CPA Practice Transactions: What the Buyer Should Know Before Closing the Deal (Part II)

Continuing from Part I of our series on CPA practice transactions, here are four additional areas of the practice the buyer needs to analyze before committing to the deal:

Office Equipment/Inventory: This one is straightforward; what is the approximate value of the office equipment and inventory that will be included with the purchase of the practice?

Billing Rates and Procedures: What does the seller charge for his/her services and how are these services performed? It is important to have as much detail as possible about what the clients pay and what is expected for these fees. Once known, the buyer can investigate other area practices to determine if these rates are competitive. The buyer can also examine the seller’s methodologies and determine if there are ways to do the work more efficiently, thus saving costs and increasing potential profitability.

Loyalty of Staff: This is an important one for the transitional phase; how loyal is the staff to the present owner and will they be receptive to new management? As with dealing with the clientele, it always helps if the present owner is willing to stay on for a while to make the staff feel comfortable and develop a good working relationship with the buyer. However, this may not always be the case, so the buyer may need to factor in the possibility of some turnover with the staff.

Terms of Purchase: The terms of the deal will play a pivotal role in determining whether it will be workable for the buyer. Some sellers are willing to finance a large portion of the purchase, while others prefer that the buyer brings outside financing. Some sellers are willing to make the deal contingent on a certain level of client retention, while others are not. If the buyer is comfortable with other factors, they may still be willing to take on a practice without a clientele retention agreement. However, such agreements do provide an added level of security and an added incentive for the seller to take an active interest in the buyer’s success.

Purchasing a CPA practice can become tricky if you do not have all of the facts and research before purchase. It is important to consult the services and experience of a professional business intermediary to help guide through the process and help avoid any pitfalls.

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