How to Value and Sell Your Accounting Firm

The COVID-19 pandemic has forced business owners to pay close attention to accounting and finances. Many firms are struggling to generate a profit, and to maintain sufficient cash inflows. Owners became more reliant on the advice of accountants, as Accounting Today points out.

As we move into a post-pandemic environment, demand for accounting expertise will continue, and it may be a great time to sell your practice. Selling an accounting firm, however, requires time and effort, and a business broker can advise you through the entire process.

Start the process by having a conversation with a broker, and discuss the elements that make your accounting practice valuable.

Key Factors That Make Your Practice Valuable

View your accounting firm from a buyer’s perspective. A purchaser wants a business with a good reputation that is positioned for growth, and a smooth transition after the sale is closed. Here are the factors that may attract a buyer:

Experienced Professionals

Accounting clients build strong relationships with your staff, and rely on their expertise. Audit, tax, and consulting work requires accountants who have industry knowledge, and who understand the client’s issues. If you hire good people who provide great service, you’ll build a loyal customer base.

Client Mix

Ideally, an accounting business should bring in younger clients to replace clients who are aging and require less accounting help. This is particularly true for business clients.

Many accountants complete a company’s return, and provide tax services to the owners and managers. If you can bring in younger business owners over time, you’ll maintain a growing book of business.

Leveraging Technology

The most productive accounting practices embrace the use of technology. Tax laws and regulations make accounting work more complex every year, and completing work manually is no longer profitable.

If a buyer determines that a firm requires a big investment in hardware and software, the additional expense will impact the sale price.

Problem Clients

In order for an accounting practice to succeed, clients must do their part. Clients must be responsive, provide records in a timely manner, and pay invoices on time.

Address any problem clients before pursuing a sale. Tell clients who consistently pay late that you’re increasing your prices, and that the client can earn a discount by paying on time. Collect outstanding receivables before a sale, and consider excluding problem clients from the sale.

Attractive Office Space

Many accounting clients visit the office to discuss their tax returns, audits, and to drop off records. If you have convenient office space with sufficient parking, the location will be attractive to a purchaser.

There are other factors that make an accounting practice attractive, including the offer to provide seller financing. This arrangement allows the buyer to pay a down payment for the practice, and pay the balance of the purchase price over time.

After you discuss these issues with a broker, you’ll have a clearer picture of the true value of your firm, and the steps you can take to make improvements. The broker will consider a number of issues to determine a reasonable sale price.

Negotiating The Sale Price

There are two big factors that determine the profitability of an accounting practice:

Average Fee Per Tax Return

The buyer needs to know the average fee per tax return, and how the average fee compares to industry averages. The industry averages vary, depending on the geographic location.

Time Required Per Return

The other part of the profit equation is the time required to process each return. On average, how many Schedules A, B, C, etc. are required for each return? How many clients have an office meeting before tax returns are started?

The answers will help the buyer understand the profitability of your tax business. The same factors can be applied to audit work, write up work (compilations and reviews), and payroll processing. A buyer will analyze fees charged and labor costs.

Once you find an interested buyer, you’ll need to create a plan to maximize the percentage of clients that remain with the practice after a sale.

Resolving Transition Issues

Selling a small accountancy practice requires a focus on people. Your clients rely on your staff to guide them through their tax and accounting issues, and a change of ownership may cause client anxiety. Clients must feel confident that their needs will be addressed after the practice sale.

To create a smooth transition, address each of these issues:

Ongoing Regulatory Issues

The IRS, and other regulatory bodies oversee tax, audit, and payroll work. It’s not unusual for an accounting practice to have clients who have tax returns under IRS audit, or other regulatory issues.

These situations are stressful for clients, and the seller needs to provide a clear plan for the client after a sale. The buyer must be competent enough to support the client, and invest the required amount of time to protect the client’s interests.

Non-compete Issues

If you decide to start a new practice, the sale agreement can state that the new business must be a certain number of miles away from the purchased business. The agreement may also include a statement that the seller will not accept clients from the sold business for a certain number of years.

If the seller wants to keep a portion of the clients, an exclusion clause can be added to the sale agreement identifying the specific customers. These conditions protect the client base that the buyer will try to maintain, and allows the seller to start a new business.

To make an informed decision about selling your CPA firm, get help from an experienced business broker.

Work With An Expert

The professionals at Raincatcher have helped thousands of owners sell their businesses. The seller and buyer must create a specific plan to transition clients after the sale, which makes selling an accounting practice challenging. Work with the experienced business brokers at Raincatcher, and sell your accounting firm with confidence.

Business Brokerage
Business Brokerage

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