Guide
Retention clauses, clawbacks and earn-outs on a practice sale
Updated
Almost no accounting practice sells for cash on completion. The fee base can walk, so part of the price is deferred. The mechanism decides which risks you keep, how long.
Start the valuation Tell us the fee base, the work mix and how you want to exit. Up to three M&A advisers will contact you directly.
Retention adjustment, the common form
A share of the price is held back and paid after a measurement period, usually a year or two, adjusted for fees actually retained. If the base holds, you get it all.
The details that matter are how retention is measured and against what baseline. Fees billed, or clients counted? Measured at the anniversary, or averaged? A client who stays but reduces their scope may count as retained on one definition and lost on another.
Clawback, which is the same risk pointed the other way
Here you are paid up front and must repay if the base falls below a threshold. It is better for your cash position and worse for your certainty, and it turns the buyer's client service into your financial exposure.
If you accept one, ask for a carve-out for clients lost through the buyer's own actions: fee increases, service changes, or a partner departure on their side. Without it you are underwriting decisions you no longer control.
Earn-out, which is a different thing again
An earn-out pays on future performance rather than on retention: growth, new work, a profit target. It suits a seller staying involved and is close to unmanageable for one who is leaving.
The rule of thumb worth applying: never accept an earn-out on a metric you cannot influence after completion. If you are gone in six months, an eighteen month growth target is a lottery ticket.
How long you stay, and what it is worth
Buyers pay for transition, and the amount is negotiable. Introductions to the top clients, a season alongside the new team, and being reachable for the first filing cycle are worth real money. Each directly reduces the retention risk being priced.
Price that work separately from the practice. A consultancy agreement for the transition period keeps it visible, keeps it taxed on its own footing and stops it being quietly absorbed into a lower headline.