Buying a Seasonal Tax Practice

April 15th marks the end of the primary tax season for most tax professionals.  Some firms have worked hard to balance out tax season with monthly compilation, bookkeeping work, and other ancillary services. Others push extensions to balance out the work completed through the year. Even so, many of the tax practices that exist are highly seasonal.

It is extremely important to understand the cash flow needs of the business if purchasing any business constricted by seasonality. In tax practices, 70-90% of the revenue is generated from January 1st to April 15th. The reality is that the revenue generated during that time is often enough to run the practice for the rest of the year. However, if a seasonal practice is sold, complications can arise when the seller removes the liquidity from the practice. A tax practice that is purchased in May for example will still have bills from May to December but little or no revenue for that same period.

Most buyers that purchase the business through a bank are often awarded a line of credit for working capital purposes during the slower season. This helps with cash flow but the buyer still has to pay this money back. For this reason, one of the major conflicts that develop is timing of close.

The buyer wants to close in May and the seller wants to close in December. No one wants to have to carry overhead with no revenue. You may think that purchase price would be the main obstacle in an acquisition but often times it is timing with these seasonal businesses. The larger the firm and the larger the infrastructure, the more difficult the problem becomes.

Purchasing a tax practice can be very difficult. It is important that the timing of close is addressed up front in the purchase agreement and that both parties are prepared for this potential cash flow issue.

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