How to buy an accounting firm

Owning a CPA firm

Before jumping in, it’s important to access the pros and cons of firm ownership. As you weigh your options, you may be surprised to learn that there are a wide variety of resources for small accounting firms and tax professionals considering firm ownership. From how-to checklists to tax software options, it’s important to research what it takes to get a firm up and running — and whether it makes sense for you.

The first question that may come to mind is, how much do the owners of accounting firms make? The answer to this question depends on many factors, including quantity of clients, hourly rates, and specific industries served. That said, purchasing an established firm or an existing book of business offers numerous advantages to starting from scratch.

Stepping into an up-and-running accounting firm complete with an established client base, accounts, employees, licenses, etc. can be less risky since many significant hurdles to starting your own firm are already in place. And, yes, you can start making money from day one. However, success hinges on your ability to ensure a smooth business transition, seamlessly retain clients, and execute a strategic plan that takes the business forward.  

How to value an accounting practice

When it comes to buying a CPA firm, there are many factors that weigh into firm valuation and impact the structure of the transaction. To ensure you aren’t overpaying, work with an expert so you arrive at a fair valuation and deal structure. Remember: it’s important to focus on the firm’s profitability; not just its revenue. A firm with high revenue may also have high overhead costs, which is important to take into consideration in terms of your return on investment (ROI).

How to buy a CPA firm

As you prepare to buy an accounting firm, here are five steps to help you on your journey to firm ownership.

1. Network with potential sellers. CPAs who are closing in on retirement age are more likely to be considering the sale of their business. To ensure their clients experience a seamless transition, they may look to build relationships with potential buyers a few years before retirement.
   As a first step, look for networking events in your area where you can connect with established accounting practice owners who may be looking to sell. Needless to say, sellers who have spent a lifetime building their business want to find a buyer with whom they have chemistry — someone they can trust with their clients and the business they’ve built.
   If you’ve found a potential seller, an initial conversation on topics like firm history, major accounts, and the staff’s level of experience can give you an idea of whether you are a match for the business. Trust your instincts and don’t be afraid to ask questions. Before delving deeper into the due diligence process, building a casual relationship with the seller can provide a good foundation for a successful sale.
   If you haven’t found a potential seller, a simple search for “CPA firms for sale” can be a good starting point to begin your research and facilitate your outreach.
2. Conduct thorough due diligence. For a clear understanding on the firm’s valuation, a thorough due diligence process should be conducted by an experienced broker. This process will access risk, determine the value of the firm, and identify any red flags. This step is critical to protecting yourself and making a wise financial decision.
   The due diligence process can also unlock insight into potential opportunities for growth. For example, understanding the nature of the firm’s accounts, specific industries or niche markets served, as well as clients’ age and turnover rates can give you a head start on strategic planning. It can also call attention to any inconsistencies or discrepancies in financial documentation or quality of service.
   Specific areas of focus for due diligence include firm structure and operations, financial and legal information, pricing and billing, physical assets, employee information, and client data. Be sure to look through work samples to gain a full understanding of the quality of work the firm produces.
3. Finance the transaction. Like any large purchase, there are many financing options available. Do your research and thoughtfully plan how you will fund the transaction.
   With the right credentials, a substantial down payment, and a comprehensive business plan, your financing options expand significantly. Be sure to lean on an experienced broker or financial expert to support you along the way.
4. Develop a transition plan with a focus on client retention. Once the deal is imminent, work with the seller to develop a detailed transition plan for both clients and staff to ensure retention and satisfaction well into the future. By using detailed client information from the due diligence process, you can develop a robust outreach and transition plan.
   Remember: client and staff retention are paramount for future success, so make them priority number one.
5. Build a strategy for growth. Running a successful firm requires not only the desire and experience, but the ability to fully embrace an ownership mindset. For those new to firm ownership, this change requires a shift in how your approach your work. Luckily, there are many small firm resources available to help you along the way.
   When it comes to building a strategy for growth, small firm owners can benefit from implementing processes and systems that help their business operate smoothly and save them time. Look for tax software designed for small firms to automate manual tasks, increase accuracy, and optimize your tax workflow so you can free up time to offer more value-added services to your clients.
   As you shift your mindset from an accountant to a business owner, remember to focus your time on value-added activities and take advantage of the technology available to maximize your time and resources.

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