Making a deal for a CPA practice for sale always carries inherent risk.
If you are reading this, you are more than likely an accountant. Therefore, it is in your DNA to do what is necessary to at least minimize, if not altogether avoid, risk.
Unfortunately, when it comes to selling an accounting firm, many sellers, usually after a particularly brutal season, want to run rather than walk to the exit. They will sometimes skip the critical questions, in the rush to a hasty decision to affect a positive life change … only later to find that they have made the wrong decision.
Answer these questions first, if you are considering a sale of your accounting firm, to see if you are ready to sell your practice and start the next chapter of life.
Any Internal Issues?
In CPA practice sales, sellers who make a spur-of-the-moment decision to hoist the “for sale” sign, and are dogged by internal issues, will not achieve the highest market value price or cash at closing.
If a CPA firm has suffered a bad peer review or is experiencing strife with a key employee or employees, it might be considered a problem practice by many buyers who might otherwise have been interested.
Sellers should realize that most buyers will want to keep key employees and will need to require a nonsolicitation agreement with these key employees. Such an agreement needs to be in place well ahead of starting the sale process. With a nonsolicitation agreement in place before any buyers have looked at the practice, a similar contract to ultimately be signed between the buyer and the employees will often be easier to obtain.
How Strong Is Your SDE?
SDE stands for Seller Discretionary Income. SDE is an indication of the profitability of an accounting practice. SDE defines the recent historical annual pretax benefit that a seller derives from an accounting practice for sale. Firms with higher SDE are generally more desirable than firms with low SDE numbers, assuming all other variable are equal. (For an in depth discussion of SDE, see the article that our founder wrote to be published in the Journal of Accountancy in November of 2015: “Maximize Proceeds in Accounting Firm Sales”. You may find that article here at the following link: https://accountingbroker.com/articles/ )
In addition to SDE considerations, firms with below-market fees will be viewed as less desirable by buyers, which can motivate most buyers to offer less than favorable terms to the seller, thus driving down the final sale price.
In CPA practice sales, achieving the highest price with the most cash at closing will mean fixing any problem such as low SDE and low billing rates before placing the firm for sale.
How Do You Value an Accounting Firm for Sale?
When a seller calls us, we analyze the accounting practice’s revenue, types of services performed, client and industry concentrations, P&L, SDE, tax returns, and a host of additional variables. If we feel that any factors may adversely affect the firm’s valuation, we discuss mitigating actions necessary to make improvements. For tips, read our “6 Important Ways to Prepare Your Firm for a Maximum Value Accounting Practice Sale.”
Register or call us at now 800-419-1223 Ext. 101 for a free comprehensive analysis of your firm’s value. (Click the following link: https://accountingbroker.com/seller-registration/ ).
We will produce an accurate value range of what price and terms we can achieve for the seller. No business brokerage in the nation is our equal when it comes to maximizing value on the sale of your accounting firm. See why in the next paragraph.
Who Should Be on Your Team?
We are the only national accounting business brokerage of its type, 100% comprised of brokers who are CPAs with significant “Big Four” merger and acquisition experience. We have the pulse of the market. We achieve higher values coupled with the highest cash at closing amounts compared to anyone in the marketplace who claims to do what we do.
A skilled M&A attorney can be indispensable in skillfully drafting the contracts and agreements so that the interests of both the buyer and the seller are protected. To understand more about the role of an attorney read our article “Attorney Matters Related to the Sale of Accounting Practices.”
Is the Timing Right for You?
The most important question that must be answered: Is the seller ready to sell, make an exit and start the next chapter? Any firm with solid profitability, good people, and excellent clients, in conjunction with our proven methods of marketing and negotiation will have no problem achieving their highest possible value.
Occasionally, sellers realize that the stress of a recent busy season, clouded their judgment on whether they were really financially and psychologically ready to move onto retirement or pursue another opportunity. Our advice is to run the numbers and compare whether you would be better prepared if you stayed at the helm for another three to five years or if you are financially ready to sell now. Part of this process is calling us to see what our ability to obtain maximum value would be worth to your practice. Call 800-419-1223 Ext. 101 or register now for your free comprehensive analysis of what your firm is worth. Click the following link: https://accountingbroker.com/seller-registration/
Is the Market Right?
Simply put: The market is strong. If you are ready and your accounting practice for sale is prepared, we will ensure that the right buyers line up to compete for the firm you built. Because we have the largest pool of qualified buyers in the nation, competition for an established accounting firm for sale is intense.
The buyers we bring to the table are willing to enter into bank financed transactions and pay the most cash at closing, in comparison to the typical competitor “down the street” who is usually only interested in a low cash down earn-out deal.
Where Are You in Your Life Journey?
While we would never say it is a young person’s game, running an accountancy firm does take a certain amount of stamina. We find that as CPAs get older they wish to reduce the stress of managing the day-to-day operations of their practice.
Some CPA practice owners, as time goes on, find it difficult to run the business, to stay current with changes to tax law and to implement new technologies. The moment an accountant stops keeping up, he or she is putting themselves at risk for a lawsuit. Long term, a major lawsuit can eviscerate a firm’s value. If you find that you are not able to stay current with the massive tax, accounting and other changes in the industry, it is definitely time to cash out.
What Are Your Needs?
Every seller has specific requirements for the sale of an accounting practice to be successful, as do the buyers. Before starting the process of a CPA practice sale, define exactly why you want to sell, what you want to achieve from the sale and how it will support your future, and perhaps most importantly the qualities you seek in a buyer.
Sellers often mistakenly believe that because they have a strong personal relationship with a potential buyer, that that buyer shares the same goals as well as the abilities needed to successfully take over the reins of their CPA firm. It is often too late when the seller realizes the mistake and now sees their visions are not aligned.
We strongly recommend you engage an accountancy broker to vet and assemble a pool of qualified buyers that will share your goals to ensure a successful deal with the most possible cash at closing.
Should You Consider an Alternative to an Outright Sale?
In our view, there are really only three alternatives to selling a CPA practice: partner, merger, or shutting the firm down. While each has its own intricacies worthy of an article on their own, each of these alternatives possesses both an upside and a downside; all carry significant risks to maintaining lifestyle, improving work-life balance and professional satisfaction.
The partnership path is a marriage. A good partnership can be great, providing both parties the particular supports that motivate them to take the business to the next level. Conversely, a terrible partnership can be worse than getting a divorce from a spouse. It is not simply the money involved, which will be painful, it is also the professional damage to reputations built after years of work. If the partnership does not work, it will slash the value of the firm.
Mergers may seem like a sound solution, as they present the opportunity to remain professionally active, while shouldering less responsibility and devoting considerably less time. While this may sometimes come about, other times the firm buying-in really wants to compel the seller into continuing to work full-time, running the day-to-day operations, retaining the responsibility, but as an employee for less pay. This scenario will often result in less money to the seller than if he or she had simply chosen to keep the firm for another four or five years . . . then selling it outright.
Don’t Attempt The Sale of Your Accounting Firm as a DIY Project.
We are a boutique M&A accounting practice brokerage. Nobody is better positioned to achieve maximum value for sellers than Accounting Broker Acquisition Group. We have the largest database in the nation of CPAs who are active potential buyers – including all areas of specialization.
We, at Accounting Broker Acquisition Group, consistently achieve significantly higher sales prices and cash at closing amounts for accounting practices for sale than any of our competitors in the nation. We are the only national business brokerage of its type comprised 100% of brokers who are CPAs with significant “Big Four” merger and acquisition experience.
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Are you planning or preparing for an accounting practice sale?
Journal of Accountancy Article – Read our featured article to learn how to Maximize Value when you sell your accounting practice:
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