Don't take comfort in the false belief that you are covered because of a few lunch conversations with a peer. In the event of an illness, disability or permanent incapacity to continue working, your friend or peer may find themselves in a position they did not bargain for with your client base. Your service delivery, fees or software may be too much of a burden for them to overcome without a significant learning curve, cost increase or service disruption. A written practice continuation agreement would have flushed out many of these issues and revealed a bad match. Lack of a practice continuation agreement will impact your payout.

When researching practice continuation, consider the following issues:

Merging with a large firm. Your client relationships were built on your personal touch and responsive service. If a small firm turns to a larger practice to set up a continuation agreement, will their clients get the service they are used to? Will differences in fees or location drive people away? As small firm, you need to look at the numbers. Bringing a $200,000 practice to a $5 million firm could be a sign of future service issues. Let's face it: your small practice will represent only 4 percent of their firm. If a crisis arises, your clients could suffer (and unless you have a 100 percent buyout guarantee, your payout will suffer). Once you have pulled the trigger and made the move, it's costly to undo it.

Merging with a small firm. A $200,000 practice going into another $200,000 practice is a lot of growth at one time. Unless you are prepared to continue to work it hard, how are your clients going to receive services? A practice continuation agreement enables someone to take over your practice because you are unable to continue or so you can ease out over time. A firm that is too small may not be able to handle the work, even if they have the desire to do so.

Research the facts. There are 120,000 CPA firms in the United States and 100,000 have five or fewer employees. Of those, 70,000 are single person offices, which means that approximately 60 percent of the CPA firms in this country are one-person shops. Every year at least 1,750 sole practitioners will retire or be forced to close due to health issues or other concerns -- at least half probably do not have a written practice continuation agreement. There is a significant opportunity for a smaller to mid-size firm to set up a network of practice continuation agreements with independent CPAs in the area.

Examine a five- to nine-person firm. Firms of this size will reap anywhere from $400,000 to $800,000 in revenue. When merging with a firm this size, a $200,000 practice will represent 20–33 percent of the combined firm's revenue. That is too much revenue to ignore and not enough to completely overburden the recipient.

A good deal is only good if the end result is a successful transition of the practice with a high degree of client retention. You need to look at the firm's financial stability, available resources and culture. If your clients are used to a family-oriented style, bringing them into a more rigid, business-like firm may not work. Transitioning a one-person firm into a five- top nine-person firm is probably the best fit if the personalities of the owners and a few other factors match.

Identify a small practice that needs a match. Run ads, send mailers or call an agency, but the best solution is a phone call. Don't immediate ask to buy their practice or say "are you thinking about retiring?" That will immediately make them think your call is pushy and suspicious. Small CPA firms frequently get calls from agencies looking to register their firm with a group of "ready" buyers. Instead, try a different approach. Ask if they are interested in discussing the possibility of developing an alliance. This could be a merger, sale or informal arrangement to help both firms win more business. Leave it open -- this cuts to the chase quickly and provides the recipient the opportunity to ask what type of alliance you have in mind. Developing a practice continuation agreement may be all they need right now.

Find the right firm to transition. If you want to find a good match for your own firm, reverse the process. Get a list of CPA firms in your area you think are the size to approach. Call, tell them what you are interested in doing and see who wants to talk with you. Be prepared to share information on rates, revenue, and how long you want to work. Be ready to ask details about their practice. You will find a lot of interest, but be careful. Many firms want to acquire a practice and then discard the poor fits. Your $200,000 practice may end up being paid out on $125,000. Also, be honest. If you have low-paying clients, they need to be disclosed.

Increase the success rate of the match. Several factors increase the match's success rate, such as rates. It doesn't make a difference if there is a great personality fit if you are transitioning an $80 average-rate practice into a $125-an-hour firm. It will not work.

Also discuss your different business approaches. If you like to push the envelope and use aggressive tax strategies, and your potential ally likes a conservative, risk-free approach, your styles do not match. Personality is also very important. If you don't like the person who you are acquiring clients from or transitioning your clients to, there is a strong chance the clients won't like them either. Trust your instincts.

Test the fit. Do a financial test first. A practice with a lot of fixed-price monthly services can be a goldmine or a death trap. If the financial test passes, make sure your write down the exact terms of the agreement. Be sure to include in the agreement how much is paid and when, the exact start and end dates of the transition and the dispute process.

Cash-up-front purchase. A purchase with cash up front is risky. For the seller, it's a great out but unfortunately there are very few buyers willing to pay cash up front unless there is a significant discount. From a buyer's perspective, the risk of paying all cash or financing a deal may be too high on unproven accounts.

One firm we knew bought a $400,000 practice and paid the seller 100 percent up front. Fifteen percent cash was put down, and they obtained financing for 85 percent of the purchase price. In the first year, the practice shrunk to $250,000. After the money had changed hands and the new owner starting digging into the practice, many of the newly acquired clients who left told him they had already informed the previous owner they were not returning.

The situation turned to the courts: the buyer was out $60,000 in cash, had a $340,000 note and only had a $250,000 practice that could still shrink. Few buyers will be this aggressive because of the possible repercussions; few sellers will find a buyer willing to make a 100 percent commitment without some assurance of the longevity of the clients. A good deal finds a balance for the buyer, seller and clients.

Hire a professional third party. When starting to investigate practice continuation, you may hesitate initially to be too honest with a peer. A third party could be easier to talk to because there is a perceived wall of protection and confidentiality. When hiring a third party, you eliminate the negative consequences of making the calls yourself. (Would you be suspicious if a CPA had the time to make cold calls?)

If you want to acquire a small practice, spend the money to do it properly. If you are looking to transition your practice after all of your years of hard work, spend the time to do it right.

BOB LEWIS is the founder of Visionary Marketing, a firm that helps CPA firms develop marketing strategies to target new clients, increase existing client revenues and build referral partner networks. Visionary works with marketing directors or becomes the marketing director for small to mid-size firms. Lewis can be reached at 800.995.9186, blewis@ThinkVisionary.com or www.ThinkVisionary.com