Selling a small one-person TPA firm

Being a one-person TPA firm, I don't get vacations or any time off where I can completely unplug. I have been doing DC plans for 30 years and have been on my own for over 22 years and haven't had a true vacation since going out on my own. Now that I am approaching retirement age (5 years to go), I would like to be able to take some much needed time off (after tax season, of course).  So I am looking to sell my business in 2025. (My book is very clean.) A few years ago, I also starting doing consulting for another TPA firm... helping them with their 401k plans. (Glutton for punishment, I know!) I told that TPA firm that I am looking to sell my book of business and they are very interested in buying it and want me to come work for them (remotely) for as long as I would like, or I am willing to. 

I have researched and researched selling a service business and the multipliers are all over the place... from 1x annual to 5x annual. They use the same software that I do, so the switch should be pretty seamless as far as that goes. And having no employees, there are no salaries for them to acquire... other than mine... and very little (if any) added expense, I would think. Has anyone recently purchased a one-person TPA firm such as mine? Or sold one? I was wondering what price to expect the offer to reasonably be and any details (such as how long did the seller work for the buyer after the sale, what period of time (if any) did the buyer spread the payment over, any customer retention provision, etc.). 

Of course I would have an attorney review the contract, but any assistance or insight you can give me would be greatly appreciated.

Thanks!

Congratulations on planning ahead for your retirement.  If successful you'll have to adjust to being the boss of nothing and it won't take long for you to really enjoy it!

We sold in 2016 for 1x - paid 1/2 at closing (12/30) and 1/2 the next year.  The price was firm - no adjustments.   You might want to check with business brokers who specialize in TPA transactions for a reality check on your multiple.  Tax-planning is really important in structuring the terms so you get to keep as much of the proceeds as possible - you've sacrificed 30 years for it!

 Any income or expenses after the closing date belonged to the buyer.  We did not try and game it by trying to accelerate collections or delay payables.  Aside from getting paid, our biggest concern was the continued employment of our dedicated team and 9 years out everyone's still there.

I'd cast your net wider than the single shop you know.  We talked to about 7 shops - narrowed it down to 4 friendly competitors and then picked the best fit.  Our terms weren't negotiable.

If you want to discuss in depth, just PM me.

Thanks Retired!

I agree... that's the key... finding someone who specializes in TPA transactions. (It's kind of a niche business.) This company has offered 1.5x annual.  I am also thinking about a cash balance plan for the proceeds, so I don't get hit with higher taxes. I was wondering if a cash balance plan is a possibility to delay taxes and then in say 5 years roll it to an IRA and take as needed? (I know enough about cash balance plans to be dangerous... lol. (DC plans are my world).) 

Funny thing is, one of my clients business is helping companies sell their businesses. I thought about asking them, but how do you do that without letting on that you are thinking about it and risk losing them as a client? How do you talk to other TPA firms without worrying that they will "spread the word", and risk losing clients? Maybe I'm just being paranoid.

23 hours ago, Zoey said:

How do you talk to other TPA firms without worrying that they will "spread the word", and risk losing clients?

Non-Disclosure Agreement / Confidentiality Agreement.

Thanks, Rather... Yes, I have thought about that too.  But as soon as someone asked me to sign an agreement, even before I signed, I would have a pretty good idea on what they are up to. And if I were to ask them to sign the agreement and they were to say, "I'm not interested", they would already know that I am looking to sell and they would have no responsibility to keep it confidential. I still may just be paranoid, but I've put a lot of blood sweat and tears building this business to risk it dwindling it down to nothing before selling. 

1 hour ago, Zoey said:

Thanks, Rather... Yes, I have thought about that too.  But as soon as someone asked me to sign an agreement, even before I signed, I would have a pretty good idea on what they are up to. And if I were to ask them to sign the agreement and they were to say, "I'm not interested", they would already know that I am looking to sell and they would have no responsibility to keep it confidential. I still may just be paranoid, but I've put a lot of blood sweat and tears building this business to risk it dwindling it down to nothing before selling. 

Your paranoia is not unreasonable, but if the concern is another business trying to "steal" your clients simply because you approached them with a proposition, a business broker or a third party of some sort is probably necessary. It will be an added expense, but I don't see a way around it if you feel like you cant approach a possible buyer directly. 

Thanks Rather!  I agree... I think that is probably my only option (unless I sell to the firm that I consult for, which was kind of the reason I was asking about the multiplier).  Unfortunately I know another local TPA firm that I wouldn't approach to buy my business because of their shady practices and incompetency's, but if they caught wind, I also wouldn't put it past them to spread the word that I was selling.  

I'm going to PM you, since I'm late to this conversation.