Buying a Practice

Seller’s may, or may not, consider financing to a qualified buyer. Sometimes the Seller is unsure if they are willing to provide financing until they meet the Buyer. The Buyer’s ability to care for the clients along with depth of experience and credit profile are really needed before a decision can be made.

We have relationships with many reputable lenders when seller financing isn’t an option. These lenders are all extremely comfortable in the Accounting & Tax industry and understand the nuances and practice dynamics. It’s important to use a lender who is familiar with the sale of accounting practices to ensure a smooth and timely lending experience. 

Much like client relationships, our lending relationships are not a one size fits all . We work with lenders who are specialize in SBA loans,  lenders who specifically lend to CPA’s only, and commercial lenders who can process acquisition loans quicker than SBA and often with lower fees. The best option is usually determined by the practice specifics along with the Buyer’s experience, current operations and credit profile.  

Typically, SBA loans can be acquired with as little as 10% down and provide an additional 10% working capital to the loan at closing. SBA loans are a great option because of the 10 year amortization that  provides positive cash flow after debt service right from the start. Some Lenders will allow for Revenue Guarantee funds to be held in escrow for 1 year to cover any negotiated loss of clients, while other lenders will want to see the revenue guarantee as a seller note. And finally, there are a couple lenders who will not allow a revenue guarantee at all with SBA loans. 

Commercial loans can be acquired with 10%-30% down which, sometimes, can be a combination of cash from the Buyer along with a Seller note. These types of loans usually have lower interest rates and fees but are more difficult to obtain. They will usually have shorter  amortization terms than SBA of 5-7 years (10 may be possible on large firms) along with higher income & credit requirements. 

Seller Financing, if available, will usually be a consideration if the down payment is on the larger side, typically 30%-50% down, or higher, and the repayment terms are on the shorter side, maybe 1-3 years. The size of the firm will have some effect on these amounts but most Seller financing deals we see are in this range.  

While reviewing the Practice Profile its important to review the P&L details on the last page. The adjusted column represents Seller Discretionary expenses in order to provide you with a preliminary figure to determine cash flow. You can use a simple online amortization calculator to estimate your debt service and determine if the practice will provide you with enough cash flow. All of the details provided are based on the seller financials but should always be verified during your due diligence period.