FAQ

Selling a Practice

  1. Why do owners sell their practices?

    Most tax and accounting practices are below $2 million in gross billings, with the majority around $250,000 to $350,000 in gross, with two to four full-time employees and one owner.  Every firm will sell, merge or be disposed of in a lifetime and most likely to another individual owner.  The reasons vary but usually involve:

    • Retirement — full or semi
    • Relocation
    • Career change
    • Hired by a client
    • Burnout or wear out
    • Work/Life balance
    • Health issues
    • Spouse/Partner/Self seriously ill
  2. Do all practices sell for one time gross?

    This is a common misunderstanding in the accounting and tax industry that all practices are worth/valued one times annual billings.  That number has been around so long many people, buyers and sellers, accept it as fact.  It is not.  Imagine comparing two practices with the same gross but vastly different net income.  Is the one with the lower net income worth the same as the higher?

  3. How are practices valued?

    Factors that affect value include:

    • Location:  Large metropolitan areas are in higher demand than rural areas due to the size of the potential client pool and thus drive a higher sales price.
    • Profitability:  Net Seller’s Discretionary Income, before taxes, will range from 20% of gross to as high as 60%.  The typical practice tends to fall between 35% and 45%.
    • Client mix:  Compilation and tax work are usually the most desirable client base because they are recurring in nature.  Also, practices serving businesses rather than individual clients tend to demand higher prices.
    • Other key factor are billing rates, types of services provided, staff and owner's billable hours among others.
    • Most practices sell for up to 125% of gross annual billing with high demand, highly profitable practices climbing toward 150% and less profitable practices falling toward 100% or below.
  4. How does the future look for practice sales?

    For years there has been speculation about a surge of practices for sale on the market as the baby boomers all retire at once.  To date, we have not seen it.  This is due to the nature of the industry and the fact that many practice owners are able to continue to work and prefer to continue to work in their business well into their 70’s and 80’s.  At present, it is such a strong seller market that it is hard to anticipate it could ever flip over to a buyer market.  

    However, it is reasonable to expect that the seller market will soften somewhat in the coming years and possibly become a buyer’s market. Trends that could slow that reversal are:

    • Baby boomer retirement problems are leading to increased interest in small business. Many accountants who have worked in private industry will look to move into public accounting.
    • Economic conditions are leading to increased interest in small business also leading accountants to move from private industry into public accounting.
    • Gen Y will continue to be more entrepreneurial than recent generations, and that should include those in accounting.


    So, for the near future, there should be a good market for high quality firms.

  5. What is a business broker?

    A business broker is an intermediary dedicated to serving clients and customers who desire to sell or acquire businesses. A business broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, a business broker provides information and business advice to sellers and buyers, maintains communications between the parties and coordinates the negotiations and closing processes to complete desired transactions.

  6. Why should I consult a broker?

    Whatever your size or goals, a competent intermediary will allow you to remain calm during what is sure to be a tense time. Sometimes personalities interfere with making good business decisions – you should have someone familiar with both parties with whom to discuss details.  The intermediary can be an attorney, business broker, practice management consultant or close business colleague.

  7. Do I need a broker if I already have the buyer?

    Working with an intermediary, advisor or broker is not a necessity.  You can sell on your own.  However, hiring a broker who specializes in the sales of accounting and tax practices is the most effective path to closing the sale of your practice.  Although you will still be responsible for a considerable amount of work, a good broker will handle the most challenging portions of the sales process and provide you with the structure needed to best utilize your time and streamline your involvement.

  8. Does my broker need to be a CPA?

    Many accounting practice brokers say buyers and sellers of accounting and tax firms should only hire a broker that is a CPA.  The brokerage firm you hire should have specific industry knowledge and experience but the individual brokers do not need to be CPAs.  In fact many CPAs do not have the innate skills needed to be a successful broker.  Believe me we have tried this approach.

    The task a broker does is different than the work a CPA does.  Brokers must be more sales and business development oriented than the typical CPA.  Obviously, a broker must understand how to read financial statements and tax returns.  They must also know key metrics and benchmarks to understand the quality of an accounting practice.  They should have a thorough understand of the industry and the type of services CPAs offer.

    A friend of mine in the pharmaceutical industry put it very succinctly when he told me hiring CPAs to sell practices would be akin to drug companies hiring pharmacist to sell drugs to doctors.  Certainly they can talk about the chemical details of the drugs but what they really need to do is spend their time cold calling. Some pharmacists might do that but most will not.

  9. Is it better to merge or sell my practice?

    A straight acquisition of a firm is much easier than a true merger. One party is acquiring the other party and managing the firm.  In a merger, there are complicated issues to control, with a focus on aligning the two practices with the idea of a long-term working relationship between the owners or partners of practice A and practice B.  Successful true mergers of accounting firms are rare because the parties are either merging for the wrong reasons or are ill prepared to merge.

  10. What are the questions I should ask myself before selling?

    Common questions to ask yourself are:

    • What type of practice do you have?
    • Is your office location desirable?
    • What are your factors and their priorities in your sales decision?
    • How are your business numbers and do they generate a profit?
  11. How long will it take to sell my practice?

    The time varies depending on different market conditions, practice value and location and makeup of the practice.  If you want to sell before the next tax season, then consider beginning the process soon after the current season ends. This approach gives you an adequate amount of time to evaluate your goals, identify the best possible buyer, secure favorable terms and complete the transition process.  We have closed sales as quickly as 12 days and had others take as long as 13 months.  You should plan on the process taking at least two to four months.

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Buying a Practice

  1. How are practices valued?

    Factors that affect value include:

    • Location:  Large metropolitan areas are in higher demand than rural areas due to the size of the potential client pool and thus drive a higher sales price.
    • Profitability:  Net Seller’s Discretionary Income, before taxes, will range from 20% of gross to as high as 60%.  The typical practice tends to fall between 35% and 45%.
    • Client mix:  Compilation and tax work are usually the most desirable client base because they are recurring in nature.  Also, practices serving businesses rather than individual clients tend to demand higher prices.
    • Other key factor are billing rates, types of services provided, staff and owner's billable hours among others.
    • Most practices sell for up to 125% of gross annual billing with high demand, highly profitable practices climbing toward 150% and less profitable practices falling toward 100% or below.
  2. What are the risks of buying a practice?
    • Settling on unsatisfactory terms or contingencies
    • Not planning for sufficient client loss
    • Conducting insufficient due diligence
    • Being a lone ranger
    • Insufficient transition
    • Large portion of revenue coming from few clients
    • Employees not transitioning
  3. Is it better to buy an existing practice or start a new practice?

    Depending on your personality and practice development ability, it is almost always better to buy a practice versus build one from scratch. There are many advantages to acquiring an existing practice, but the reduced risk of failure is usually the most compelling.  An existing practice has an established track record and client base and provides immediate cash flow.  For more, visit our Buy vs. Build page.

  4. What is a business broker and should one be consulted?

    Practice sales are almost always a confidential transaction. The seller does not want clients, staff or competitors knowing that the practice is for sale.  Therefore, buyers may have difficulty identifying potential sales listings. Brokers represent numerous practices of different types and sizes.

  5. Who does the broker represent?

    Business brokers almost always represent the seller. The seller pays their commission and even if they are assisting you in the process, they have a fiduciary duty to the seller. However, this is not to say that they won't provide you with helpful advice.

  6. What are the benefits of utilizing a broker?

    To prepare a practice for sale, and in marketing the practice a professional broker qualifies sellers, prepares business reports, provides a systematic process for all parties to follow, assists in preparing letters of intent and offers guidance on preparing the purchase agreement.  Brokers manage problems as they arise and identify the appropriate resources; and provide the expertise to recognize and resolve issues between differing viewpoints.  Additionally, as a result of the volume of transactions that brokers complete, they usually have a variety of financing contacts available to provide options for obtaining the most competitive financing package.

  7. Should I present a Letter of Intent to purchase?

    Essentially, the LOI is a non-binding agreement to negotiate in earnest the core deal points as identified and agreed upon.  In addition to setting the key elements of the deal, the LOI is also a trigger point for critical milestones during process. Those trigger points are:

    • For the seller to remove the practice from the market and focus on the single buyer  
    • For the buyer and seller to begin conducting their due diligence
    • For the buyer to pursue financing

    Basically, if two parties cannot agree on the elements of the LOI, they will probably have a hard time negotiating while dealing with the minutiae of the purchase agreement. Normally, once the key points of the deal are negotiated up front, the rest of the transaction tends to work smoothly.

  8. Should an attorney be consulted when buying a practice?

    Absolutely.  At a minimum you should get a legal review of your Purchase Agreement to be sure it is binding and legally enforceable.  Be sure you consult an attorney with experience in business transactions and be sure you contain their role to their expertise.  On more than one occasion, we have witnessed an attorney overstep their bounds in the 11th hour of a transaction and advise a client to renegotiate core terms in an agreement that had no legal ramifications and jeopardized the entire deal.

  9. What type of an offer should I make and when?

    After meeting the seller, when you have examined any requested information and are satisfied by the findings, make an offer.  Finding a practice is difficult and delay may result in a missed opportunity. The first step to making an offer is to prepare a letter of intent to purchase.  It should include the key elements of price and terms, fixed assets, non-compete clauses, transition issues and a proposed closing date.  Our firm has found that dealing with these five items up front will save a lot of time and misunderstanding later.

  10. When should due diligence be performed?

    Despite popular belief, rarely is due diligence performed before negotiating the purchase of a practice. Since the process involves disclosure of confidential information, the buyer and seller should at least have the deal parameters finalized, and the financial resources verified prior to spending time in due diligence.

  11. Why do deals fall apart?

    Deals fall apart for several reasons including:

    • Re-negotiating terms over and over again
    • Inadequate due diligence
    • Insufficient transition
    • Bad fit from the beginning
    • Underestimating client loss
    • Negotiating a “ONE-SIDED” agreement

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Succession Planning

  1. What is Succession Planning?

    A Succession Plan provides the peace of mind that allows you to not only leave your accounting practice in the hands of a professional you have confidence in, but also rewards you for the value you have created over a lifetime of hard work.

  2. What does Succession Planning involve?

    A solid Succession Plan involves careful thinking about value.  It begins with understanding what you value in your practice and extends to understanding what your staff and clients value as well.  Together these values provide a basis for developing the succession plan that is right for you.

  3. Why should I consider a Succession Plan when I plan to work for another ten years or more?

    Life is full of surprises.  Even though you may hope to work for many years to come an unexpected event, a change in your family’s needs, or even simply the emergence of a new interest may require you to leave your practice sooner than you had intended.  Having a good Succession Plan keeps you in your control of your future.

  4. Why is Succession Planning difficult?

    Succession planning is difficult because you and your team are so busy.  It requires discipline to set aside time to think through the “end-game” of your career, when you may still be in the midst of building your firm.

  5. What is difficult about implementing a Succession Plan?

    The hardest thing about developing a Succession Plan is enlisting your team in taking responsibility for developing a Succession Plan with you.  After all, after you leave, they will be the ones who remain to continue your legacy.  Inspiring you team to take ownership of their future requires leadership.  It is not the plan of paper that matters, but the passion in the hearts of your team to continue to flourish after you are gone that makes the difference.

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