291 Palaveev, Philip, 6 Partnerships, 31, 37, 52, 136, 138 Partial-book acquisitions, 137 Payment structure, 153 bank financing and, 169 170 business sales and, 156 buyers and, 130 Comprehensive Valuation Report on, 63, 64 contingency for risk in, 210 down payments as part of, 153 due diligence and, 179, 180 earn-out arrangements and, 148, 150 highest bidders versus best match and, 81 job/book sales and, 102, 103 listing process on, 108 performance-based promissory notes for, 147 practice sales and, 156 reluctant sellers and, 132 revenue sharing and, 152, 184 setting up and agreeing to, 143 shared-risk/shared-reward concept in, 146 147 tax implications of, 81 valuation and, 130 value adjustments and, 143 Performance-based promissory notes, 2, 48, 50, 81, 147 148 advantages for buyers and sellers in, 147 asset purchase agreements on, 191, 192 business sales using, 106 collateralization and security for, 195 description of mechanism of, 147 due diligence and, 185 importance of using, 210 job/book sales using, 148 practice sales using, 104, 185 seller financing using, 220 Perpetuation of income strategies, in exit planning, 100 101 Personal services contracts, 158, 193 Power of attorney, 220 Practice Emergency Plan, 87 Practice management consultants, 4, 15, 54, 58, 79, 146, 179, 183 Practice Ownership Level acquisitions by, 135 asset-based sales of, 158 attrition as transition strategy for, 11 12, bank financing of sales of, 147 benchmarking data on, 84 books bought by, 122 building and preserving value in, 77 businesses purchase of, 122 of buyers, 124 125 comparison of two valuation methods for, 48 50 compensation structures for, 69 consulting agreements with sale of, 193 continuity planning for, 26, 27, 86, 139 140 definition of, 8 9, 77 due diligence for sale of, 185 employment agreements before sale of, 118 exit planning for, 24, 118 first offers accepted in sales of, 153 fracture lines impact on value, 70, 71 getting a position fix on, 77 78 internal buyers of, 97 issue of separate books with other advisors and, 77 78 letting go after sale of, 118 listing process for, 107 measuring value of, 34 minimum requirements for sale of, 104 most probable selling price with, 36 options for selling, 103 104 as ownership level, 7 percentage being sold, 103 percentage within industry, 9 Practice Emergency Plan for, 87 predatory buyers of, 144 preparing to sell, 103 105 profitability of, 73 74 recurring revenue and, 65
292 Index Fracture lines impact on value (continued) selling or transferring the cash flow to a third party by, 12 13 stock-based sales of, 161 as strongly held, 9 succession in, 12, 25 tax strategies for sales of, 155 156 30-hour workweek threshold and success of, 99 transition risk for, 67 use of term, 10 valuation of, 53 working capital loans for purchasing, 172 Privacy policy, 178, 186, 229, 261, 266 Private transactions, 22 23, 42, 60, 81, 105, 189 Procrastination, in exit planning, 133 Profitability, 71 74 Profit distributions, 9, 10, 73, 74, 78 79, 123, 136 Promissory notes, 130 acceleration and, 212 adjustable, 2, 83, 144, 147, 156 asset purchase agreements on, 190 collateralization and security for, 195 earn-out arrangements and, 149, 150 indemnification and, 209 installment sales using, 156 retirement and valuation adjustment to, 82 security and collateralization of, 195 seller financing using, 2, 144, 220 Purchase and sale agreements, 189 193 acceleration and, 212 boilerplate use in, 198 199 categories of, 189 conflict resolution mechanisms described in, 213 215 covenants and conditions and, 202 207 default provisions and, 211 212 due diligence and, 185, 189 FP Transitions use of, 189 190, 231 indemnification and hold harmless clauses in, 162, 192, 199, 207 209 last-minute changes to, after closing, 217 last-minute changes to, before closing, 217 list of clients with, 190, 192 193 LLC membership/unit purchase agreements and, 192, 194 LOIs as blueprints for, 189 LOIs differentiated from, 187 principal sections of, 190 reps and warranties in, 199 202 responsibility for drafting, 189 190 revisions to, before signing, 217 schedules and exhibits attached to, 190 191 signature issues for, 217 221 using without earlier letters of intent, 188 Qualified buyers, 110, 133 134 Real estate comparisons to, 41 sale of practice, included in, 43, 158 Recurring revenue, 115, 145, 154 Referral agreements, 84 Referrals, buyer s due diligence on, 116 Reluctant sellers, 131 133 Representations, definition of, 200 Reps and warranties, 199 202, 219 Retirement, 12, 27, 81, 82, 85 86, 94, 98 99, 103, 125, 138, 152 Revenue analysis, 20 Revenue growth, 29, 69, 88, 89 Revenue sharing, 6, 130, 151 152 as asset-based sale, 158 compensation structure problems and, 71 continuity plans with, 26, 27, 86 87 due diligence on, 179, 184 earn-out arrangements differentiated from, 151 FINRA Rule 2040 on, 152 forms or templates used in, 151 as exit strategy, 2 job/book sales with, 16, 24, 27, 103, 154 practice growth and, 9 practice sales with, 16, 24, 27, 104
Index 293 predatory sellers using, 152 reasons for common use of, 16 retirement and, 152 tax implications of, 81, 145 typical structure of, 151 152 valuation and, 4, 16, 34 Revenue sharing agreements, 16, 24, 27, 104, 155, 218 Revenue splitting, 4, 8, 47, 160, 185 Revenue strength, 18 20 Revisions to contracts, 217 Rocket Chemical Company, 121 Roll-ups, 13 14 Rule of thumb method, 6, 46 48, 53 Sales best match in. See Best match owners working after, 113 115 selling to first buyers in, 105, 112 113, 129 timing of, 91, 98 101 SBA loans, 144, 164, 165 S corporations, 6, 8, 26, 72, 80, 138, 139, 161 162, 179, 192, 193, 217 218 Securities Act of 1933, 178 Security, 180, 185, 190, 191, 195, 271 Sell and Stay strategy, 81 83, 134, 183 case study of, 82 83 description of, 81 82 E&O insurance in post-closing period and, 236 financial adjustments by sellers in, 82 Seller financing, 50, 124, 144 145 acceleration options and, 170 asset purchase agreement with, 104 assumptions about offering of, 144 blending bank financing with, 144 145, 168 170 buyer best match and, 122 buyer s expectations for, 125 contingent, 145 146, 215 job/book sales with, 145 legal protections against death or disability and, 209 210 need for professional help in, 146 practice level of ownership sales with, 104 recurring revenue and, 145 relative size of buyers and, 123 reliance on, 17 risk and, 122, 123 rules of thumb in calculating, 48 shared-risk/shared-reward concept in, 145 146 time frame for, 125 types of, 144 Shared-risk/shared-reward concept, 145 147 buyer s base for acquisition and, 122 conflict resolution and, 213 deal structuring using, 145 147 description of, 145 146 earn-out arrangements and, 151 as economic marriage between buyer and seller, 146, 147 payment structure and, 146 147 selling price and, 113 Shareholders disputes with, 37 as internal buyers, 96 97 selling and listing process and, 117 Shareholders agreements, 10, 26 Short-form contracts, 103, 104, 151 Signatures, 217 221 Silo organizational structure, 6 Small Business Administration (SBA), 55. See also SBA loans Sole proprietorships, 6, 80, 158, 184 185, 195, 218, 219 Standards of value, 35 38 State tax installment sales on, 157 Stock-based sales and acquisitions, 161 164 asset-based sales compared with, 158 business and firm sales and, 161, 192 buyers and, 161 162 C corporations and, 162 due diligence and, 179 LLCs and, 157, 161 162, 163 noncompete/nonsolicitation agreement with, 194 S corporations and, 161 162 sellers and, 161
294 Index Stock-based sales (continued) signature issues in, 219 support agreements with, 192 when used, 157, 161, 162 Stock purchase and sale agreements, 189, 191 192 business ownership level using, 106, 185, 192 description of, 189, 191 192 due diligence and, 185, 189 firm sales using, 192 indemnification and hold harmless clauses in, 162, 192, 199 list of clients with, 192 193 noncompete/nonsolicitation agreements with, 194 stock sales using, 219 succession planning using, 25 Strategic alliances, 135 136 Strategic buyers, 21, 37, 96, 97, 120 Succession Planning for Financial Advisors (Grau), 2 Succession plans, 134 acquisition strategies as part of, 140 bank financing and, 165 in businesses, 24, 25, 97, 106 continuity planning as dress rehearsal for, 26 27 description of, 24 26 documentation for, 25 exit plans and continuity plans differentiated from, 1 2, 23, 97 financing mechanisms to support, 30 in firms, 10, 106 founder s continuing involvement after, 25 goal of, 2 gradual and seamless transition in, 2, 24 25 importance of planning with, 27, 29 income perpetuation strategies and, 100 101 mergers and, 79, 137 multigenerational businesses and, 15, 26, 74, 140 need for sufficient time and expertise for completing, 28 of potential buyers, 92 retirement planning and, 86 Sell and Stay strategy and, 81 tax planning and, 164 time frame for, 98 timing of sales and, 98 transition risk and, 67 working capital loans for, 171 Successor teams, 25, 97, 106, 138 Tail coverage, 236. See also E&O insurance Takeovers, 135 Team, for due diligence, 181 183 Technology use, 67, 125 Term sheets, 115, 153, 180, 187 189 30-hour workweek threshold, 99, 100 Tibergien, Mark, 6 Transactional revenue, 65 66 Transition letters, 237 238, 238 244 Transition phase, 116, 192 194 Transition plans, 223 245 client letters and, 236 244 consulting agreement with, 223, 233 234 E&O insurance and, 235 236 after listing process buyer selection, 110 planning process and, 223 post-closing period and, 233 235 regulatory issues of notification process and, 224 231 Transition risk, 9, 10, 29, 66 68, 161 Transition Risk Index, 62, 63, 66 Transition strategies, 2, 11 12, 14 17, 29 Turnkey acquisitions, 138, 197 UCC filings, 191, 195, 259, 265, 271 Valuation, 31 55 accreditation of analysts or appraisers offering, 53, 54, 55 acquisitions process and, 129 approaches and methods in, 38 46, 52 asset-based sales and, 159 bank financing and, 54 55, 167 benefits of annual schedule for, 80 Blue Book standard in, 57 58 building and preserving value and need for, 79 80 of businesses ownership level, 10 business sales using, 106 of buyer s practice or business, 123 124
Index 295 buyer s understanding of, 129 130 choosing approach used in, 38, 51, 53 choosing standard of value used in, 35, 51, 53 comparison of two practices for, 48 50 compensation structure and, 70 71 competency standards for providing, 53 54 continuity plans and, 27 costs of, 130 debate over approaches to, 4 6 different goals of parties in, 4 different values from different standards of value and approaches used in, 31 32 direct market data approach to, 4 due diligence and, 181, 184, 185 employee issues ( fracture lines ) found during, 74, 117 of firms, 10 formal, third-party versus free, online, 79 foundational elements and, 6 7 FP Transitions experience in, 58 60 goal of, 4 5, 31 gross revenue multiple with, 47, 48 income approach to, 4, 38 40 individuals qualified to make, 53 54, 79 of job/books, 8 key choices to be made for, 51 53market approach to, 40 46 marketplace changes and, 33 most probable selling price and, 50, 52, 108, 112, 129 myths about value and, 75 76 no one single approach used in, 2, 6 overview of, 31 33 payment structure and, 130 planning using, 20 of practices, 9, 104 Practice Emergency Plan with, 87 profitability issues and, 71 74 range of tools used in, 5 reasons for performing, 31 reluctant sellers and, 132 revenue strength enterprise strength balance and, 20 revenue treatment in, 65 rule of thumb methods of, 46 47 Sell and Stay strategy with, 81, 82 series of questions leading to, 5 starting place for, 51 52 table summarizing standards, approaches and methods and degree of analysis needed, 43 46 wait-and-see approach to, 4, 6 work needed for gathering data for, 79 80 Value abundance of myths about valuation and, 75 76 annual valuations to keep current with, 80 client relationships and, 33 as contentious issue between buyers and sellers, 129 creation of, 33 35 experienced buyers approach to, 34 35 getting a position fix on ownership level and, 77 78 in listing process, 108 maximizing value before selling, 76 payment terms and adjustments to, 143 profitability in determination of, 71 72, 74 recurring revenue and, 65, 66 selling and concept of, 21 standards of, 35 38 steps for building and preserving, 77 89 tactics in measuring, 34 tax structure and adjustments to, 143 understanding impact of terms and taxes on, 80 81 Vertical mergers, 137 Vetting process, 120, 126 129 Wait-and-see approach, 4, 6 Warranties, 200. See also Reps and warranties Weighted average cost of capital (WACC), 39, 40 Wills, 87 Wirehouse brokerage model, 9 Witnesses to contracts, 220 221 Working capital, bank financing for, 165 Working capital loans, 30, 171 172 Workweek trajectory, 98 99, 100 W-2 employees, 8, 77, 117