Finding the Right Accounting Practice to Buy
Accounting practice revenue is on the rise. The AICPA reports that between 2014 and 2016, revenue growth ranged from 4.9% for those making $500,000 to $750,000 annually to 10.5% for smaller firms with less than $200,000 in revenue. Finding the right accounting practice to buy depends on a variety of factors, including:
- Firm specialization
A firm that specializes in small business accounting may not be a good fit for an accountant that wants to work with enterprises or wants to work in forensic accounting.
Eliminating potential firms to acquire is easier when you have an understanding of your financing limitations. Conventional or Small Business Administration loans are a possibility. A few key metrics to look at when making your acquisition are:
- Total revenue
- Total net profit
- Balance sheets
- Sales records
- Tax returns
- Bank statements
- Profit margins
- Intellectual property (if any)
Retention Concerns Upon Acquisition: Retention concerns exist with every acquisition, and this can mean the difference between a successful transfer of a business or failure. The two main concerns, as far as retention is concerned, are:
- Employees. Buyers need to be worried about the employees of a business upon acquisition. Employees may leave the practice and take big-name clients with them. There is also the possibility that the employee will go into direct competition with the buyer, taking clients that they have worked with to their new firm.
- Clients. Accounting firms that have long-term clients based on past relationships should have a contract in place that keeps the client on-board after the transition. You also want to view how much a client makes up of the firm’s total revenue. It is possible that the client’s contribution of revenue is 40% of the revenue of the firm, for example, and losing this one client may significantly impact the profitability of the firm.
Retention practices should be in place upon the purchase of the business. Owners may stay on to introduce clients to the new owners, and a buyer apathy program should be in place. This program will have the buyer introduce themselves to clients as if they are new clients, building a new relationship with clients of the firm. Seller guarantees may be in place, but in many cases, it is up to the buyer to satisfy clients and retain them.
Competitive Threats and Potential: Acquisitions are always a risk, but so is competition. If revenue figures are on the decline due to a rising firm in the area, this is a risk that needs to be properly assessed and should reflect on the price of the business.
Buyers should also consider the potential for growth in the firm. Growth may come from:
If a firm is for sale because the owner is retiring, a new owner may have more drive and commitment to bring up sales figures and boost market share. Firms that capitalize on the buyer’s strengths are a natural fit and allow an active buyer to market their talent and specializations to clients. Efficiency and pricing improvements may also be an avenue to boost revenue and increase profit margins.
When searching for the right accounting practice to buy, it is important to work with a business intermediary who has specific experience with the sale and acquisition of accounting firms. The right business intermediary will often have a list of potential firms that are on the market, and they will have the extensive knowledge and expertise needed to ensure a smooth, seamless, and successful transaction.