Grow or go: 6 considerations for selling or buying an accounting firm

Grow or go: 6 considerations for selling or buying a firm

June 20, 2024 9:50 AM

For a CPA looking to sell a practice, finding a buyer may seem like the most daunting part of the process. Without a designated second-generation owner lined up through a succession plan, it may feel like looking for a needle in a haystack. For individuals wanting to buy a practice, the situation can be just as challenging, but in reverse.

It's critical to build a team around you to ensure the right questions are asked and answered whether buying or selling. Working with professionals in all these areas — legal, commercial real estate, and/or transition consulting — can smooth the process, help avoid pitfalls and provide a team to answer the hard questions. Here are topics to consider with your team if you're looking to buy or sell.

Identify a target

Whether you are interested in pursuing a merger of equals, an acquisition or sale, the first step is identifying the company or companies that could be a good fit.

It is very important to define the characteristics you'd like to see in the business owner and their staff. Then, as opportunities arise, compare the particulars of potential deals with the characteristics you've identified to determine quickly whether a transaction would be a good fit.

Focus on culture

Mergers and acquisitions are rarely painless, with the most common stress points happening when the two companies have markedly different cultures. For example, your business may take an aggressive sales-oriented approach to business, while the other company is known for a more laid-back approach.

Combining these cultures could create stress, frustration and dissatisfaction among employees of both organizations. In turn, this can lead to greater-than-expected turnover and poorer-than-expected performance. Being able to define the new culture in advance with a company that's similar to yours can help minimize friction points.

Do your due diligence

On the surface, the company you've targeted may look attractive, but when you start to dig deep, you may discover concerning issues. It might be the company's customer base has been shrinking rapidly because of poor service. Or it may be the company's technology isn't compatible with yours.

The due diligence stage is the most important in the merger and acquisition process, so allow plenty of time to examine all areas of the business. Besides operational issues, pay particular attention to the company's financial health and any legal issues that may come back to create problems.

Develop a structure

Every deal is different. Ideally, the transaction should benefit both the buyer and the seller, but your primary interest should be in how it will affect the operations and financial health of the overall business. Everything is negotiable when developing the structure. What's important is that the structure creates alignment between buyer and seller.

Get a solid valuation

One reason many transactions fall apart centers on disagreements about what a business is worth. Beyond issues such as assets and anticipated revenues, there are cost and structural considerations. Some people will point you toward simple rules of thumb in valuation, but a better idea is for the buyer and seller to agree upon a valuation obtained from an independent third party who has deep knowledge of how CPA practices are valued. Your attorney or local CPA network should be able to recommend an expert.

Save time

The most traditional method for identifying interested buyers or practices for sale is spreading the word through one's network of business associates. This process can take many months, however, and it's haphazard at best.

Posting a CPA practice for sale on an industry-specific business exchange, however, can connect a seller with potential buyers almost immediately. Both buyers and sellers can create profiles that outline the criteria they are looking for, allowing them to match with opportunities that meet their requirements. Many exchanges come with listing alerts that notify users of new activity matching their criteria.

Having a sound, streamlined process to make deals that benefit your business for decades to come often comes with having to obtain financing. While rates are rising, the reality is that deals are still being made. Savvy owners looking long-term know a perceived down market means opportunity, and they're not pumping the brakes.