How Cloud-Based Operations Can Ease Succession in Your Tax and Accounting Practice

Practice Management Succession planning

So, you are a small accounting firm with most of your revenues coming from tax compliance. If you are like most of us, you are also getting older and a little frazzled by tax law changes, demanding clients and the allure of retirement. Do you currently operate in the cloud? Okay, it’s a trick question; many accountants are in the cloud to some degree. The real questions should be:

  • Do you conduct your core operations through the cloud?
  • Are you using a cloud platform to run your accounting, tax preparation, document management, practice management and contact software systems?
  • Are these systems cloud based, or are they living in a server closet down the hall?

By this time, you have probably heard many of the reasons your tax and accounting practice should be in the cloud. You’ve heard that the cloud offers flexibility, data security, scalability and lower costs. But did you ever consider another golden reason, the monetization of your goodwill?

Unless your succession plan is restricted to a buyout by partners or your employees, you need to consider the mechanics of selling a practice to an outsider. But how does operating in the cloud increase the goodwill value of a tax and accounting practice? Upon the sale of a practice, anything that disrupts the transfer of clients from the buyer to the seller can depress value. If, during the transition process, any client feels like a mere widget being sold to the highest bidder or is confused by new procedures, new personnel or new systems, that client is likely to take their business elsewhere. Most sale agreements contain provisions that lay the burden of client loss at the feet of the seller in whole or part.

The bottom line is, the loss of clients during the transition phase often will affect the seller’s buyout. To minimize this, great thought must be given to the client experience during the transition from the seller to the buyer.

Before I go any further, you should know what issues operating on a cloud platform cannot minimize. The cloud cannot overcome issues related to clients who require face-to-face meetings. The cloud cannot shift client loyalty from the seller to the buyer. Both of these issues require pre-sale planning to properly address.

However, operating on a cloud platform can mitigate many other negative aspects of migrating clients to the buyer.

  1. Utilizing portal software so clients can transmit documents and information electronically may enable this function to be transferred seamlessly from seller to buyer. Depending on the portal software, this could be as easy as granting the buyer access to the seller’s portal.
  2. Electronic storage of files facilitates efficient transfer to the buyer. Files can be transferred in mass without the cost associated with copying and moving paper files. In addition, during the due diligence phase of a sale, the seller can grant the buyer limited access to vet clients’ electronic records. Utilizing a cloud document management system allows both the vetting of client files by the buyer and the movement of files to buyer without requiring physical trips to the seller’s office. The last thing a buyer wants to do is to wade through cabinets of paper files.
  3. Operating in the cloud expedites the transition of operations. Almost any sale of an accounting/tax practice requires continued involvement of the selling owner during the transition phase. During this phase, rather than moving operations from one physical location to another, both the seller and the buyer can access a common operational cloud platform from their own locations. Additionally, if the parties use compatible software on the cloud, it is almost as easy as throwing a switch to grant the necessary access rights. It is as though the seller and buyer have both set up shop in adjoining offices even though they may be on opposite sides of town.

This third benefit is often overlooked. In the absence of cloud-based operations, transitioning a practice generally requires the seller to physically or remotely connect to the buyer’s network. Either the seller must travel to the buyer’s office, an inconvenience, or remote connect, a security risk. In a cloud environment, if an issue arises with a client during the transition phase requiring the involvement of seller, the seller can simply access information from their home.

  1. Operating on a cloud platform provides the opportunity for the seller to move client files to the buyer over time in blocks rather than in mass if the seller wants to merely scale back or slowly withdraw from their practice. This provides greater flexibility in the structuring of any sale transaction.

To the extent the sale or transfer of an accounting practice is structured to minimize the effect on the clients’ user experience, the greater the success and rapidity of client transfer, and the greater value of goodwill.

Editor’s note: For more about succession planning best practices, read Fredric Leffler’s article “Succession Plan or Exit Plan: Whatever You Call it, You Need One Now.”

Comments (1) Leave your comment

  1. Some excellent thoughts and insights in this article – I suspect that many accountants do not consider this aspect of their succession planning until it is upon them.

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