Some reasons tax and accounting practitioners prefer to buy rather than build:
For starters, an existing tax and accounting practice has a track record and can usually generate income to begin offsetting the initial investment within weeks of the acquisition closing. This achieves goals sooner and avoids the often-painstaking slowness of organic growth, particularly in highly competitive markets. Some other advantages to buying rather than building:
- Actual client history, revenue, and results rather than projections and proformas. From day one, you know what services clients need, what they are comfortable paying for those services, and whether they pay promptly.
- Established, trained clients and referral sources. The clients are familiar with an accountant and, if you are similar in process to the seller, will be comfortable working with your needs and service. As for referral sources, they usually transfer with the sale and could result in a significant ongoing stream of new clients and revenue.
- Existing facilities and operations. An established office space can result in, literally, a turn-key transaction in which the buyer simply moves into the seller’s space and the business continues as if almost nothing changed.
- Trained staff in place. We often hear that good, trained staff is hard to find these days. So, this is often a key consideration and motivation of many buyers in the market. In addition, the staff establish some continuity for the clients which should improve retention of those clients.
- Availability of financing. Thanks to the higher-than-average net cash flow of tax and accounting practices, conventional and SBA lenders have created specialized loan programs for practice acquisitions.
- Training by the seller. The typical seller of a practice is not only transferring his or her client base but is also providing years of experience to a buyer during the transition period.
- Expansion of your practice into new service lines. New service lines that come to your clients or you provide to new clients through an acquisition, can result in significant add-on revenue and growth beyond the acquisition itself.
- Expansion of your practice into new geographic markets. An acquisition is, often, the most logical route to achieve an immediate long-term presence in a new geographic market.
- If you already own a practice, significant bottom line contribution due to economies of scale. Redundant operating expenses can be reduced or eliminated, providing a substantial and instant addition to the buyer’s net cash flow.
The economics of a sound acquisition are another reason to buy a tax and accounting practice.
Typically, with bank financing, a tax and accounting practice acquisition can be cash positive within a few months and the breakeven on ROI is usually within two to three years in well-structured transactions.
Some buyers have recently mentioned both rising interest rates and future economic concerns as reasons to hold off on acquiring. To this we would reply that the interest rates have been at a historical low for more than 10 years and were eventually going to rise. Today, they are still lower than they were in 2007, which was a very, very active year in the acquisition market.
Regarding concerns about the future of the US economy, we would point out that we navigated post-9/11 and the 2008 sub-prime mortgage downturn. Both were far more significant economic times than anything predicted for the next few years and in both those periods the tax and accounting industry proved again that it is a very stable and evergreen industry. In fact, in difficult economic times a well-executed acquisition is probably the best investment a would-be acquirer can make.
So, send us an email or give us a call if you are interested in growing through an acquisition. We would love to work with you!