Owning a CPA Firm: Build, Buy or Buy in?

Source: The CPA Journal

This article reviews the relative risks and benefits of three alternatives for becoming a CPA firm owner: Acquiring a firm, starting a firm, or buying equity in an employer's firm.

Buying a firm offers the buyer “instant clients, billings, cash flow, possible staff, and an office.” But it's risky for both buyer and seller. The buyer is unfamiliar with the firm's clients and staff, so it's hard to predict whether they'll stay. For both buyer and seller, there's a risk that under the new owner the firm won't generate sufficient cash flow to cover the owner's living expenses plus annual payments to the seller.

Starting a new firm avoids these risks but introduces new ones. In the early years, for example, finding clients may be a challenge, making it difficult to generate sufficient income. Buying into an employer's firm is often the most comfortable approach because the CPA already knows the firm, its clients and its staff. But on the downside, the CPA has little control over the timing of the buy-in – which may never happen at all – or over who his or her partners will be.

The author also discusses other considerations, including opportunity costs, the level of commitment needed to own a firm, and competition from both other CPA firms and non-CPA firms. He also presents results of a survey of 46 CPAs who acquired ownership of Massachusetts CPA firms from 2003 to 2007. Among other things, the survey shows that more than 76 percent of respondents started their own firms rather than buying or buying into an existing firm.

For the complete article, read “Acquiring, Starting, or Buying into a CPA Firm.”

From The CPA Journal, A Publication of the New York State Society of CPAs, March 2012, www.cpajournal.com.