Category: Selling a Practice

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Selling Your CPA or Tax Practice FAQs

If you are considering selling your Accounting or Tax practice, you most likely have a few questions. From your office equipment to all the necessary legal documents, there are a few things a seller will need to consider.

Here, we break down some of the most frequently asked questions by Accounting & Tax practice sellers.

Can I Sell A Portion of My Practice Only?

Yes, you are able to sell just a portion of your practice. You will need to make a list of the clients you wish to keep and will need to keep their financial data separate when placing a valuation on the firm.

Additionally, you will need to prepare an exclusion clause in the sale agreement that covers the clients you are retaining.

Do I Need to Guarantee Client Retention?

It is not mandatory to guarantee client retention. Of course, a buyer will want to know that the clients they are buying are viable and committed clients. Buyers are willing to pay more for a guarantee. If you are in doubt of a buyer’s ability to retain clients, you should consider another buyer.

Do I Need to Sign a Covenant of Non-Competition?

If you are retiring or moving, it’s not much of an issue. If you want to establish a new practice, determine a mile radius that would be reasonable, maybe 50 miles from your existing practice.

Some sellers choose to stipulate in the sales agreement that they will not accept any previous clients for a period of 5 years. By signing a covenant of non-compete, you can still work in another practice in the industry, but you may not contact any of your old clients.

Is a Long Term Lease Favorable?

Not always. Some leases can have too long of a term for a buyer. Ideally, you should consider having a month-to-month lease and avoid any long-term leases. Additionally, you can consider renting your own building to the buyer at a favorable rate, which can help increase the final sale price of your firm.

Should I Stay On For a Couple of Tax Seasons To Assist With the Transition?

For a larger practice, it can help make the transition process smoother if you stay on for an additional tax season to assist the buyer. However, if the practice consists of just 1 preparer and some seasonal help, there may not be much for you to do. Additionally, there may not be enough revenue to support you and the new owner.

Should I Replace Equipment or Upgrade Software?

It is best to avoid signing any new leases or buying any large or expensive pieces of equipment before you sell your practice. This should be the buyer’s decision. The buyer may have their own resources they wish to use.

Will My Clients Be Willing to Transfer to Someone Else?

If the transition is handled correctly, most clients will stay on with the new buyer. Your clients are relying on you to ensure that they are well cared for.

The knowledge that their files will be maintained by the buyer and that you have reviewed their unique situation with the buyer will give them the boost of confidence they need to give the buyer a try. Be sure to let your clients know that the new owner will still have access to you if the need arises.

Final Note

When you decide to sell your accounting or tax practice, you will likely have some questions. The team at Accounting & Tax Brokerage can answer any questions you may have about selling your accounting or tax practice. With over 50 years of experience, we can help you find the right buyer for your firm that will continue to take care of your clients just as you have.

To learn more, contact us here or call us for a no-hassle consultation at (855) 428-2225.

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Selling Your Accounting Practice: Do’s and Dont’s

Selling your Accounting or Tax firm can be an exciting and rewarding time. However, there are a number of things sellers should know from the start- a list of do’s and don’ts to ensure a smooth transaction occurs for both you and your practice’s buyer.

Selling Your Practice Do’s

Settle Any Employee Issues

If you have an issue with an employee, it is best to rectify the situation before you decide to place your Accounting or Tax practice on the market. Employees should be knowledgeable and be able to assist the buyer once the practice changes hands. If you know you are selling your firm, avoid hiring any additional employees, as the buyer may have their own staff they intend on bringing in.

Do you have any employees that can put your sale at risk? Are there any confidentiality agreements in place? Can an employee hold you hostage, or take a significant portion of your clients if they leave? This type of vulnerability can create huge contract issues or even potential litigation after the close of escrow. If you have employees, get a non-disclosure, non-compete agreement with all of them.

Get Your Practice Organized

If you have boxes of client files laying around your office, it’s time to scan them and get them uploaded into a secure storage cloud. Additionally, consider taking some time to clean up your office and making it look presentable to any future buyer.

Understand Your Numbers

It is vital to know your average fee per return, both for entities and for individuals. It is always surprising to hear how many accountants are unaware of what their profit margins are. It is important to note that most buyers are looking for a minimum baseline EBITDA of 50%.

You should also be aware of how long it takes to process each client’s tax return. Some buyers will want you to break down the fees in terms of time, rather than schedule. What is the average AGI? How many schedules C, E, and F are you preparing?

Selling Your Practice Don’ts

Don’t Invest in Any Equipment or Software

When you decide to sell your Accounting or Tax practice, it is advised you avoid signing any new leases for copiers, servers, or T-1 lines. The new buyer should be able to make those decisions themselves. In some cases, being bound by certain arrangements such as a printer lease can cause issues for the buyer, as they may have other resources they plan on using.

Don’t Notify Your Clients Until You Have Closed Escrow

Practice sellers should wait until they have found a qualified buyer and have closed escrow to notify their clients of their retirement. Once you have closed escrow, notify your clients that you have found a person who is qualified and will treat them as you did.

You can give your clients even more peace of mind by letting them know you would never leave them without finding a qualified replacement.

Don’t Sign a Long-Term Lease

If you are pondering the idea of selling your practice, avoid getting into any long-term leases. What if the buyer already has a lease? What if the lease is too long-term for the buyer? If possible, consider having a month-to-month lease agreement instead of getting into a long-term lease.

You could also consider renting your own building to the buyer at a favorable rate for a few years, which can really help a seller get the price they want for their CPA or Tax practice.

Final Note

If you are considering selling your Accounting or Tax practice, there are multiple things you will need to consider. Accounting & Tax Brokerage can help you navigate the challenges of selling your tax practice to ensure a smooth transition seller to buyer.

Our practice brokers have over 50 years of experience working with both buyers and sellers. To learn more, contact Accounting & Tax Brokerage here, or give us a call at (855)-428-2225 to learn more and to get a no-hassle consultation.

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6 Ways to Increase the Value of Your CPA or Tax Practice

If you are pondering the idea of selling your CPA or tax practice, you may be wondering how you can maximize the selling price of your firm. After all, you’ve likely invested years into building your practice from the ground up, and thus, want to ensure you receive the highest dollar amount possible.

Here, we go over 6 ways you can increase the value of your CPA or Tax firm before you decide to place it on the market.

Fix Any Employee Issues

If your firm already employs staff, the buyer will likely want to keep things the way they are once they take over the firm. If there are any issues with an employee, it is highly encouraged to rectify the issue before you list your practice for sale.

Get a non-disclosure & non-compete agreement with all of your current employees. Ideally, you should contact a local attorney to draft the agreement. Is there an employee in the office that could leave and take a significant portion of your clients? Although you cannot prevent an employee from competing with your firm in California, you can prevent them from stealing your clients.

A certain disgruntled employee may decide to make your life miserable if the new buyer does not keep them or changes any processes you implemented in the past.

Offer a Client Retention Guarantee

One sure way to increase the sale price of your Accounting or Tax firm is to offer the buyer a client retention guarantee. Although a guarantee is not required, a buyer will want to know that the clients they are purchasing are committed and viable.

A buyer is typically willing to pay more for a guarantee if you decide to offer one. Of course, every practice that sells may lose a few clients. If you are unsure of a buyer’s ability to retain clients, you should consider another buyer.

Provide Seller Financing

One method for increasing the value of your accounting practice is by offering seller financing. With seller financing, you can ask for a down payment of up to 40% or more. When you provide seller financing, it shows a buyer you are confident in the financials of the practice, and that your clients will continue to use your firm.

Additionally, this can simplify the buyer’s life by helping them avoid the process of finding a lender and obtaining a loan.

Know Your Numbers

It is surprising to hear how so many accountants cannot tell you what their profit margins are, how much it costs them to produce a service and many other important data points. If you are offering a service, you need to know exactly how much the labor costs to produce each service. What is your average AGI? Do you know how many schedules C, E, and F you are preparing?

Sellers should also consider producing a cash-basis P&L on a monthly basis for the past 36 months.

Get Your Office Together

Do you store client documents in storage boxes throughout the office? A top-dollar buyer isn’t going to want to spend hours on end going through boxes to organize client information. Consider scanning your client documents and uploading them to a secure cloud storage file before you decide to sell your firm.

Additionally, take some time to make your office more presentable. If you can add good lighting, do a deep cleaning, and increase the overall positive ambiance of the office, you may be able to get a higher asking price.

Get Rid of Bad Clients

Bad clients not only spell trouble for you but can also cause great problems for your future buyer. Weeding out bad clients and collecting on clients that are behind can help increase the value of your Accounting or Tax practice. If you have clients that are behind, offer them a one-time discount to make payment in full.

If you decide to increase your fees, you can let all of the “late filers” know of the impending increase and encourage them to make their payment prior to the change in pricing.

Final Note

There are multiple steps you can take to ensure you get the highest sale price possible when you finally decide to sell your Accounting or Tax practice. If you are looking to buy or sell an Accounting or Tax practice, the team at Accounting & Tax Brokerage can help. Our practice brokers have over 50 years of experience and only provide services to the accounting & tax industry. With hundreds of transactions successfully conducted, we can help provide the needed expertise to make your acquisition or sale successful.

To learn more, or to get a free consultation, contact Accounting & Tax Brokerage here or call us at (855) 428-2225.

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Factors That Affect The Value of Your CPA or Tax Firm

Deciding to sell your CPA or tax practice can be a complex and difficult decision. A seller will need to consider multiple factors that can impact the final sale price of their firm.

If you are considering selling your CPA or tax practice, you may be wondering what factors can impact the value of your firm. Here, we go over and break down some of the more important factors that may impact the valuation of your CPA or tax firm.

Know Your Average Fees

Are your return fees within industry averages? You may be able to find data on average practice fees by form or schedule through various groups or societies. These fees may vary depending on your practice’s geographical location as well. Additionally, it is important to know how long it takes to process each client’s tax return.

If you have been providing discounted fees to clients and know that you can increase your fees, now is the time to do so. If you increase your fees by just 15% on a $100,000/year practice, you may be able to net another $18,000-$20,000 when you sell your practice.

Consider Your Service Line

Do you provide full-service tax preparation including both individual and entity returns? Do you have clients who refer you to other clients? Do you handle representation work, accounting, etc.? Do any of your current clients represent more than 5% of your revenue? If so, a buyer may ask for an additional guarantee.

Determine Your Client’s Average Age

Have you not accepted a new client in years? Are most of your clients retired? If so, you may need to begin marketing your services to younger professionals. Buyers are looking for a practice that has promising growth potential.

Clear Out Bad Clients

Do you have clients that are behind or pay late? Buyers do not want the hassle of dealing with problem clients. Ideally, you want to begin enforcing compliance with your billing and collection policies as soon as possible. If you have overdue accounts, offer a discount if the client can pay by a certain time period. After you give a client a discount to secure the payment, ensure they know and understand that it is a one time discount.

Another method to clear out problem clients is by increasing your fees. Let all of the “late filers” know about the upcoming increase in fees and encourage them to come in before prices increase. Bad collection policies will only reduce the sale price, regardless of how stable the revenue of your practice is.

Gather Client Data

What is the average AGI? How many schedules C, E, and F are you preparing? What is the average age of your clientele? Most buyers will want to know how many clients come into the office for a formal interview process and how long each interview is.

Your software may have much of this information already, but if not, start to compile this information as soon as possible. The buyer will want to know the difficulty level and price range you are charging for all your returns. You can even pull one of your most complicated returns and see if the buyer fully comprehends the process involved.

Office Location

Is your CPA or tax practice in a Class-A building or in a small upstairs office with no parking? Security, lighting, parking, and access for people with disabilities are important factors for buyers. Lots of lighting and good views will always add up to a higher sale price. If your office is dirty and dimly lit, consider making some changes before you sell. If your current lease exceeds 8%-10% of your total revenue, it may be an issue to a buyer.

Know Your Profit Margins

A buyer wants to know the potential profit they can expect and are typically looking for a minimum baseline EBITDA of 50%. Therefore, should your profit be more than 50%, you can expect a higher asking price. The reverse is also true.

What is your hourly rate? Do you charge $150 per return but do 900 of them by yourself because each one only takes 15 minutes? Or, can you only finish 200 of them yourself because they are more complex, which implies that your fees are below average?

If that’s the case, you will need additional preparers to handle the other 700 returns, which also means an increase in overhead. On the flip side, another practice may produce 200 returns at an average fee of $500 each with a 35% overhead. This type of practice justifies an increased multiple to calculate the value of a practice.

Do not “pad” expenses on your own internal books. A lender will consider those expenses as part of the operating expenses when they determine the profitability and the overall loan viability. Keep and prepare a budget and get your margins in healthy shape.

Know Your Profit Margins By Service Line

Know how much it costs you to provide each of your services, whether it’s bookkeeping, payroll, or tax services. Providing a service with a slim or no profit margin is not worth much to a buyer. A buyer will expect to recover their investment in 3-5 years.

Have you prepared cash flow statements or projections looking forward 2-5 years? Are you projecting annual increases or any technological upgrades? You should consider preparing a cash basis P & L on a monthly basis for the past 3 years. Buyers will want to know the historical cash flows of a practice.

Organize Your Office

Does your practice currently utilize the latest technology and software with the highest levels of privacy and security? Do you need to worry about disclosures? If you are able to resolve these issues and any other liabilities before a sale, you will be able to obtain a higher sales price.

Ensure that your client’s source documents are scanned into a secure client file. Buyers do not want to deal with storage boxes full of client source documents. Use only a secure portal to transfer information to & from clients.

Staffing

Most buyers will want to keep the status quo when it comes to staff. If you have an issue with an employee, rectify it before your practice is put up for sale. Try to ensure that the employees are able to assist the buyer and have the basic knowledge their roles require of them. It is best to avoid hiring new staff when you intend on selling the practice in the future. In some circumstances, the buyer may have staff that they intend on bringing with them.

Final Note

All in all, there are multiple factors that may impact the value of your CPA or tax practice when it comes time to sell. Getting your practice organized and handling any liabilities before you place your practice on the market may help ensure you secure a higher sale price.

If you are looking to buy or sell a CPA or Tax practice, the team at Accounting & Tax Brokerage can help. Our practice brokers have over 50 years of experience and only provide services to the accounting & tax industry. As seasoned tax professionals ourselves, we understand the importance of relationships. Our firm offers assistance to both buyers and sellers, ensuring that buyers find the right CPA or tax practice that meets their needs, and that sellers find a successor who will care for their firm as much as they do.

To learn more, or to get a free consultation, contact Accounting & Tax Brokerage here or call us at (855) 428-2225.

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How to Value Your CPA or Tax Firm for Sale

After managing the day to day tasks of your CPA practice for years, you may be considering selling your firm. Whether you are retiring or looking to move onto another venture, selling your CPA practice can help ensure your clients are taken care of and that you receive a fair sale price for your time and effort to build the practice.

One of the most common questions asked by our clients at Accounting & Tax Brokerage is how to find the right valuation for your CPA or tax practice. Here, we break down some insights as to how you can place a value on your practice.

How to Value Your CPA or Tax Firm

There are two common methods used to place a value on a practice. Typically, you may want to start at 50% of the practice’s total revenue and continue to add to that percentage for any positive factors. Some CPA practice valuations start at 150% of a firm’s total revenue and deduct for any negative aspects.

Whichever method you end up using to value your practice, the average firm will sell for approximately 70-130% of revenues. Another method includes starting at net profit and multiplying by 2-2.5%.

Some practice buyers believe that all practices should be valued simply at 100% of the prior year’s revenue, however this does not apply in most circumstances. If that were correct, it would mean that a practice generating $300,000 would always sell for $300,000, regardless of if they prepared 500 returns at $600 each or 2,000 returns at $150 each. The same could be said if the overhead is 60% of fees, 80% or even 20%. Realistically, a practice buyer is looking for a stable practice that shows steady growth and has an average EBIDA of 50% or more.

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What Factors Impact a Firm’s Value?

There are many factors sellers will need to consider when placing a valuation on their practice. Some of the more important factors in any valuation include location, overhead, average fee per return, and whether the seller is able or willing to provide financing. Other factors can also include any compliance issues, the age and demographics of the clients, and the growth of the practice.

Final Note

If you are looking to buy or sell a CPA or Tax practice, the team at Accounting & Tax Brokerage can help. Our practice brokers have over 50 years of experience and only provide services to the accounting & tax industry. As seasoned tax professionals ourselves, we understand the importance of relationships. Our firm offers assistance to both buyers and sellers, ensuring that buyers find the right CPA or tax practice that meets their needs, and that sellers find a successor who will care for their firm as much as they do.

To learn more, or to get a free consultation, contact Accounting & Tax Brokerage here or call us at (855) 428-2225.

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