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Two Partner Firms - You CAN Both Get What You Want

 We have been seeing an increasing number of two partner firms where, for a variety of reasons which could be as simple as age, one partner wants to sell and exit, while the other wants to carry on. This is often seen as a problem that will lead to a win-lose, but in fact it is very solvable, and there are a number of available options to ensure both partners get what they want:

  1. Internal Sale to Remaining Partner

In this scenario, the Partner remaining buys out the leaving Partner. This is not that common as the remaining Partner typically looks to bring in a replacement to share the load and spread the risk.

  1. Internal Sale to Key Employee

Here the Partners would have identified a suitable internal candidate. This is a great option on paper as the internal sale is to a known person, who is familiar with the clients and the rest of the team, and presumably a strong cultural fit. In reality this can be challenging because of what DMY calls "the Three C's". Not only do they need to have the right capability, they also need the capacity (financial) and the confidence to transition from employee to business owner. If they fail any one of the Three C's it won't work, and this is often the case.

  1. External Sale of Leaving Partner's Share

In this scenario, the Leaving Partner sells his/her share to a new incoming Partner. It's really a combination of 'sale' and 'recruitment' as typically only one person is coming into the firm. This can be an attractive option for up-and-coming accountants looking to own a share of a practice rather than build their own from scratch.

  1. External Sale of 100% - One Partner Leaves, Remaining Partner takes Equity

Here the two Partners decide to sell 100% of the Practice. One Partner leaves after an appropriate transition, the other takes equity in the purchasing entity to continue having "skin in the game". We have seen this work very well with a DMY client this year, and the right buyer will appreciate the remaining Partner showing their commitment by taking equity rather than cash consideration.

  1. External Sale of 100% - One Partner Leaves, Remaining Partner Transitions to Employee

This is the same as Option 4 other than the Remaining Partner becomes an employee of the purchaser. Between Option 4 and 5, neither is "better" than the other, it really comes down to the risk appetite and preference of the Remaing Partner, and their patience to find the right buyer who can give them what they want. Again, we have seen this option work very well with a DMY client this year.

 

So, in closing, there are plenty of options. Our advice always in these situations is for the two partners to have a good, open and transparent conversation around what each wants. Just because you have differing needs doesn't mean you both can't get what you want!