4 Common Mistakes in Selling a CPA Practice

CPA’s spend most of their careers working diligently to build their practices. However, many do not devote proper attention to their exit plan. When it comes time to sell your CPA practice, it is important to have a solid transition plan in place so you can avoid some of the common errors other practice owners make. Sell Your Business

Here are 4 of the most common mistakes to avoid when selling your CPA practice:

Failure to Plan well in Advance: In general, CPA practice owners should begin their exit plan at least a year in advance. Selling an accounting firm involves a lot of moving parts, and it is important to have enough time to carefully plan everything out. In addition, most buyers will want you to stay on with the firm for a while to ease the transition, so you should plan to be involved for at least the next year or two. Of course, there are times when circumstances come up and you must sell faster, but ideally, it is best to begin planning as far in advance as possible.

Undervaluing or Overvaluing the Firm: Placing a value on an accounting firm can be tricky because there are numerous factors to consider. Some owners decide on a price based on unreliable information, such as what another practice in the area sold for a year or two earlier. Every firm is unique and every market is slightly different. The best way to know the true value of your firm is to have it appraised by a professional.

Signing a Poor Client Retention Agreement: Most CPA practice sales contain a client retention clause; that is, a clause that directly reduces the price of the practice based on the client attrition rate after the sale. The average client retention rate after selling a CPA practice is typically between 75% and 80%. Nevertheless, there are a number of factors that could impact this rate, and some are beyond your control. For example, a poorly vetted buyer may end up scaring off some of your clientele, even if you remain part of the firm for a year or two after the sale.

Another important consideration is the length of the attrition clause; natural attrition will occur over time due to circumstantial changes within your clientele, so you should make sure to keep the length of the clause limited to no more than five years, hopefully sooner. In general, a well-vetted buyer, strong transition time and reasonable period for the retention clause will help ensure your retention rate stays at or above average.

Failure to Work with a Professional: Just as your clients come to you for professional accounting and tax help, using a business intermediary with particular experience in CPA practice sales can help ensure that all relevant factors are accounted for and you are able to make a successful sale in a timely manner.


Be the first to get notified about new listings