Is it better to merge or sell your accounting practice? Usually, the answer is to sell. While selling a CPA firm is generally the best option, there are cases where a merger is the only feasible way to go.
Multi-partner means merger
For multi-partner firms with five or more partners, a CPA firm merger may be the only option. This is due to the fact that some of the partners may wish to sell and other may wish to work for many more years without selling. If this is your scenario, we have our ear to the ground and can provide you with exceptional merger candidates in all major markets of the United States. Give us a call and we can go over a number of scenarios that may work for the merger of your CPA practice.
Single owner firms
It is typically better for most single-owner accounting firms to sell rather than merge. A merger may seem like a great option on the surface to many CPA practice owners . . . but there are often hidden agendas of which the seller is unaware. In many mergers, the “acquiring” firm in the merger actually wants the seller to continue working, long term, for the acquiring firm. This usually results from inadequate capacity of the acquirer to take on the work of the seller. This often comes with the cost of less compensation to the seller.
Many acquirers attempt to co-mingle the concept of employment with the money paid for the sale of the firm. In many merger deals, you will work full time for the acquirer on a long term basis. Despite working full-time, the acquirer pays you . . . not for the actual work you perform . . . but for the transfer of you clients. This results in the seller working essentially for free for three to five years. This makes no sense. At Accounting Broker, our deals usually involve a high sales price and a high cash at closing amount. If the seller is asked to perform billable work . . . the seller is paid for that billable work IN ADDITION to the sales price. Compensation for billable work to be performed should never be included in the sales price for the accounting practice. At Accounting Broker . . . we do not condone the co-mingling of employment with the sales price in the manner typically utilized in many merger deals.
In addition, the acquiring firm in many merger situations will often promise the hope of synergy resulting in more money to the seller. They offer visions of additional profitability and the advantages of eliminating redundant overhead. In reality, this “synergy” rarely results in more money in the seller’s pocket. Too often, the former single owner of the acquired firm merges his assets with the buyer. Then, after it’s too late, he finds himself still grinding away three years later. And making less money.
Furthermore, deferred compensation deals are often contained in the provisions of merger deals. Such arrangements can cause additional significant problems for a seller. This type of deal happens when a seller of a CPA practice is paid by the buyer in the form of compensation –either as a 1099 contractor or an employee — for what could have otherwise been treated as the purchase of intangible assets. Had the seller structured the deal as an asset sale, he would have most likely realized favorable capital gains treatment. Instead, he pays the higher ordinary rate plus employment taxes if he’s paid as an employee. Or, worse, he’s taxed at the even higher self-employment rate if he’s classified as an independent contractor.
Besides the adverse tax consequences, less pay, and less ultimate money in retirement . . . many sellers become extremely unhappy working for somebody else long-term . . . and understandably so. They’ve spent their whole career building an accounting practice, and then suddenly find themselves a subordinate in their own firm. It’s rare to find someone satisfied with that situation long-term.
Our recommendation
Don’t merge.
Work for yourself until you are ready to retire and then sell your CPA firm for the maximum price and terms utilizing Accounting Broker’s multi-faceted approach to maximizing value and cash at closing. You will have more money in retirement and will likely be much happier.
When to sell
Timing is crucial in the sale of a CPA practice. Sell your CPA firm during the year before your last tax season. Then you can have a brief transition period to make sure things are running smoothly for the new owner. Time the transition to run through your final tax season, so you earn all the money you can.
Help is available
Whether you are a small, single-owner practice or a large, multi-partner firm, you should seek the best help possible in making what could be the most important transaction of your life. Before any sale or merger, call us. Accounting Broker Acquisition Group has sold hundreds of CPA practices. We scour our extensive database of tens of thousands of active buyers to find the one who will maximize the seller’s profits. How do we do it? By employing only the best brokers! All of our brokers are CPAs who have significant Big Four merger and acquisition experience. We are the experts in sales of accounting practices. Contact us today for help with selling your CPA firm, and get a free copy of our report, “Will You Leave Money on the Table? Discover the 12 Irreversible Fatal Errors You Must Avoid When You Sell Your Firm!”