Art of Accounting: Practice continuation agreement tool kit free download | Accounting Today

All of the accountants I know and interact with are nice caring people and I like them. However there is one area where I believe they are being shortsighted and neglectful—when they have not made arrangements for the continuation and sale of their practice should they suddenly become disabled or die prematurely.

I get many calls from colleagues, most of whom I do not even know. A topic near the top of the most asked questions is from practitioners with an opportunity to acquire a practice from the widow of a deceased sole practitioner, or worse, from the surviving partner of a two person practice that did not have a buy-sell agreement. My advice is for sole practitioners to execute a practice continuation agreement (see end of column for a link) and for partners to get a buy-sell agreement (not covered here).

When you are approached to acquire a practice of someone who died, I suggest you pass on it. Here are a few reasons why:

• The family of the deceased accountant will always think the practice is worth much more than you offer, no matter what you offer.

• The longer the negotiating process takes, the lower the number of clients who will be retained. Once a client hears that their accountant or tax preparer has died, they immediately start looking for a new one.

• Very few widows, widowers or executors will take action without seeking the advice of an attorney—and very few attorneys would offer advice before they have received a “valuation” report, which is time consuming and costly.

• There is a strong likelihood the records and client information are in disarray.

• If there are employees, they have to be interviewed and reassured about their jobs.

• Decisions will need to be made about the premises and whether to assume the lease even temporarily.

• The mailing address, software, file backups, telephone numbers, email addresses and websites need to be transferred and passwords deciphered.

• ACH payments, fees from affiliated programs, and financial services from referrals or cross-practice collaboration need to be determined and arranged to be continued.

• All the talking back and forth and “proving” your ability and credibility will eat up your time and consume a lot of energy because of the aggravation dealing with the deceased’s family, if you can even identify who is authorized to make the deal.

Note: As skeptical as I seem, I do know of many successful transactions, although their process was not much different than what I have described here.

If you do not make arrangements, you are saddling your family with the burden of trying to get something for your practice, guaranteeing your family will get much less than they could. You are hanging your clients out to dry, unnecessarily unsettling your employees, and perhaps sticking your family with potential liabilities for not properly maintaining your clients’ files and possible malpractice claims that could arise. My advice is to execute a practice continuation agreement.

To assist you, I have prepared a practice continuation agreement tool kit that you can download for free by clicking here, or by emailing me at GoodiesFromEd@withum.com. So far over 12,000 accountants have received this information, and hopefully many have followed through on it.

Also, have a Happy New Year. This is a good way to start the year—execute this agreement to secure your practice’s value and cash flow for yourself if you become disabled or for your family if you die prematurely.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or emendlowitz@withum.com.