Buying Another Practice

Are you thinking about buying another CPA or accounting practice to quickly grow your firm? Here in Pennsylvania, there are a lot of accountants and CPAs retiring, looking for other Pennsylvania accountants to take over their practices. Take some time to ask critical questions to avoid wasting time and effort during your search, ensuring that you find the right fit for your practice.

• Why do I want to expand my practice? What are my short-, medium-, and long-term goals for my practice, my professional life, and my personal life?

• What are my professional strengths or my firm’s strengths, areas of expertise, etc.? Do I want to focus on growing these strengths or do I want to branch out and develop new strengths?

• What are my professional weaknesses or my firm’s weaknesses? Can I overcome them through training or hiring the right experts, or should I avoid practices that focus on areas in which I or my firm is not strong?

• Who is my ideal client? Do I prefer individuals or companies, large industries or small niches? Do I prefer small, medium, or large firms? Right now, do I have an ideal client among my clients? Would I like more of this kind of client? How would I get them?

• What is the firm’s focus? Each type has strengths and weaknesses. For instance, tax-focused firms have seasonal revenue and very heavy seasonal workloads. Audit-centered firms generally work with large clients and have unique expertise. A firm that focuses on bookkeeping usually has steady work but lower margins, while one that offers advisory services often has higher-value clientele. Industry specialization can be very lucrative but requires niche expertise.

• What is the firm’s culture?  You want to make sure that the new firm’s culture and your own blend well. For instance, if your firm is structured and policy-driven but the other firm is more casual, you may have trouble retaining the new team if they don’t like the new environment.

• What is the owner’s style with customers? Just as in the former point, if the owner and its staff have a different style, for instance, very chummy, while you maintain a professional approach, you may lose some of the new firm’s clients who prefer the more casual approach.

• What is the firm’s fee structure? If they are undercharging or using a very different fee structure, you could lose clientele if you make changes.

• How do the accounts receivable look? Does an aging report indicate a high volume of invoices in the 61-90 or over 90-day category? Or do their clients, by and large, pay in a timely manner?

• What is their client turnover rate? Do they have a broad client base? Evaluate the length of time clients have stayed with the firm. If the firm has a low turnover rate, you know clients are happy with the service. Make sure that the firm is not too dependent upon one or two clients. If one customer accounts for 20% or more of revenue, this could be a red flag.

• Does the owner and the firm have a solid reputation? It’s important to get to know the owner, if you don’t already, to help you evaluate some of the more subjective aspects of assessing if a firm is the right fit – style, culture, reputation, etc. You should also evaluate if the firm is too dependent upon the owner or if it can continue to flourish without him or her.

Once you have determined a couple of firms that could be a good fit, you’ll have to do your own due diligence, closely evaluating financials, client base, staff, operations, and legal and regulatory issues. For this step, you are better off hiring experts who can work with you to make sure you leave no stone unturned and make a strong choice. You’ll also want to have the firm independently valued.

With the help of experts, develop post-acquisition strategies in order to retain clients, integrate staff, and expand through the acquisition. By developing such a plan, you will maximize your success with the new purchase.

One of the benefits of membership in PSTAP is that you have the opportunity to get to know many excellent accountants and CPAs who can offer advice as you look for the right firm. And they might even be thinking of retiring and selling their firm. If you’re not a member, visit our website to discover all the advantages of membership in PSTAP.