Every CEO can unlock their firm’s potential to become an industry powerhouse.
If you’re just operating as a going concern, then it’s high time you took bolder steps to position your company for long-term and sustainable success — and it all starts with buying an accounting practice for you to build, manage, and grow.
With our comprehensive guide, we can help you tap the right networks and resources, identify the unique benefits and possible pitfalls of firm acquisition for your company, and set your mind to purchasing an accounting practice with confidence.
First Things First: Your Reason for Buying an Accounting Practice
The first step to buying an accounting practice is getting your why sorted.
Acquiring an accounting firm is not a random business move. It’s strategic, calculated, and well-planned.
Narrow down your why and identify the strategy you’re employing:
Whatever your reason may be, it dictates everything else — from firm valuation to your due diligence process to your overall business trajectory.
Considerations When Buying an Accounting Firm
Money Matters
Does your firm have enough financial wiggle room for a major acquisition?
Is the valuation of the firm you’re buying fair and reasonable?
People Involved
Do you understand their client base and the industry they serve?
Do you have the right people to facilitate the acquisition?
Firm's Values and Culture
Will your current team blend in with the other firm’s culture?
Do you have enough manpower and financial leverage to support your firm as it expands?
Firm's Potential
Do you see your firm branching out to other industries and/or subfields?
Can you envision your firm onboarding more staff and setting up shop in more locations?
What's your strategy to accommodate technological innovations like new software tools and AI?
Pro Tip: Make a Table!
Whittle down your company's current assets and pain points from a pile of data: Craft a table so you can populate one column with your assets and fill the other column with the areas that need further support as well.
For example, you can put competent staff and an established reputation in the advantages/strengths column, while placing low financial health and an unidentified client base in the disadvantages/weaknesses column.
The Pros and Cons of Buying an Accounting Practice
Like we said earlier, every move you make should be calculated, especially when it involves a lot of capital investment. It’s crucial that you understand not just the benefits but also the corresponding risks that come with them.
So here’s a side-by-side comparison of the advantages and disadvantages of buying an accounting practice:
| ADVANTAGES | DISADVANTAGES |
|---|---|
| Savings on hiring costs due to existing staff | Increased rehiring costs from employees leaving after the transfer of firm ownership |
| Competence of existing staff | Possible client-poaching by recently exited employees |
| Savings on training costs for staff | Possible redundancy of staff tasks and responsibilities |
| Higher chances of forging important business partnerships | Potential financial losses from shouldering of financially struggling firms |
| More chances of securing stakeholders | Potential differences in direction |
| Increased company competitiveness | Potential internal conflicts |
While these are just broad concepts and possibilities, these are helpful to get you started on gauging if your pros outweigh your cons (or if it’s the other way around). For realistic insights into your company’s status, pull your stats from your data specialists with the help of the right data analytics tools.
But even after weighing the pros and cons of acquiring a CPA firm, you could still be debating whether you should go for it or just start your own practice. If you find yourself at a crossroads, then our comparison table below can help.
Starting vs. Buying an Accounting Firm
When planning to acquire an accountancy practice, you should also consider if it’s better for you to start your own accounting firm.
| Starting an Accounting Practice | Buying an Accounting Practice |
|---|---|
| Lower/higher initial investment depending on the target firm | Lower/higher initial investment depending on the target firm |
| Could entail more financial risks due to your prospective clients' lack of brand awareness | Reduces financial risks due to your current clients' brand awareness |
| More control and flexibility with brand, vision, and values | Immediate access to an established client base, reputation, and revenue stream |
| More time, effort, and resources to establish credibility and attract clients | Potentially faster growth and profitability |
The Acquisition Process: Thorough Due Diligence
Congratulations on making a major business decision. You can now get started on your actual process, especially the due diligence part.
It can’t be stressed enough how thorough due diligence is crucial to your process. This will save you from unwanted financial, ethical, and legal troubles in the future.
Even though there are no fixed rules in acquiring an accounting business, you still need data-driven and up-to-date guiding principles on which steps to take.
It all starts with deciding on which accounting firm to acquire.
1. Choosing an Accounting Firm to Acquire
Swear by the golden rule: collect then select.
Already have a CPA firm in mind? Don’t settle just yet — you should explore as many options as you can, so you don’t miss out on the best possible deal.
When it comes to scouring databases, leave no stone unturned. Here’s a list of platforms you can source your options from:
- Accounting firm acquisition platforms (like Karbon's Practice Marketplace)
- Legitimate groups on social media
- Google search
- Personal network
- Word of mouth
It pays to do your research on business metrics like net cash flow or gross revenue when choosing your CPA firm. You should also look at their existing client base, existing team, and track record. You can also look at their growth trajectory and overall potential.
For enhanced expertise, tap firm brokers to help you land the best possible accounting practice.
2. Securing Financing
Not all firms have sufficient finances to acquire their target CPA firm.
Your prospective lenders or investors would want to see detailed information about the existing operations, market positioning, revenue streams, and potential synergies with your current business.
To secure financing, you need to identify any potential risks or liabilities from your target firm.
But more importantly, it’s imperative to outline the potential growth opportunities and financial projections of the acquired firm, which brings us to the next point.
3. Assigning a Valuation Multiple
If you want to determine the value of your chosen accounting firm, you need to compare it with similar entities in the market.
That exact number is called the valuation multiple, which you will be multiplying with a particular business metric.
Here’s a formula you can follow:
Value of the Firm You Want = Your Chosen Business Metric x Your Chosen Valuation Multiple
You can use either an earnings multiple or a revenue multiple as the valuation multiple.
The earnings multiple is based on the EBITDA or earnings before interest, taxes, depreciation and amortization.
Meanwhile, the revenue multiple is based on your firm’s yearly revenue.
Below is an example of using the earnings multiple:
$750,000 (EBITDA) x 2.5 (valuation multiple) = $1,875,000 (firm valuation)
Meanwhile, here’s an example of using the revenue multiple:
$855,000 (revenue) x 1.5 (valuation multiple) = $1,282,500 (firm valuation)
4. Negotiating
Say you haven’t reached an agreement yet with your CPA firm of choice. Some people might want out of the deal already, especially if they don’t see eye to eye (or at least meet halfway) with the other party.
The secret is good negotiation skills.
To make sure that you don’t get the short end of the stick, maintain your firmness with what you want. But at the same time, be open to compromise and flexible in structuring a deal that is mutually beneficial for both parties.
Develop a clear understanding of what you are willing to pay for and be prepared to justify your offer based on objective criteria.
You can also leverage your negotiating power by identifying potential risks or areas for improvement in the firm.
Finally, seek the guidance of professional advisors like accountants and lawyers to ensure that you address all legal and financial aspects of the transaction.
5. Crafting a Letter of Intent (LOI)
Once you’ve reached an agreement, you must set things in stone at this point.
The LOI is basically the T&Cs.
Writing a letter of intent or LOI helps ensure the alignment of your own company and your chosen CPA firm, especially when it comes to the crucial parts of your deal.
Make sure that you include these in your LOI:
- Your purchase price
- Desired payment structure
- Expectations of due diligence
- Exclusivity period
- Confidentiality agreement
6. Contract Signing/Closing the Deal
After ironing out small and big wrinkles, having countless back-and-forths, and establishing trust with the other party, you can finally close your deal with a handshake and a smile.
But you can’t just expect things to fall into place automatically.
During the transition period, pay extra attention to the necessary paperwork. You should also be prepared for unforeseen obstacles during the closing process and remain flexible in finding mutually acceptable solutions.
When you demonstrate professionalism, transparency, and integrity, you will help build trust and facilitate a successful acquisition deal.
Finally, make it legally binding. Once the contract is signed, the deal is finalised.
From Ours to Yours: (Advanced) Congratulations on Your Newly Acquired Firm!
Especially for firm owners buying an accounting firm for the first time, it’s a huge milestone worthy of celebration.
Making such a business decision takes a lot of hard work, determination, and skill. With your expertise in the field and the passion you bring to your work, there’s no limit to what you can achieve.
Ensure that you continue establishing effective communication with your clients, developing a talented team of experts, and implementing efficient financial processes to contribute to your firm’s further success and growth.
Dreaming Big: From Going Concern to Household Name
Buying an accounting practice can propel your firm to success, but it won’t happen overnight.
Regardless, it’s a rather good start.
With ambition, dedication, and commitment to excellence, you’re a step closer to positioning your newly acquired accounting firm for continued success.
Need a Talent Solutions Provider for Your Firm?
Some of the most pressing issues surrounding buying a firm all involve one thing — your staff.
If not managed well, the hiring, rehiring, and training costs for your staff pile up, coupled with the industry-wide talent shortage that limits your talent pool to only a few people. As tasks pile up, your staff is likely to feel as though they’re stretched thin and burned out, and it’ll only be a matter of time before they quit one by one.
This won’t be a problem if you work with a trusted talent solutions provider. By tapping the global market, TOA Global provides firms with elite talent that focuses on tasks like bookkeeping, auditing, and tax, so you can take on higher-value tasks and focus on long-term, sustainable firm growth.
Join our 1,190 clients who scaled their operations and accelerated their growth with us.
