Common Terms of CPA Practice Sales

Selling a CPA practice is among the most difficult decisions an owner has to make. After putting in several years (or even decades) of your life building a successful practice, it is hard to let go. However, there comes a time when it is time to move on and hand over the reins to someone else. Preparing Business for Sale

The sale of an accounting practice can be a lengthy process. For this reason, it is important to begin preparations as early as possible. Ideally, it is best to begin planning for the sale one to three years ahead of time. Circumstances sometimes require a more expedited process of course. In any case, if you are considering selling your practice in the near future, it is never too early to start planning.

One of the most important decisions regarding the sale of your firm is the terms and conditions, because this is often a major factor in determining the value of the practice. An accounting firm can be sold with or without a seller guarantee.

Seller Guarantee Sales

There are two common ways to sell a CPA firm with a guarantee included by the seller:

Collection Pricing: In this scenario, the sale is partially financed by the seller and payments are made based (at least partially) on how much the buyer collects or bills to clients over a certain period of time. The down payment, number of years and percentage paid are flexible and should be spelled out clearly ahead of time.

Look-Back Pricing: In this scenario, the buyer “looks back” over a certain period after the sale and adjusts the purchase price up or down based on the amount collected over this period. Again, down payments, percentages and number years can be flexible and specific terms should be spelled out to account for all known eventualities.


Sales without Seller Guarantees

Cash-Based Sales: This is the preferred method of CPA practice sales from the seller’s standpoint for obvious reasons. The seller receives the entire amount upfront and without conditions. The buyer may raise the money from any number of outside sources, such as personal funds, loans from relatives, bank financing, SBA loans or any combination of these or other sources. Because the seller is able to walk away from the practice without further financial obligation, they are often willing to reduce the sale price in exchange for a cash purchase.

Fixed Seller Financing: In this scenario, the seller partially finances the transaction with fixed terms that are not tied to the future performance of the practice. This method is often preferred by buyers who are not able to obtain financing on their own and/or can receive better interest rates and other terms through the seller. Though there is no performance guarantee, sellers still have an indirect incentive for the practice to continue succeeding so the buyer is able to make timely payments.

Whatever terms and conditions the seller decides on, it is important for the buyer and seller to be on the same page. Using a business broker with a particular focus in CPA practice sales is very helpful in ensuring that all the necessary steps are taken to properly prepare the firm to be put on the market and deciding which terms and conditions are best for your specific circumstances.

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