Before You Buy or Sell an Accounting Practice

This article provides advice for buyers and sellers. Highlights include the following (for all the details see the link below):

• Look for smaller firms that offer services like yours at prices like yours.
• If moving the firm into your office is an objective, make sure it is close enough to not inconvenience the clients.
• Make sure the seller is willing to spend time to meet staff and clients and introduce its staff and clients.
• Coordinate with tax season. Allow time to set up clients on the tax software. An acquisition before tax season will improve cash flow.
• Acquired firms should have clients that can use your special services.

• Since the value will probably be a multiple of revenues, verify them. The ultimate price will be adjusted based on collections. The multiple may be affected by use of a broker. Size of the firm may also affect the multiple. Multiples range from 1 to 1.5 times annual revenues.
• Clients lost after the first year will not affect the purchase price.
• Down payments are usually 30 to 50 percent of the price, with the balance plus interest paid over three to five years.

• Prices are normally determined as described above, but from the seller’s perspective, it would be good to sell at a fixed price; otherwise, the buyer’s decisions can affect the purchase price.
• Determine how much the buyer will pay for work-in-process.

• If you sell for a fixed price, you will most likely have to provide a guaranty of collections.
• If you use a broker, use an accounting firm specialist. Find out what percentage of his listings he closes.

From California CPA Magazine, California Society of Certified Public Accountants, March/April 2008, http://www.calcpa.org/Content/home.aspx.

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