Important Considerations When Purchasing a CPA Firm
There are several potential advantages to buying an existing accounting firm rather than starting one from scratch. With an existing firm, much of the risk and future uncertainty is eliminated and there is already a proven business, which you can take over. And with the “proof of concept” phase already behind you and the basic infrastructure in place, you can hopefully expand on the success of the previous owner.
Though purchasing a CPA firm can be a wise investment, there are some important questions to ask to increase your chances of being successful. Here are five of them:
Is the Seller Motivated: When purchasing an accounting firm (or any kind of business for that matter), it is important that the seller is motivated to exit the business. The success of any negotiation comes down to leverage, and the more motivated the seller, the more likely you will pay a reasonable price and receive more favorable terms. Find out ahead of time the reason for selling and what timeframe the seller wants to exit the business. This will help gauge their motivation level.
Are there Verified Financial Statements to Examine: You should be able to look at financial statements for at least the past few years and gauge the profitability of the operation. You want to know mainly about past performance and what the positive cash flow of the firm has been. Future projections are only speculation about what “might” happen down the road, so these should be given much less weight.
Will there need to be any Technological Upgrades: You will want to take a close look at the methodologies used by the firm to service clients and what types of software they use. There could be a need for upgrades in this area, and this should definitely be factored into the deal.
Will the Seller Stay on to Help with the Transition: Employee and client retention will be critical in ensuring a successful transition. The best way to make sure you keep most of the existing clientele and keep the employees from becoming anxious is to keep the owner on for a while. Even more ideal would be if he/she agrees to work part-time on an indefinite basis.
In many accounting firm purchases, the sale price is partially dependent on client retention. This is very important from the buyer’s perspective, because it gives the seller great financial incentive to make sure the current clients continue to do business with the firm.
Is this Firm my Best Option: Shopping for an accounting firm to buy should be done with the same diligence as shopping for a house or any other big purchase. In other words, it is not always a good idea to purchase the first one that comes along. It is much better to work with a business intermediary that has access to several CPA firms for sale in your area and can help you with the selection process, so you can find the best deal to suit your needs.