how to know when you’re ready to make a deal.
by brannon poe
before you even begin searching for cpa firms for sale, be intentional about what you want. the more clarity you have going in, the more likely you are to make a good purchase decision.
here are 10 questions to consider when buying an accounting practice:
- what does your practice need to look like in three years for you to be happy with it? suppose you have made the purchase and you are describing your practice to a friend in three years. this vision exercise will reveal a lot about what you want. simply take 10 minutes or so to write your answer out.
- what are my strengths? include areas of professional expertise as well as personal traits. these will be the things that ultimately drive your business.
- what are my weaknesses? it’s important to know your weaknesses so you can work around them. working on weaknesses is generally just frustrating and counter-productive. it’s better to hire others who are strong where you are weak…or to avoid practices where a particular talent is needed that you don’t have. for example, if you are good at business development, but not really good at managing staff, perhaps you need to search for a practice that has a very good office manager on board…or maybe you want to partner up with someone who can take on that aspect of the practice?
- am i willing to relocate? if so, what do i want in a community? this may seem really obvious, but i’m surprised by how many buyers haven’t thought this through very well. it might be a good learning experience to talk with accounting practice owners all over the country, but it’s usually not the best use of your search time. talk with your family and focus on areas that work best.
- what are the deal-breakers? what aspects of a practice or a practice owner(s) are simply unacceptable? for example, would you buy a practice where the seller currently works 3,500 hours per year? would you buy a practice that has a large niche that you are unfamiliar with, like auditing? what you say “no” to is very important.
- how would i describe my ideal client? similar to question one, this will reveal a lot about the type of cpa firm that you want to buy. being matched with the right clients will significantly impact client retention rates after closing. it will also have a huge impact on your long-term success and happiness with the practice.
- what sort of fee structure do i want? when looking at accounting firms for sale, pay close attention to the fees charged to clients. this ties in very closely with #6 above. low fees may or may not be a deal-breaker, but they are definitely a very important factor when evaluating different practices. a lot of cpas undervalue their services. it’s practically an epidemic in the profession as far as i’m concerned. it is likely that you can buy a firm and raise fees without too much trouble, and if this is the case, you may be buying a practice that is actually a bargain. this is an assessment that needs to be carefully made however by analyzing the clients and the services being provided.
- how much money can i invest? there is excellent bank financing available for accounting practice acquisitions, but in order to purchase, you’ll need money to invest for a down-payment. at a minimum, you’ll need to be able to invest 10 percent of the purchase price.
- what size accounting practice do you want to buy? if you’ve answered questions 1-8 above, narrowing the size for your search should be fairly easy to do. don’t sell yourself short! be open to the possibility of buying a larger practice. really what you should focus on is cash-flow-to-owner. look for a practice that is generating plenty of cash flow to the owner to well-cover your debt service and your living needs…and then some. you are buying a cpa firm for increased freedom and income, aren’t you? an accounting practice with good cash flow to the owner will offer that.
- what about the transition? how much help do i need from the seller? our experience is that transition is counter-intuitive: long transitions are almost never necessary.