Purchasing a CPA Practice: Pitfalls and Hazards

If your accounting business is booming, there will almost certainly come a time at which the idea of purchasing someone else’s practice and adding it to your own will occur to you. It’s often a great idea but requires adequate research to know what you’re getting into ahead of time.

Due Diligence

Due diligence on a CPA firm’s history and business can be difficult because accountants are notoriously aware of their information and want to keep it private. That said, you simply should not consider buying a business if you cannot learn:

  • It’s profit from the preceding 3 years
  • Where it does business from and how suitable that location is for accountancy
  • A list of recurring monthly and annual clients
  • Any pending legal reviews from the preceding 3 years
  • Bank statements for the preceding 3 years
  • Cash-flow analysis for the preceding 3 years
  • Professional Indemnity Insurance review
  • A list of all work in progress

What Could Possibly Go Wrong?

It’s impossible to ID all of the potential difficulties that may be encountered in purchasing an accountancy practice however; there are some areas of difficulty that are more common including (but not limited to):

  • Identifying work in progress that has been previously billed or paid in advance
  • Finding clients with recurring monthly orders that will take more time to file than they are being billed for which, happens surprisingly often
  • Getting the employees of your new practice on board with all of your best practices and standards
  • Achieving a consistent level of fee recovery across the new combined practice

In addition, informing the purchased firm’s clients of the purchase and subsequent change in staff and policies requires sensitivity and diplomacy. The whole ‘no second chance to make a first impression’ concept applies in full. Ideally, clients should be met personally and the change discussed with them. However, in the case of a large and/or widespread practice, a friendly letter introducing your firm and inviting your new clients to call or stop in with questions or concerns may be the only feasible option.

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