| In managing a
practice’s lifecycle, CPAs
periodically face questions of how best to
grow–to build the practice from within
over time or to acquire an existing firm.
They also must consider how best and when
to sell their practice. |
The decision of how
or when to build, buy or sell
is often a personal one for the CPA. It
depends on many factors, including the
CPA’s individual goals for work, life,
family, career and legacy.
Buying a practice
can accelerate a CPA’s
business goals. It provides an instant
track record, a seasoned practitioner’s
guidance, immediate cash flow, employees
in place, established clients, potential
referrals and existing facilities.
The buyer of a
practice should obtain
information about the client base of the
acquisition to ensure it dovetails with
his or her individual interests, goals
Selling a practice
is just as personal a
decision. It can provide an opportunity
to start over with a new business model.
Besides financial rewards, most sellers
want the satisfaction of finding a
talented successor for their clients. A
seller should be careful not to wait
until the practice has stagnated or is
in decline before selling.
As in any important
transaction, a buyer or
seller should consider engaging a
qualified intermediary, such as an
experienced broker, to identify an
interested and qualified party, guide
the valuation determination, handle
negotiations and help arrange terms for
an amicable agreement.
John R. Ezell
, CPA, is president of Professional
), a consulting and brokerage firm
specializing in accounting and tax
practices. He is the author of the
book Successful Practice Sales:
The Complete Guide to Buying, Selling or
Merging Your Accounting, Consulting or
Tax Practice. His e-mail address is
Buying or selling a CPA practice is
dramatically different today from 20 years ago,
and it’s a seller’s market. In the ’80s an exiting
owner was likely to sell to an interested younger
CPA for a small percentage of fees over a five- or
10-year period. The current market is a lot more
varied: Public companies and large firms swallow
up small ones, independent firms merge to get big,
and young professionals buy their first practices
more often than build them. At the moment, that
adds up to more potential buyers than owners
interesting in selling.
considering growth or succession options, this
The market now for potential buyers
and sellers of CPA firms.
Points to consider about whether to
build a practice or buy one.
Solid reasons to sell.
Readers will gain working knowledge of some of
the considerations involved in establishing,
developing and eventually realizing the full cash
value of a public practice. Key factors for buyers
and sellers include personal ambitions and
preferences as well as business concerns. CPA case
studies will illustrate how such decisions play
WHERE ARE THE SELLERS?
While it seems counterintuitive in this age
of impending baby-boomer retirement, CPA firm
buyers, brokers and several studies, including
AICPA-published reports, confirm it’s a seller’s
market. Possibly sellers are playing their cards
close to the vest, but another reason for the
tight market may be that a CPA can practice
successfully into his or her 70s or 80s. (See “The
Last Word,” JofA, Feb.07, page
104.) Many CPAs in practice feel they can find
ways to handle more business and grow annual
revenues indefinitely. Others just don’t want to
give up the autonomy their practice provides.
Buyers come in
different forms. Financial buyers typically are
national consolidators that acquire firms as
investments or to expand their offerings or to
gain market share. Synergistic or corporate
strategic buyers are established partnerships or
sole proprietors in a geographic market who
acquire one or more local firms for economies of
scale and business growth.
THE STARTER FIRM DECISION
In 1991, I established my first CPA
practice in Arlington, Va., and encountered the
build-buy-sell dilemma. I chose to build based on
my large contact network and visibility as the
vice chairman of the chamber of commerce. Although
I picked up several clients, I had a year of low
income, which expenses drained. I was stuck in the
practice development conundrum: I needed to serve
my clients and carry my business costs yet spend
every available waking hour marketing to
In 1995, I chose to move to the
San Francisco Bay area for personal and
professional reasons. With a broker’s assistance,
I sold my Virginia practice.
learned through this experience that the
advantages of buying a practice included:
Acquiring an instant track record.
Seasoned guidance from the seller.
Immediate cash flow.
Trained employees in place.
Established clients and potential
Existing facilities and operations.
If you’re a CPA thinking about buying a
practice for a change in lifestyle, more personal
freedom or greater profitability, the most
important due diligence you perform will be to
obtain information about the client base of the
acquisition you choose. It should match your
individual interests, goals and capabilities as
much as possible.
are considering selling,
evaluate your practice’s
strengths and weaknesses: Is
your market growing or
declining? Are competitors
looking to expand into your
area? Are qualified local buyers
interested in your practice?
Your services, staff, clients,
revenue, expenses, cash flow,
profitability, fee mix, sale
timing and the demand for that
type of practice and its
geographic location will
determine the firm’s value to a
The practice’s cash
flow, growth and
stability—that is, its
matter most. Profitable
practices usually generate
higher selling prices and sell
quickly. Don’t overlook
value-building strategies such
as minimizing discretionary
expenses to strengthen cash
flow, adjusting fees in accord
with market trends and
developing skills of key staff
members who will stay with the
broker can help buyers and
sellers over the speed bumps
that transitioning a
professional practice entails.
Their services include valuing
a practice accurately,
developing a successful
marketing campaign, screening
long-tested agreements, or
just acting as sounding boards
as they move transactions
dream of building their own practice, but don’t
know where to begin. A lot depends on where they
are in their career. Cary Stover, a CPA in Santa
Clara, Calif., made his midlife career change
ultimately by buying a tax franchise and a small
tax practice. He was a 54-year-old former CFO and
supply chain director for more than 20 years when
Silicon Valley’s 2000–2001 tech wreck thrust
change upon him. After the dot-com meltdown, he
took six months to evaluate his options.
“Then I dusted off my CPA and upgraded my
skills with 80 hours of continuing education,”
Stover says. “I decided to build a practice, so I
networked with former colleagues, got referrals
and walked into businesses cold.”
didn’t come easily—it seemed everyone already had
an accountant. But with persistence Stover grew
the business to 15 write-up clients, plus 65 tax
return accounts. Still, in midlife, Stover needed
to replace income. He took another plunge in April
2005 and bought a tax practice to accelerate his
The seller wanted a gentle
transition into retirement. Stover was amenable,
and during 2005 and 2006 he worked with her,
meeting her clients. In January 2006 they sent a
jointly written letter to the seller’s clients,
explaining that Stover was acquiring the firm.
Stover closed his office and encouraged his
clients to drive the six miles to the new office,
previously the seller’s. “Although those six miles
haven’t been a problem for me, don’t expect 100%
retention,” he says. Stover retained about 85% of
both client bases.
The two worked
comfortably together as the seller pitched in
during tax season. Stover processed 243 tax
returns the year he acquired the new practice,
compared with 65 the year before. He had the
talent, desire and capital to succeed—and a plan
to serve the volume produced by combining
for Sellers |
you are ready to sell:
comprehensive profile of your
practice before offering it
overvaluing your practice.
Follow a proven
sales process and be prepared
during all of its phases.
as usual; don’t become
complacent with clients and
competition by talking to
and professional when dealing
with buyers. A buyer who does
not work out may refer one who
peer review reports. You want
the buyer to be right for your
create success for both
Work with the
buyer to jointly plan and
execute a transition.
moving—time kills deals.
TECHNOLOGY FORGES NEW PATHS
Or consider John Lau, a CPA and CFP
in San Mateo, Calif., who illustrates how
technology is making new business models possible.
Lau, who had earned his CPA in 1978, has started
two practices, sold one and bought several others.
In 1991, with three offices and 13 full-time staff
in the San Francisco Bay area, he sold his tax
practice to consolidator American Express.
“I was burned out after the 1991 tax season and
drowning in accounts receivable,” Lau says.
Yet after a few months, Lau began to
reconsider. He decided to research how he could do
things differently to have a balanced life, a
prosperous practice and add value for clients.
“I’d do clients’ taxes, offer financial planning
services and be in the game,” he says. He
concluded he could have a practice that made
better use of technology to render his workload
technology, a cell phone and laptop, Lau can do
business from anywhere. He now operates from three
offices, all Internet linked, which permits him to
access client files from any location. Going to a
paperless work process let him acquire firms based
on clients and staff rather than geographic
convenience. His confidence in a new business
model paid off, and his multi-office full-service
practice is thriving.
decide buying an existing firm
meets your goals:
time to find the right
practice. Look beyond the
strategic business issues to
the entity’s mission, makeup
and personnel issues. The
acquisition should have a base
compatible with your skills
and expansion plans.
you already know.
classified ads in publications
such as the Journal of
Accountancy and state
Learn how the
practice has been valued (see
flags: The seller cancels or
postpones meetings or drags
out negotiations. Be on the
lookout for hidden
incompatibility, for example.
time for due diligence and a
smooth transition. Pay close
attention to details.
a trusted intermediary such as
a broker or an attorney to
expedite your search and help
for financing. Brokers who
have relationships with
experienced in working with
CPA firm mergers and
acquisitions may be helpful.
experience of Gael Knight, a CPA and
third-generation accounting and tax professional,
illustrates how a buyer may need to adjust
expectations in the present market. Knight started
looking for a firm in January 2004 to augment the
practice operated by his father and aunt. Finding
something suitable via networking was slow, and
sellers’ emotional investment in their firms
stymied smooth negotiations. He didn’t get to the
contract stage on anything until May 2005—and then
the deal fell apart. Knight recognized that a
go-between could smooth the introduction and
negotiation of parties who are ready to make a
deal, and he decided to bring in a
broker—ProHorizons, of which I’m president—that
specializes in tax and accounting firms.
We found a family firm—husband-and-wife
partners in their 40s, who were also
third-generation tax professionals—that was ready
to sell. After a 2005 busy season in which the
couple had worked 120 hours a week churning out
1,400 tax returns, they wanted out. We were able
to handle the strong personalities on both sides
of the bargaining table. We counseled Knight on
the offer and helped negotiate a price and terms
both parties considered fair. (Knight paid 1.2
times first year’s billings.)
practices in a smooth transition took planning and
execution. Knight kept both his Los Altos, Calif.,
office and the sellers’ San Jose office. He
redeployed personnel and upgraded the technology
systems so client records could be accessed at
both sites. By the end of the 2006 tax season, the
expanded Knight & Co. was thriving, its client
base had let the firm add estate and tax planning
services, and it was in a position to consider a
or Selling an Accounting or
How do I determine the
value of a practice?
profitability, gross annual
billings and client mix are
important. Ultimately, price is
determined by supply and demand
of practices for sale and the
What are normal
the seller can expect to
receive 60% to 100% at the
closing. For seller-financed
deals, 25% to 50% cash down,
with the balance paid over two
to five years, is not
Can I get financing?
Yes. A good
credit history should enable
you to finance 70% to 90% of
the purchase price from a bank
or commercial lender.
is usually included at fair
What’s a reasonable
It varies. Most
sellers provide nearly
assistance for the first two
months, but you can negotiate
Are there any
guarantees the clients
will stay with me?
is a one-year guarantee of
billings. At the end of one
year, any differences are
adjusted to the balance owed
to the seller.
GET THE RIGHT MIX
buyers in this market are open to a wide range of
criteria. Stover and Lau didn’t agonize over
whether a potential practice was the perfect fit.
Instead, they engaged sellers actively, negotiated
relatively straightforward terms, closed deals
quickly and focused on creating a smooth
But even though buyers
outnumber sellers at the moment, buying an
existing practice can be more efficient and
profitable than building one from scratch over
time. Acquiring involves less stress and reduces
the risk of failure, and it gives you a track
record, client base and immediate cash flow.
Sellers, of course, have different motivations.
Besides financial rewards, most want the
satisfaction of finding a talented successor for
their clients. (See also “Have
a Fallback Plan,” JofA , Sep.03,
page 57.) However, sellers should be careful not
to wait until the practice has stagnated or is in
decline before taking steps to sell. It can
undercut their negotiating position and the price
and cause them to risk missing the best
opportunity of their lives. The key is knowing
when and how to exit gracefully and on optimal
Wherever you are in this
process—deciding to buy, sell, build or merge a
tax or accounting practice—these examples should
provide valuable insights. (For more information
on building, see “Structuring
for Growth.”) When you know your business
goals, you can communicate them clearly to the
party on the other side of the table and, working
together, achieve an outcome that satisfies