This site also provides more in-depth buyer’s guide that offers impartial advice to entrepreneurs in the accounting industry contemplating buying their own practice – be it a CPA firm, smaller bookkeeping business or virtual cpa firm.
Similarly, this page takes a look at some of the essential questions to need to ask yourself when you’re on the other side of the table, i.e. selling your business. For example, how to prepare your cpa firm for sale before putting it on the market, how to understand the complete sales process from start to finish (including the best time to sell), and we also take a look at some of the advantages and disadvantages of buying rather than building up from scratch.
For whatever reason you are selling you CPA practice, to ensure the smooth transition – and that you get a fair price for your business that you’ve spent so long building up – you need a plan of action to apply both before and during the process. Unfortunately, it’s not simply a case of signing the purchase agreement and letting the buyer take it from there.
Even if you’re not planning on selling your business for another three or four years, this really is the time to start making the first preparations. If you only give yourself a few months to sort everything out before selling, the chances are – just like anything else that is rushed in business – you’ll get a poor price and find the whole acquisition a lot more complicated than it needs to be.
If you’re reaching retirement age in a few years, or just contemplating selling up shop to further another ambition or venture, now is the time to start defining your exit timeframe. For this, you’ll need dates; i.e. when do you want to put your practice up for sale, and when would be your ideal closing date? Once you have a reasonably concrete deadline, this gives you room for clear planning (and none of the last minute panic).
Some things to bear in mind when considering these dates in relation to cpa audit practice for sale: at what point in time would you have a comfortable retirement fund? Would your business be worth more or less than it is now? How many more years do you actually want to carry on working? Does the date coincide with the expiry of an expensive office leasehold? What will the situation of close family members be?
Once you have decided on a longer-term plan (i.e. the year you plan to sell), it’s also worth considering the month or relevant ‘season’ to sell.
To enhance the attractiveness of a potential deal, try to sell your business at the very start or during the time of year when the majority of your business is rolling in. For example, this may coincide with the end of the tax year or be dependent on the type of business clients are engaged in (e.g. Tourism would be in the summer months). This way, the buyer won’t have to wait several months before things get busy.
Just like selling a house, the first decisions you have to make are whether (a) you actually want to sell, and (b) when you want to sell. Having explained these above, the next step is to start preparing your house (or in this case, your business) – even if that selling date is years away.
Similar to a house, prospective buyers are going to want to come in and inspect everything; after all, they are not just interested in buying the bricks and mortar, but everything else that comes along with it.
This means that you, as the seller, need to act now in order to get your business in order. One of the first and simplest things to do is sort out all important documentation and make sure it is in full and complete order ready for inspection. These papers include essential business account information, tax records, legal history, business licenses, log books and any other relevant documents that will be required to be presented later down the road.
The owners of cpa practices for sale, if beginning these preparations well in advance, are in effect buying themselves time to get their business looking and running in better shape. First, look at the key strengths, weaknesses and opportunities of your firm. The next couple of years is your chance to iron out the problems, enhance those strengths, and capitalize on those opportunities – all in an effort to make your firm as profitable and efficient as possible. A sleek looking and smoothly running firm that has just delivered two or three years of solid profitability is always going to attract more attention from the buyers’ market, as well as secure a higher overall price.
Cpa firm sales also rely on business owners organizing the way in which the firm or practice carries out work with each client. This can easily be presented to potential buyers by formulating a firm workflow, which sets out how the business manages each job. From this set of documents, buyers will be able to tell for themselves whether the firm is (a) working efficiently, and (b) whether the way in which it works and carries the workflow is in line with what fits their own capabilities as certified public accountants.
When buyers conduct due diligence on cpa audit firms for sale, it’s normal for them to be looking in detail at your existing client base. They’ll be wanting to find out who your biggest accounts are, what sectors they are in, and also whether the firm has any weak clients – i.e. excess baggage that is weighing the firm down with late payments or over-the-top requests demanding more time than is necessary. A simple step to take in order to avoid this pitfall (when it comes to the buyer’s due diligence) is to cut ties with those troublesome clients.
When looking at ‘how to value a cpa firm’, other areas worth exploring as both a seller and buyer would be to look at a firm’s cash flow (i.e. the period of time between when work is completed, invoiced and finally paid by the client in full) and a firm’s charge out rates. High charge out rates together with a short average cash flow rates are both factors that can boost the final value of cpa and tax practices for sale. Again, this goes back to our first point concerning time; if you plan well ahead, these KPIs can easily be turned around in your favour in the short-to-medium term.
Simply put, entrepreneurs choose to purchase cpa practices rather than set up their own new businesses because the advantages outweigh the negatives. Or perhaps better rephrased: the risks associated with purchasing an already up and running firm with an existing client base are far less than the risks associated with starting from scratch.
Whether it’s a buyer starting a cpa firm from home or a larger firm wanting to acquire a small practice, the main benefit is that revenue will be rolling in from day 1, whereas startups with no clients often have to wait months to catch their first big break – and then possibly years to turn a profit. Also, the act of acquiring an accounting or tax firm is not just buying a business, it’s actually acquiring a valuable client list and potentially a team of talented employees and financial specialists. This is why so many larger firms tend to shop around for smaller cpas, looking to snap up lucrative clients that would otherwise be impossible to have.
We hope the information on this page had been useful. Please seek legal advice for any business acquisition. For a directory of cpa practice for sale by owner – please head over to our homepage, or browse through other informational resources and articles on buying and selling businesses.