Don't Struggle for Years, Buy a Professional Practice and Jumpstart Your Growth

Successful partners in professional practices and service business owners have found it profitable to grow their businesses through the acquisition of competitors.

These buyers can be owners of accounting firms, engineering firms, consultants, training companies, sales companies, and many others.

Some of the immediate benefits of purchasing a practice are:

Instant good will when you buy the competitor’s name and employee contracts.

An established phone number. Make sure this is redirected to you for a substantial period of time. If you are changing the acquired firm’s name, make sure your staff is trained in handling calls from slightly confused customers. Acquisitions can be financed. Generally the seller provides the financing. Other sources are SBA loan providers and local banks.

More Benefits Include:

Often a business purchase will provide significantly lower customer acquisition costs than obtaining new clients from scratch. This is particularly true if you accurately capture all of the costs associated with traditional customer acquisition such as advertising, marketing, networking, preliminary meetings, proposals, commissions, etc.

Acquisitions provide instant cash flow.

Additional staff has immediate work instead of waiting for work though a painful and expensive ramp-up period.

Two Final Benefits are:

In some markets, it is almost impossible to obtain talented skilled employees. This is another route to achieve that goal. Often a desirable location is obtained. Rarely will you obtain all these desirable benefits from an acquisition, but you can obtain the ones most important to you.



Compatibility is No. 1 Compatibility is a very important factor in the success or failure of an acquisition-based growth strategy. Compatibility needs to work on many levels. Certainly employee and owner compatibility between the two firms is very important. Customer compatibility is also essential to receive satisfactory results. In larger firms, management control and computer technology compatibility become major factors.

There are many areas of due diligence that need to be investigated. Many of these areas can be delegated to consultants. Because compatibility runs to the core of the acquisition, it should not be delegated. This gut call will determine long-term success or failure of the transaction.

A topic directly related to compatibility is customer care. Many customers will be very accepting of the changes at “their” firm. A few will need tender loving care. Remember to treat your “new” customers with kid glove care and you should have no problem retaining them.



Price Matters Before we conclude, we need to talk about price. Small- and mid-size acquisitions of service businesses typically range between 1.5 to 3 times yearly cash flow to the owners. (Accounting and professional practices may be in the 1 to 1.25 revenues range.) The final figure depends upon the type of practice, the profitability of the firm being acquired, and the likelihood of maintaining the purchased customer base.

Usually there are three components of the price. The first component is the base price that is paid at settlement. The second component is a salary that is paid while the old owner works for the firm to help ensure a smooth turnover of clients. The third component of the price is the final payment.

Often the final payment is partially based on the success of the completed transaction. This might be calculated based on employee retention, customer retention, dollars of revenue or other agreed measure. These provisions usually are win-win because they provide a fair splitting of the risk of customer retention vs. price.



Be Successful There are a myriad of details in any service business acquisition. Your acquisition will be successful if you ensure compatibility, pay a fair and reasonable price, and provide excellent care to your “new” customers. If these steps are taken, acquisitions can be a great tool in your arsenal to fast track the growth of your service firm.





Don't Struggle for Years, Buy a Professional Practice and Jumpstart Your Growth - To learn more about this author, visit Greg Caruso's Website.

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