If you are looking to expand your accounting or tax practice, you may be considering purchasing an existing firm. Purchasing an existing firm can have numerous advantages when compared to starting a brand new practice, including having immediate access to a list of clients.
In order to find the right accounting or tax practice to purchase, there are a few things to look out for. Here, we break down a list of factors every accounting & tax professional should look for when purchasing an existing firm.
Review The Practice’s Data
One of the most important aspects buyers should consider when considering the purchase of an existing accounting or tax practice is the average fee per return. It is recommended to ensure that the firm’s fees fall within industry averages, which can commonly be found in a multitude of trade publications. These fees can also vary depending on the practice’s geographical location.
Additionally, you should get an understanding of how long it takes to process each client’s tax return, whether they are an entity or an individual client. How many schedules C, E, or F does the firm file? What is the firm’s average AGI? Understanding all of these data points is crucial to finding the right firm.
Know The Firm’s Profit
A buyer should always be aware of the potential profit they may expect when purchasing an accounting or tax firm. Typically, a buyer should find a firm with a minimum baseline EBITDA of 50% or more.
Buyers should also know how much it costs a firm to produce each service. If the firm provides a service such as payroll with extremely narrow margins, a buyer should not consider that to have much value or to add any significant value to the sale price of the firm.
Know The Firm’s Client Demographics
Does the firm continuously bring in new and young clients? Many accounting and tax professionals have had the same clients for a multitude of years. This can make it hard to find new clients that can help increase the firm’s revenue and overall profit.
If a firm rarely brings on a new client, you will need to consider how you can market the firm’s services once you make the acquisition, along with the potential costs of any marketing campaigns.
The Firm’s Operations
One factor many buyers overlook when acquiring an existing practice is the firm’s internal operations. Does the firm utilize the latest and greatest technology and software? Are there any potential security issues?
You also want to ensure that the practice uses a secure client file system to store all of the client’s documents. Storage containers full of confidential client documents can be a hassle to deal with and will require a significant portion of your time to organize.
Is the practice’s office in a tall office building? Or is it located in an upstairs loft with little to no parking and poor security? The location and type of office can play an important role when you decide to purchase a firm. If the cost of a practice’s lease exceeds 8%-10%, you may have to consider moving the office.
When you decide to purchase a practice, are you considering bringing your own staff? Or will you keep the firm’s current employees? Keeping the firm’s current employees can help make for a smoother transition, as they can assist you with some of the day to day operations of the practice. If the firm has multiple employees, most buyers will choose to keep the status quo.
Purchasing an existing accounting or tax firm can help you expand your current operations without having to deal with the hassle of starting a new practice from the beginning. If you are looking to purchase an accounting or tax firm, the team at Accounting & Tax Brokerage can help. Operated by seasoned tax professionals with over 50 years of private experience, our firm can help you find the right practice that meets all of your needs.
To learn more, contact us today or give us a call at (855) 428-2225.