Wealth Management Premium When Selling Accountancy Firms or CPA Practices

Over the last two of three years, there has been an increase of private equity players pursuing accounting firms that are in the wealth management industry and are looking for practices as a base step into a market or a fill-in strategy with wealth management in mind. All you have to do is think about the upside for an investment management firm or wealth management firm to see the opportunity that lies before them. An accounting firm or CPA firm that currently carries a 50%-60% cash flow margin is one of the best investments one can make in today’s market. Buyers often pay less than 2 times cash flow for these firms as they have historically traded near 1 times gross revenue. This is quite a bargain and an excellent investment that should carry a very nice ROI on its own. The buyer generally has a wealth management background and now has a large book of clients that will be placing their trust into their new accountant or CPA. The buyers hope is that over time that trust will turn into investment management fees and transactional fee income. Business Wealth

Many CPAs and accountants have issues with this type of arrangement complaining that it brings a conflict of interest to the CPA role as the trusted advisor. If incentive enters the picture they say, it will be increasingly difficult for CPAs and accountancy principals to put their client’s interest first. Other principals say it’s not an issue at all, that trust is developed and not assumed and that it is not a conflict of interest. I am not here to judge what is right and wrong from an ethics perspective, only to make buyer and sellers aware of this issue.

Wealth management firms are willing to pay more for an accounting or CPA firm than a traditional accounting industry player is. We are still in a seller’s market and the demand for these firms has never been higher with the private equity, and wealth management now on hot pursuit. This new premium for practices can put substantial money into the pocket of the exiting principal if they sell to a firm that has a wealth management affiliation.

Buyers and sellers should both be aware of the issues discussed above. If you want to learn more about the wealth management premium or if you want to find out where your firm is currently valued and how to achieve the most money for your practice, you should speak to a seasoned and industry-specific business intermediary.

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