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Welcome to December! This year went by so fast, but will stay in our memory as the year with the never ending tax season!
Over the past few weeks, we have seen quite a bit of traffic from accountants looking into a potential sale for their practice. We have a confirmed listing in Ontario and a couple others in the works. There are not too many practices available for sale, but at least we ended the summer drought, when no practice was available.
Earnouts
A fair amount of discussion is held about earnouts in the context of practice transition. From my perspective, earnouts are a risk management tool that can be efficiently used to mitigate risks beyond the buyer's and seller's control. If an earnout is agreed upon, this will shift the risk of non-payment or non-performance from the buyer to the seller. The seller is now incentivized to do their best to ensure the earnouts conditions are met. At the same time, the buyer may start to "cherry pick" accounts since the future payments will be contingent on clients staying with the firm.
We encourage earnouts only in specific circumstances such as a concentration of clients. For example, a group of companies accounts for 10% of the seller's revenues. Therefore, we may recommend to carve out these clients and have a future payment contingent on the group of companies staying with the firm. We don't recommend all accounts to be subject to earnouts as the buyer must be incentivized to perform their best to at least maintain the current clients.
Earnouts are subject to full income inclusion unless they relate to the underlying goodwill and the amount cannot be determined at the time the sale agreement is signed. If this condition is met, the earnouts can be taxed as capital gains and eligible for the capital gains reserve.
If you would like to know more about practice transition and earnouts, I will be presenting the second practice transition seminar for CPA Alberta on December 4th. CPA Alberta members can register for the 4 hour PD course through the CPA Alberta portal. For practitioners from other provinces, please contact us to register under our firm's name. We are offering this to CPAs from other provinces as there aren't many courses like this across the provincial Institutes. We will provide the written confirmation of your attendance to use for your PD certification.
Countable Inc.
We had the recent pleasure of Zooming with Atin Gupta, the co-founder and CEO of Countable Inc. Countable is an end to end platform that manages your accounting firm, your documents, client/team workflow and performance of your compilation engagements all in one central place. Firms can collaborate with their clients for documents requests and connect with their accounting software (Xero or QuickBooks Online) to create year end financial statements in seconds. The platform is completely free until January 31, 2020, so we encourage you to try it out today at no charge before the busy season hits. If you have questions, please reach out to Atin directly at [email protected] or visit their website for further information.
Seema Aggarwal, Barrister & Solicitor
We also had the opportunity to speak with Seema Aggarwal of Seema Aggarwal Barrister & Solicitor, located in Toronto, Ontario. Her practice areas include Canada's Anti-Spam Legislation (CASL) and privacy & data collection, which are increasingly relevant to Canadian businesses today. From a simple contract negotiation to a complex restructuring, Seema's team is there to guide you every step of the way. You can find out more on their website or by contacting Seema directly at [email protected].
Please keep checking our website for any new listings. We would love to hear from you if you have any practice management tips or would like to find out more about practice transition.
