Buying a Tax Practice the Right Way

The way in which a buyer approaches the purchase of tax or accounting practices can make all the difference in their financial investment.  In honor of the end of the primary tax season for tax professionals, it is fitting to discuss the five ways this responsibility can shape the financial success of an acquisition.

1) Pay attention from the beginning:  When looking at a practice to purchase, financial responsibility begins when defining what kind of practice to purchase and then holding on to those core ideals.

2) Why is the business owner selling:  Listen closely to the answer, and then ask again differently later in your visit. Look at the trends in the business and the trends in the management decisions they have made in the last few years and see if the story matches.

3) Complete a robust due diligence:  Most are good at making sure everything balances and looks good from the checking account to the financials to the tax return. Understanding the nature of the customers you are purchasing, the work papers that support those customers, the operational flow of the office and the employees that are positioned in this flow is important. Other items that are often missed are the number of client audits and penalties enforced by the IRS.  Don’t let the speed of the deal or the competition to purchase cause you to omit any due diligence steps.

4) Use retention as the critical factor that drives the compilation of the purchase agreement:  As a buyer, having a guarantee of revenue or a retention calculator in the deal is very important. I am asked frequently, “Who owns retention?”. The answer is both the buyer and seller have a stake in retention.

5) The stronger the purchase contracts tie to retention: The stronger you will find the seller commitment, willingness to carry a portion of the purchase price, and willingness to help in the transition. Insist on a written transition plan that includes timelines, details, and accountability along with firm dates.

If these five items are taken seriously, it will mitigate some of the risk inherent in purchasing a tax practice. With a clear understanding of the seller’s motivation, robust due diligence and a contract that uses retention to firm up the seller’s commitment to the transition then financial success is far more likely. Contact us for more information. We will gladly help you sort through the details.

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